March 31, 2008 / 12:06 PM / in 11 years

Schering, Merck hit by cholesterol drug fallout

NEW YORK (Reuters) - Shares of Schering-Plough Corp SGP.N and Merck & Co (MRK.N) tumbled on Monday after doctors at a prominent medical meeting recommended patients try older cholesterol drugs before the companies’ newer medicines.

A Merck facility in Rahway, New Jersey, in a file photo. Shares of Schering-Plough and Merck & Co tumbled on Monday after doctors at a prominent medical meeting recommended patients try older cholesterol drugs before the companies' newer medicines. REUTERS/Jeff Zelevansky

Schering-Plough shares dropped 19 percent in pre-market electronic trading, while Merck shares fell 11 percent, as analysts cut their sales forecasts for the companies shared drugs, Vytorin and Zetia.

The value of Vytorin and Zetia, which generate about $5 billion in combined annual sales, has been questioned since the results of a controversial study were released in January.

A panel at the American College of Cardiology meeting on Sunday recommended that doctors first put patients on a high dose of a statin — an older cholesterol treatment — and then try other drugs before using Vytorin or Zetia.

At least two brokerages — Goldman Sachs and Lehman Brothers — downgraded their ratings on shares of Schering-Plough, while others cut their earnings forecasts for the companies on expected lower use of the products, which are sold by the companies in a joint venture.

Goldman Sachs analyst James Kelly downgraded Schering-Plough shares to “neutral” from “buy,” citing uncertainty around the cholesterol franchise, which is more important to Schering than Merck.

Kelly previously said Schering’s U.S. cholesterol business would fall 20 percent this year and recover in 2010. But, he said in a research note, “we are now moving to a more prolonged fall,” with U.S. cholesterol drug sales down 24 percent in 2008, 20 percent in 2009 and 10 percent in 2010.

Credit Suisse analyst Catherine Arnold characterized the panel discussion as “ezetimibe-bashing,” referring to the generic name for Zetia. Vytorin combines Zetia with Zocor, Merck’s older statin.

“A Vytorin/Zetia recovery will take more patience,” Arnold wrote in a research note.

Through Friday’s trading, Schering shares had fallen nearly 30 percent since the results of the study were released, while Merck shares had dropped about 27 percent. The American Stock Exchange Pharmaceutical index .DRG, a barometer of mostly large drug stocks, is off 16 percent over that time.

Reporting by Lewis Krauskopf; Editing by Steve Orlofsky

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