(Adds details on pharma unit track record in paragraph 12, background on group performance in last two paragraphs)

FRANKFURT, Dec 5 (Reuters) - Germany's Merck KGaA said its experimental multiple sclerosis drug evobrutinib did not meet the primary goal in highly anticipated late-stage trials, dealing a major blow to the company's growth ambitions.

In the Phase III trials, evobrutinib failed to reduce the annualized relapse rate compared to Sanofi's Aubagio in patients with relapsing multiple sclerosis, Merck said in a statement on Tuesday.

Merck was seen as ahead of Sanofi, Novartis and Roche in a four-way race to develop more targeted MS drugs in a class known as Bruton’s tyrosine kinase (BTK) inhibitors.

Investors have been kept on edge over revenue prospects because of a possible link to liver damage from the drug category, which is designed to more selectively block the cells that drive the harmful autoimmune reaction behind MS.

After weak demand hit Merck's specialty materials businesses, analysts have said a successful launch of evobrutinib was key to the diversified group reaching its goal of generating 25 billion euros ($27 billion) in sales by 2025, up from 22.2 billion in 2022.

CEO Belen Garijo said as recently as October that the multiple sclerosis drug can have "blockbuster" status, an industry term for annual sales that exceed $1 billion, even after concerns emerged that it may cause liver damage.

Family-controlled Merck said in April that U.S. regulators had paused enrolling new patients into a trial testing evobrutinib, knocking the German drugmaker's share price.

At the time, the company said the Food and Drug Administration had cited lab results suggesting drug-induced liver injury, but the affected patients had no symptoms and did not require medical intervention.

Sanofi had run into similar problems with its BTK drug candidate tolebrutinib.

Novartis said in April that no signs of liver damage had been seen in trials testing its anti-inflammatory drug candidate remibrutinib so far.

Roche said in May that its BTK inhibitor against MS, fenebrutinib, reduced harmful brain lesions associated with the disease in a midstage trial and that no new safety concerns had emerged.

For Merck's medium-sized pharma unit, the failed trials marks another major development setback after cancer drug hopeful bintrafusp alfa fell short in a 2021 trial, triggering the end of an alliance with GSK.

The diversified group flagged last month that full-year operating earnings would likely be in the lower half of its target range on weak demand for specialty materials that are used to make biotech drugs and semiconductors.

The maker of pharmaceuticals, lab gear and specialty chemicals previously raised the prospect of returning to revenue growth next year, recovering from a slump in demand for its specialty materials to produce biotech drugs and semiconductors.

($1 = 0.9263 euros)

(Reporting by Ludwig Burger Editing by Bill Berkrot and Josie Kao)