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Merck's Downer Keeps Deepening

Merck is suffering from a bad case of the bottom-line blues, and it's just getting worse. On Nov. 12, the pharmaceutical giant announced that it had pulled the plug on a highly anticipated treatment for depression. The drug, called Emend, failed to ease the illness' symptoms in a late-stage clinical trial, the company says. Merck (MRK) already sells Emend as a treatment for nausea caused by chemotherapy, but approval to market it as a depression remedy would have transformed it from a niche product to a potential $1 billion-a-year blockbuster.

What's more, Emend promised to offer a whole new treatment option for the 45 million Americans who suffer from depression. The most commonly used antidepressants, including Prozac and Celexa, are in a class of drugs called SSRIs, which work by manipulating levels of the mood-lifting brain chemical serotonin. Emend, by contrast, controls a protein believed to be linked to emotions and stress.

Merck executives didn't speculate on why Emend was ineffective as an antidepressant, saying only that they remain committed to their other neuroscience-research initiatives.

UNFAZED INVESTORS. The Emend news was the latest in a string of disappointments for Merck, based in Whitehouse Station, N.J. On Oct. 22, it announced third-quarter earnings of $1.86 billion -- a slight drop from the same period last year -- and warned it wouldn't meet analysts expectations for 2003.

Merck also recently announced it would lay off 4,400 people to cut costs. Its shares have dropped 18.5% since the beginning of the year, to around $44. But investors were unfazed by the latest development -- Merck stock closed up 1%, to $44.31, on Nov. 12, swept up in the day's 111-point gain for the Dow industrials and 11.96-point surge for the S&P 500-stock index.

Zocor, Merck's hit cholesterol fighter, is partly to blame for its woes. Sales dropped 2%, to $2.4 billion, in the third quarter, as the drug came off patent in several overseas markets. Zocor will lose its U.S. patent protection in 2006.

Analysts were counting on Emend to help cushion the blow. Clearly, this stalwart pharmaceutical leader will have to hope other drugs in its pipeline can make up for this depressing development. By Arlene Weintraub in Los Angeles

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