updated from 11:39 a.m. EDT

Merck

(MRK) - Get Report

shares fell Thursday after a study sponsored by the Food and Drug Administration concluded that its Vioxx arthritis drug put users at a greater risk of heart attacks than

Pfizer's

(PFE) - Get Report

Celebrex.

As a result, one of the nation's biggest health-maintenance organizations is reconsidering its use of the drug.

Merck shares lost 96 cents, or 2.1%, to $45.06 in midmorning trading. Pfizer shares rose 15 cents, or 0.5%, to $32.06.

Details of the study, which showed Vioxx users had a 50% greater chance of heart attacks and sudden cardiac death than those using Celebrex, were first reported Wednesday. Kaiser Permanente, which contributed resources to the study that was presented at a medical conference in France, confirmed its decision to review the drug.

Merck Thursday released a detailed critique, questioning the study's significance.

"This analysis is a retrospective database analysis -- not a clinical trial," Merck said. "Observational analyses have limitations, often conflict with each other and must be interpreted within the context of data from large, randomized, controlled clinical trials."

The company said that such randomized, controlled clinical trials are the "gold standard" in evaluating a drug's safety and efficacy. The company added that although the study was financed by the FDA under contract with Kaiser, "the conclusions presented by the authors do not necessarily reflect the views of the FDA."

The study clearly represents a negative impact for Merck, said John T. Boris, a drug industry analyst for Harris Nesbitt, in a report to clients Thursday. "We believe the results from this study provide an additional quiver in the arrow of several thousand Pfizer sales representatives as they continue to chip away at Merck's Vioxx franchise," he wrote.

But Boris kept his U.S. Vioxx revenue estimate at $1.4 billion for the year, Merck's full-year earnings per share estimate at $3.13 and his neutral rating on the stock. Boris said this isn't the first study to raise questions about Vioxx.

"We believe the impact of these negative analyses could facilitate a greater shift in Celebrex use over time," he added. (Boris doesn't own shares and his firm doesn't have an investment banking relationship with Merck.)

Vioxx and Celebrex, both called COX-2 inhibitors, are important drugs for both companies. For the six months ended June 30, Pfizer sold $1.5 billion worth of Celebrex and $545 million worth of Bextra, another COX-2 inhibitor.

For the first half of the year, Merck reported worldwide Vioxx sales of $1.3 billion, plus another $92 million in foreign sales for Arcoxia, a next-generation COX-2 inhibitor. Merck has predicted both drugs would produce $2.8 billion to $3 billion in sales during 2004.

The new Vioxx vs. Celebrex study "could put more pressure" on Vioxx, said Prudential Equity Group's Dr. Tim Anderson, in a Wednesday report to clients. Anderson, who learned about the study before it was presented, said the report should gain greater credibility because the lead author is an FDA staff member.

Like Boris, Anderson said he wasn't changing his Vioxx sales projections at this time. Anderson said his research shows physicians already have "a fairly widespread perception" that Vioxx might increase the risk of heart problems.

He said he didn't think the news would affect the U.S. regulatory progress of Arcoxia. He said Arcoxia is expected to be reviewed by the FDA in late October. But Arcoxia's sales "could suffer a bit," said Anderson, who expects the drug to be available in the U.S. in early 2005.

Anderson has an overweight rating on Merck and a neutral rating on Pfizer. (His firm doesn't have an investment banking relationship, but his research report notes that "the research analyst, a member of the

research team or a member of the research analyst's household has a financial interest" in Pfizer common shares.)