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A New Cholesterol Study Puts Focus on Merck Drugs

Some of Wall Street’s leading drug industry analysts are scheduled to fly to Orlando, Fla., on Sunday afternoon. A junket to SeaWorld it is not.

Merck
AP
Merck

For top analysts from investment banks, including JPMorgan and Credit Suisse , or some of their minions, the destination is a cardiology conference where on Monday morning medical researchers are expected to present a study with potentially significant implications for multibillion-dollar cholesterol medications from the drug giant Merck.

The new study, to be released Monday at an annual meeting of the American Heart Association, is relatively small, involving only about 200 people. That could limit its significance.

But analysts are paying rapt attention to the report because two previous studies reduced sales of the drugs after indicating that they may not work any better than cholesterol drugs known as statins that are widely available as inexpensive generics.

Analysts are waiting to see whether the new study reinforces the earlier findings or, perhaps, makes matters even worse for Merck .

The study represents the first major news event, or catalyst in investor jargon, that could affect Merck earnings after the $41.1 billion merger the company completed last week with Schering-Plough.

At stake are sales of Vytorin and Zetia, two cholesterol-lowering drugs that, even with the coming study factored in, are projected to bring in $4.5 billion in revenue for Merck in 2012, according to estimates from Catherine J. Arnold, an analyst with Credit Suisse. She forecast that in 2012, the cholesterol drugs would represent about $3 billion in profits, or about 17 percent of Merck’s projected total pretax profits of $17.4 billion.

“This franchise is important from an earnings standpoint and a strategic standpoint,” Ms. Arnold said. “It wasn’t the crux of the merger of the two companies, but it was clearly a franchise both were interested in.”

After the previous two studies raised questions about the drugs, sales of Vytorin and Zetia decreased to about $4.56 billion in 2008, compared with about $5.19 billion in 2007, according to a company regulatory filing. The decline occurred primarily in United States sales of the drugs.

“It’s been such a controversial franchise that any bit of incremental data is going to get a lot of attention from the financial community,” said Chris Schott, an analyst with JPMorgan.

In a note sent to investors this week, Mr. Schott estimated that, if the forthcoming study were to cause a sales drop in the cholesterol drugs, for every 10 percent reduction in American sales, earnings would drop by roughly 5 cents a share.

Cholesterol medications have been a lucrative market for drug makers. But Zetia, approved by the Food and Drug Administration in 2002, has been controversial because it uses a different mechanism of action than statins, which have a longer track record. Vytorin, approved by the agency in 2004, is a medication that combines Zetia and a statin in one drug.

Statins, like the world’s best-selling drug Lipitor from Pfizer, are drugs that work by inhibiting the production of LDL cholesterol in the liver. LDL is known as bad cholesterol because it can lead to plaque build-up in the arteries. Large-scale prospective studies have shown that statins can lower bad cholesterol and decrease heart problems.

Zetia works by a different route, reducing bad cholesterol by blocking its absorption in the intestines. Taking Zetia alone typically lowers bad cholesterol by 18 percent, Merck said.

But while Zetia has been shown to reduce bad cholesterol, it has not yet been proved to provide increased protection against problems like heart attacks and strokes, as statins have.

Merck is currently conducting a large-scale clinical trial, that is to involve 18,000 people, intended to determine whether using Zetia provides an added cardiovascular benefit to people already on a statin. But the study is not expected to be completed until at least 2012.

Dr. Richard Pasternak, vice president of Merck research laboratories, said that the drugs had proved to be safe and effective. It would be unfortunate, he said, if doctors were to change clinical practice based on unfair speculation about a study of 200 patients.

The results of two earlier studies, intended to measure the effect of the drugs on problems like arterial wall thickening, an issue linked to heart problems, suggested that adding Zetia did not increase the cardiovascular benefit for patients.

The new study is sure to further stoke the debate over whether, in the absence of definitive data, doctors should continue to prescribe expensive brand name drugs like Zetia and Vytorin, instead of inexpensive generic statins.

“It was very unfortunate that this drug was introduced and became very popular without a large, well-designed study to look at whether it could reduce cardiovascular events,” said Dr. Steven Nissen, the chairman of cardiovascular medicine at the Cleveland Clinic.

The new study was intended to examine the potential benefits of adding a second drug — either Zetia or niacin — to the treatment regime of people already taking a statin. Niacin can increase HDL cholesterol, known as good cholesterol because it is believed to scavenge bad cholesterol and remove it from the body. Researchers measured the differences in changes to arterial wall thickness in the two groups.

“If you’re going to go to the expense, risk and trouble to take a pill every day to improve your longevity, don’t you really want to know if it works?” said Dr. Allen J. Taylor, a cardiologist at Washington Hospital Center, in Washington, who led the study. He said he could not talk about the results until Monday.

Seamus Fernandez, an analyst with the investment bank Leerink Swann, said he expected the study to favor niacin.

But Mr. Schott of JPMorgan predicted that the fallout from the study — and, consequently, the impact on Merck’s bottom line — would be limited.