Merck's ( MRK) shares were sinking Tuesday after the Food and Drug Administration rejected the company's proposed new cholesterol treatment, a product for which the pharmaceuticals maker had high hopes.

The New Jersey-based drugmaker said regulators issued a not approvable letter for MK-0524A, an extended-release formulation of niacin and laropiprant, for the conditions primary hypercholesterolemia or mixed dyslipidemia.

Merck certainly could have used a positive ruling from the government, because in recent months the effectiveness of the cholesterol drugs Vytorin and Zetia, marketed with Schering-Plough ( SGP), has been called into question, leading to worries about future revenue from the products.

"We plan to meet with the FDA and to submit additional information to enable the agency to further evaluate the benefit/risk profile of MK-0524A," said Peter Kim, executive vice president of the company and president of Merck Research Laboratories, in a prepared statement.

Shares of Merck were losing 8% to $38.11 in recent New York trading. The stock was the worst performer on the Dow Jones Industrial Average.

Despite the setback, Merck reaffirmed the 2008 financial guidance it issued last week and said it's still confident it will meet its goal of double-digit annual growth in adjusted earnings per share through 2010. Merck said on April 21 that it expects to earn $3.28 to $3.38 a share, before items, this year.

Merck also said it was encouraged that Europe's Committee for Medicinal Products for Human Use recommended marketing approval for MK-0524A in Europe. " We will continue to pursue approval within individual markets in the EU and around the world," Merck's Kim said.

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