March 31 (Bloomberg) -- Merck & Co. and Schering-Plough Corp. sank in New York trading after heart doctors said millions of people taking the cholesterol pills Vytorin and Zetia should switch to older, cheaper drugs that work as well.

Schering-Plough dived 26 percent in New York Stock Exchange composite trading, the most since at least 1980, after heart doctors at the American College of Cardiology meeting in Chicago said physicians should limit prescriptions for the companies' jointly sold drugs. Merck fell 15 percent, the biggest drop since Sept. 30, 2004, when it withdrew its painkiller Vioxx.

The drugmakers sold $5.2 billion of Vytorin and Zetia last year. The study showing the drugs work no better than a generic medicine at one-fifth the price may cost the two companies $1.3 billion in sales this year and $1 billion next year, said Jim Kelly, an analyst with Goldman Sachs & Co., in a research report today. He downgraded Schering Plough, which relies on the drugs for about 70 percent of profits, to neutral from buy.

``This study provides no new evidence to support the use of this drug, and it moves us to more uncertainty about the benefits,'' said Harlan Krumholz, a cardiologist at Yale University, who spoke for the cardiologists' panel. ``You've just seen a clinical trial that should change practice.''

No `Glimmer of Hope'

The study had been expected since January, when preliminary research showed a Merck & Co. generic drug called Zocor slowed artery clogging as well as Vytorin and Zetia. Zocor costs 80 percent less than the two brand-name drugs. The preliminary study sent Vytorin prescriptions dropping 18 percent in less than three months. Schering-Plough shares fell 44 percent in the same period and Merck dropped 38 percent, erasing a combined $49 billion in market value before today.

``It is going to be tough to promote the drug without any evidence that it provides a benefit,'' said Michael Krensavage, an analyst with Raymond James in New York, in a telephone interview today. ``People were hoping to see a glimmer of evidence that Zetia can save lives and it is very hard to find that glimmer of hope among these data.''

Other analysts said they also found the new study surprisingly gloomy.

``We believe the physician and press reaction at ACC makes a prescription recovery for Zetia/Vytorin increasingly unlikely,'' said Seamus Fernandez, an analyst at Leerink Swann in Boston, in a research report. ``An additional 10 percent decline in U.S. prescriptions from current levels would reduce Zetia/Vytorin sales by $400 million and reduce Merck's earnings per share by 6 cents.''

Schering-Plough fell $5.06 to $14.41. Merck dropped $6.56 to $37.95.

Overuse

Vytorin is a combination of Zetia and Zocor. The new study, called Enhance, was designed to give Schering-Plough, of Kenilworth, New Jersey, and Merck, of Whitehouse Station, New Jersey, a greater share of the $35 billion worldwide cholesterol market. The drugs compete against cholesterol drugs called statins, including Pfizer Inc.'s Lipitor.

Unlike other cholesterol drugs, which block cholesterol in the liver, Zetia absorbs it in the digestive tract.

Four cardiologists who reviewed the Enhance study concluded doctors should prescribe Vytorin and Zetia only if other treatments fail.

``This means that Zetia and Vytorin are not first-line drugs and I'm afraid some people have been using them that way,'' said Douglas Weaver, president-elect of the American College of Cardiology and director of the Cardiovascular Institute at the Henry Ford Health System in Detroit. ``It sends out the message that there has been overuse.''

`See Your Doctor'

Krumholz, the Yale heart doctor who spoke for the panel in Chicago, said Zetia might be ``just an expensive placebo'' that ``drains precious resource from our health-care system'' and leads people away from better choices.

``If you were put on this drug before you had an opportunity to be fully treated on statins, you should see your doctor,'' Krumholz advised.

Merck and Schering-Plough said doctors should focus on Vytorin's ability to lower cholesterol more than simvastatin, the generic form of Zocor. They also said the study's results shouldn't be applied to everyone because it tested only people with a rare genetic condition that causes them to produce excess cholesterol.

``We believe Vytorin and Zetia should continue to be a therapeutic option,'' said Rick Veltri, Schering-Plough's vice president of global clinical development for cardiovascular and metabolic disease, in an interview.

Studies show statin drugs prevent heart attacks and strokes. A study that could allow similar claims for Vytorin won't be completed until 2012. That study was delayed by a year because the researchers said last week they wanted to increase the number test patients by about 80 percent to 18,000.

Similar Study

Merck said today it was halting enrollment in a study similar to Enhance on plaque in arteries leading to the brain, for its cholesterol treatment Cordaptive, which combines niacin and a drug designed to reduce facial flushing. Other studies of Cordaptive are still under way, including a definitive trial involving 20,000 patients, Merck said.

The reason why Vytorin and Zetia failed in the Enhance study remains unknown, researchers wrote in the New England Journal of Medicine today.

It's unlikely Vytorin helps the heart or lowers cholesterol if it doesn't reduce artery plaque, wrote Allen Taylor, head of cardiology at Walter Reed Army Medical Center and B. Greg Brown, a cardiologist at the University of Washington School of Medicine in Seattle, in an editorial accompanying the study.

`Elephant in the Parlor'

The chance that the pill provides no benefit, ``which is the elephant in the parlor, deserves serious consideration in any discussion of the results of the study,'' Taylor and Brown wrote. ``For now, the study's findings are a red flag but not a black box.''

Vytorin was heavily marketed to doctors and patients with a $140 million-a-year ad campaign, now ceased, featuring people dressed to resemble food items.

Standard & Poor's put its rating for Schering-Plough's long-term bonds on CreditWatch with negative implications, the credit rating agency said today in a statement. Standard & Poor's said its ratings on Merck were unchanged. Schering- Plough's 5.3 percent bond maturing in December 2013 fell 2.96 cents on the dollar to 103.37 cents on the dollar, according to Trace, the bond price reporting system of the Financial Industry Regulatory Authority. The yield rose to 4.86 percent from 4.28 percent.

To contact the reporter on this story: Shannon Pettypiece in New York at spettypiece@bloomberg.netMichelle Fay Cortez in Minneapolis at mcortez@bloomberg.net

Last Updated: March 31, 2008 16:27 EDT