Merck (NYSE:MRK) and Schering-Plough (NYSE:SGP) are hoping that they can cling onto the lucrative cholesterol market with a new entrant, and the timing seems to be excellent. All the same, the excitement may be somewhat muted.
The pair expects to receive approval from the Food and Drug Administration for Vytorin, a cholesterol-fighting drug the two have developed that combines Merck's Zocor and a second medicine co-marketed by the firms, Zetia. With the power of two treatments that employ different mechanisms of action, Vytorin may be better at lowering cholesterol than rival pharmaceuticals, including market leader Pfizer's (NYSE:PFE) Lipitor and AstraZeneca's (NYSE:AZN) Crestor.
The combination drug should hit the market at just the right time. Last week, the National Institutes of Health, together with the American Heart Association and American College of Cardiology, issued new guidelines that greatly reduce the suggested levels of cholesterol for people at high to moderate risk for heart disease. Already a major money maker, cholesterol drugs look poised to enjoy even more popularity.
Still, Vytorin will not earn the respect of everyone. The strategy of producing slightly different knockoffs of medicines coming off patent is a time-honored tradition in the pharmaceutical industry, and some will charge that Vytorin is a copycat that Merck will use to fill the gap left by Zocor, which is due to lose its U.S. patent protection in 2006. To be fair, the combo treatment, while not a new chemical entity, does produce better results than either drug alone. But the fact that the two companies have to resort to combining existing products to keep revenue flowing does not speak well of their research efforts, and this should be a long-term worry.
In the near term, investors will probably cheer both companies if Vytorin is able to garner solid revenue. However, there is no guarantee that the drug will be a world beater, especially since it will have to compete with its rivals on price. In the long run, the companies will be better off if they can come up with something totally original.
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Fool contributor Brian Gorman is a freelance writer in Chicago. He does not own shares of any companies mentioned in this article.
