Investors should have expected bad news yesterday, after Merck (NYSE:MRK) and Schering-Plough (NYSE:SGP) delayed their earnings releases from the morning to the afternoon. Both companies wanted to give researchers time to release clinical trial data on their cholesterol-lowering drug Vytorin. After all, good news can stand on its own, but bad news requires some serious damage control.

Another failure
Merck and Schering have endured numerous disappointments this year. In January, the initial results from the Enhance trial suggested that Vytorin, a combination of Schering and Merck's Zetia and Merck's Zocor, was no better than Zocor alone at reducing plaque in arteries.

A few months later, the companies tried to explain away the data at a major medical conference, but doctors didn't really buy it. In fact, many experts suggested putting Vytorin and Zetia in a penalty box, for use only as a last resort. That was bad news for Merck and Schering, but good news for Pfizer (NYSE:PFE), AstraZeneca (NYSE:AZN), and Abbott Labs (NYSE:ABT), which all make competing cholesterol drugs.

Yesterday, the news got worse for Merck and Schering, when the results of the Simvastatin plus Ezetimibe in Aortic Stenosis (SEAS) study came out. For those without a medical dictionary at home, simvastatin is Zocor, ezetimibe is Zetia, and an aortic stenosis is a blockage of one of the valves leading out of the heart. The researchers could have called the trial "Vytorin in Patients with Blocked Heart Valves," but VBPHV just doesn't have the ring that SEAS does.

In the SEAS trial, Vytorin wasn't able to lower the occurrence of major cardiovascular events -- including heart attack, stroke, heart surgery, and death -- more than a placebo. The drug was able to lower the subjects' cholesterol levels by 60%, but it's ultimately the life and death events -- not whether the level of plaque or cholesterol goes down -- that patients and their doctors really care about.

There was also some worry that Vytorin was causing cancer, since there were about 50% more new cancer cases and cancer deaths in patients who took Vytorin compared to those taking placebo, but that seems to have been a statistical anomaly. When researchers combined the data with results from two much larger trials, the effect went away. At least there's some indirect good news for the duo.

Where do we go from here?
Enhance and SEAS studies were both performed on sick patients, in order to shortcut the fact that it takes a long time to get statistical results for outcomes in the general population. Fortunately, the incidence of heart attacks is relatively low, if all you've got working against you is high cholesterol. The companies have two ongoing studies -- SHARP and IMPROVE-IT -- to address adverse events in the general population, but they won't be available until 2010 and 2012, respectively.

In the meantime, the companies still have drug businesses to run, and their second-quarter results didn't look too shabby. Merck's sales slipped 1% -- not surprising, considering it lost marketing exclusivity of osteoporosis blockbuster Fosamax -- but cost-cutting measures saved the bottom line, as net income rose 5.5%. Newcomer drugs made up Fosamax's lost sales, including diabetes treatments Januvia and Janumet, HIV treatment Isentress, and cervical cancer vaccine Gardasil. The latter is still benefiting from the Food and Drug Administration's tough stance against rival GlaxoSmithKline's (NYSE:GSK) Cervarix.

Excluding its partnership with Merck, Schering's sales rose 55%. That increase came largely thanks to the addition of products from Organon BioSciences, which Schering purchased from Akzo Nobel, as well as a 41% boost from anti-inflammatory Remicade, which it sells for Johnson & Johnson (NYSE:JNJ) outside the U.S. Excluding from both quarters items such as adjustments from the Organon purchase and the breakup of its other partnership with Merck, Schering saw its earnings per share increase by almost 10%.

Long-term disaster?
I'm not sure that the results of the SEAS trial are really as big a deal for Merck and Schering as investors have made them out to be. Sure, if Vytorin had helped aortic stenosis patients survive longer, sales growth might have returned to pre-Enhance levels. But just because the drug didn't help a select group of patients doesn't necessarily mean that prescriptions will suddenly dwindle further.

Schering stock recovered quite nicely after the companies' debacle at the American College of Cardiology meeting earlier this year. Investors who had the guts to buy are still above water, even with yesterday's drop. Just like ENHANCE, I expect that SEAS will be a distant memory in investors' minds in the not-too-distant future.

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Fool contributor Brian Orelli, Ph.D., doesn't own shares of any company mentioned in this article. Pfizer is also a recommendation of the Inside Value newsletter. The Fool's disclosure policy blames its high cholesterol on its Uncles Bill and Will.