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The Rippling Pain from Vioxx

By Amy Tsao Prescription-drug recalls aren't common, and they're almost always controversial. Now that Merck (MRK) is voluntarily withdrawing its Vioxx pain medication around the world, due to a heightened risk of cardiovascular problems like heart attack and stroke, the market for other pain drugs promises to shift dramatically. Vioxx was Merck's second-biggest drug, ringing up $2.5 billion in sales in 2003.

That's a huge void for competing drugs to fill. Indeed, a drug's abrupt removal can often be a boon to the rest of the market. Take German pharmaceutical maker Bayer's (BAY) removal of cholesterol drug Baycol in 2001 because of elevated risk of a potentially fatal muscle condition. The withdrawal initially raised questions about the safety of similar drugs, but ultimately, the data demonstrated that rivals didn't have the same problems as Baycol. Drugs such as Lipitor, Zocor, and Pravachol filled the void.

CHEAPER ALTERNATIVES. Alternatives to Vioxx likely won't be as fortunate. Analysts acknowledge that drugs in the class -- so-called COX-2 inhibitors, which hobble the enzyme responsible for pain and inflammation -- don't seem to share Vioxx's problems. Pfizer (PFE), which makes Vioxx's main competitors, Celebrex and Bextra, sees no reason to pull its drugs. Celebrex is the oldest in the class, says Gail Cawkwell, worldwide medical team leader for the drug. "When you look at the full breadth and depth of studies, we have not seen the same cardiovascular safety signal," she says.

Yet the Vioxx withdrawal brings fresh attention to why these drugs are prescribed as often as they are. "Pfizer should increase its share, but the overall market may shrink," says Al Rauch, analyst at A.G. Edwards. Many patients and doctors will steer clear of the drugs, considering that their benefits have been in question for some time. The main draw of COX-2 inhibitors is their relative gentleness on the gastrointestinal system, vs. older anti-inflammatories like ibuprofen and naproxen.

But that's a serious issue for only about 10% of patients who need pain medications, says Dr. Paul Utz, professor of rheumatology and a clinician at Stanford University Medical Center. Utz says he hardly prescribed Vioxx or its cousins, mainly because of cost. A year's supply of the newer drug runs upward of $1,000, while older drugs cost about $100. As a result of the Vioxx withdrawal, Utz suspects "a lot of doctors will stay away from the entire class of drugs."

"ONLY GAME IN TOWN." In the short term, Prizer should get a nice lift, as doctors prescribe its drugs to patients who absolutely need to steer clear of older treatments. Since Merck's bombshell, Pfizer's stock has gained about 2%, closing at $30.97 on Oct. 1. "For people who want to use [COX-2 drugs], Pfizer is the only game in town," says Rauch.

Analysts at Bernstein Research figure that the benefits to Pfizer as a result of the Vioxx recall will be modest. On Oct. 1, Bernstein raised its 2005 earnings-per-share estimates for Pfizer by 3 cents, to $2.26. Analyst Richard Evans increased projections on sales of Bextra and Celebrex in 2005 but kept expectations on both drugs flat from 2006 through 2008.

Looking further out, hopes that the new COX-2 inhibitors represent a high-growth area for drug companies have been dashed. After several delays, Merck's second-generation version of Vioxx, called Arcoxia, is finally under review at the Food & Drug Administration. But now the FDA is likely to request more safety data, not only from Merck but also from other outfits with their own COX-2 inhibitors.

RESISTANT INSURERS. So far, neither Merck nor Novartis (NVS), which is in late-stage development of a COX-2 inhibitor called Prexige, has decided to put the brakes on seeking approval. But "even if the drugs are approved in the U.S. market, they probably won't make too much difference," says Shao Jing Tong, analyst at Mehta Partners. "The COX-2 market becomes more difficult to penetrate now."

Managed-care companies' emphasis on keeping prescription-drug costs down coupled with Vioxx' cardiovascular risk could taint prospects for the newer drugs with less safety data. "Health-insurance companies already have questions about the class," says Rauch. "They probably will be resistant to put another COX-2 inhibitor on the approved list of covered drugs."

Without a doubt, the loss of Vioxx is devastating news for Merck. But others who make similar drugs for arthritis pain, along with those that aspire to, are facing a nervous public -- and potentially stalled sales. Tsao is a reporter for BusinessWeek Online in New York

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