Schering-Plough, Merck Gain on Drug OK

Vytorin, a cholesterol treatment from Merck (MRK) and Schering-Plough (SGP), won approval from the Food and Drug Administration, paving the way for a potential billion-dollar blockbuster to hit the market.

The two companies announced Friday night that Vytorin lowered LDL cholesterol, the dangerous cholesterol that leads to medical problems, by 52% at its recommended starting dose and by 60% at the maximum dose. Vytorin, a combination of Merck's Zocor and the joint-venture Zetia, is the first "two-for-one" cholesterol treatment, not only inhibiting the production of cholesterol in the liver, but also blocking its absorption in the intestine.

Approval was expected, but both shares were moving higher in premarket activity. Merck rose 84 cents, or 1.9%, to $46, while Schering-Plough rose 65 cents, or 3.5%, to $19.40.

"Vytorin is the first single cholesterol treatment to provide LDL cholesterol lowering through dual inhibition of cholesterol production and absorption. Vytorin represents an important new treatment alternative for the millions of patients with elevated cholesterol for whom diet alone is not enough," said Raymond Gilmartin, chairman, president and CEO of Merck.

The majority of Wall Street brokerages feel Vytorin sales, which are split 50-50 between the two companies, will come in between $3 billion and $4 billion, but some believe it has the potential to sell twice as much. In comparison, Pfizer's (PFE) cholesterol treatment, Lipitor, had sales of $10 billion last year.

But while the approval of Vytorin is expected to lead to billions of dollars of sales, the new drug is a mixed bag for Merck, which will see the new product cannibalize sales of Zocor, which had $5 billion in sales in 2003 and will come off patent in 2006.

The news has a more direct impact on Schering-Plough, which has seen its slate of Claritin-led allergy medicines and Hepatitis C fighters lose market share as generics enter the market. On Thursday of last week, Merrill Lynch upgraded the company to buy from neutral, citing the expected approval of Vytorin. All told, analysts feel the drug will add $4 to $8 a share to Schering-Plough, which posted a net loss in 2003.

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