Sept. 30 (Bloomberg) -- Merck & Co. withdrew its Vioxx painkiller, which generated $2.5 billion in sales last year, because of a link to heart attacks and strokes. The company's shares slid as much as 28 percent, wiping out $28 billion in market value.

New three-year data from Merck suggested that patients taking Vioxx for more than 18 months faced twice the risk of a heart attack compared with those taking a placebo. The Whitehouse Station, New Jersey-based company retracted its third-quarter profit forecast and cut its full-year estimate by 50 cents to 60 cents a share, spokesman Tony Plohoros said.

The decision to pull Vioxx leaves Merck without its fourth- largest product, increases the likelihood of personal-injury lawsuits and puts Chief Executive Raymond Gilmartin's leadership in question. Gilmartin already was dealing with a study released last month showing that Merck's top drug, Zocor for cholesterol, failed to help patients who had just had heart attacks.

``From an investment standing, the profit and revenue picture has been badly damaged,'' said Jon Fisher, portfolio Manager at Cincinnati-based Fifth Third Bank, which owns 2.6 million shares of Merck. Fisher said he would sell shares because of the announcement, though he declined to say how many.

Shares of Merck, the second-largest U.S. drugmaker, plunged $11.87 to $33.20 at 11:43 a.m. in New York Stock Exchange composite trading after falling as low as $32.46. The percentage decline was the biggest in at least 20 years for Merck. The stock had declined 11 percent in the past year.

New York-based Pfizer rose 58 cents, or 1.9 percent, to $30.76.

FDA Issues Advisory

The U.S. Food and Drug Administration issued an advisory, urging Vioxx users to consult with a doctor about alternative medications. The agency also plans to seek more information about possible heart risk for other drugs in this class, known as Cox-2 inhibitors.

``I am sure we are going to ask for more data but I can't tell you exactly what that data is,'' Steven Galson, acting director of the FDA's Center for Drug Evaluation and Research, said on a conference call.

Celebrex, introduced in January 1999, was the first of the Cox-2 inhibitors to reach consumers and was followed by Vioxx later that year. The medicines are designed to target a version of an enzyme linked to pain and swelling, while sparing a form of the enzyme that helps protect the stomach.

Some 2 million people are taking Merck's Vioxx for ailments such as arthritis and migraines, and 84 million have taken it worldwide since 1999, Merck said on a conference call.

`An Avalanche'

Merck executives met on Sunday and Monday with experts on two external committees overseeing the study, Peter Kim, president of Merck's research labs, said on the call. Merck informed its board of the study results and the decision to withdraw Vioxx yesterday. Later in the day, the company informed the FDA and other regulators around the world.

``This is just like an avalanche coming out of nowhere,'' said Cummins Catherwood, who helps manage $900 million, including Merck shares, at Walnut Assets Management in Philadelphia. ``This is forever; $2.5 billion in sales and 60 or 70 cents in earnings will take a huge chunk out of the value of the stock.''

Vioxx accounted for about 11 percent of Merck's total sales last year. Before deciding to pull the drug, the company forecast full-year earnings of $3.11 to $3.17 a share. Last year, Merck earned $6.83 billion, or $3.03 a share.

Next-Generation Painkiller

The withdrawal of Vioxx won't affect Merck's application to sell its next-generation painkiller, Arcoxia, in the U.S., Merck's Plohoros said. The FDA's decision on Arcoxia is due in late October. Sales of Arcoxia, which is sold outside of the U.S., reached $62.1 million in the second quarter and $92.4 million for the first six months.

Merck bonds weakened against benchmark government debt securities. The extra yield, or spread, investors demand to buy the company's 6.4 percent bonds maturing in 2028 widened 6 basis points to 63 basis points, traders said. A basis point is 0.01 percentage point. Wider spreads indicate investors perceive greater risk. Merck has about $4.7 billion of bonds and notes outstanding, according to Bloomberg data.

Merck is one of seven U.S. industrial companies with perfect AAA credit ratings by Moody's Investors Service and Standard & Poor's.

In August 2001, German drugmaker Bayer AG withdrew its cholesterol medicine Baycol after it was linked to 52 deaths worldwide, including 31 in the U.S. The drug was Bayer's No. 3 medicine and the fastest growing of its top sellers at the time, and the withdrawal cost the company 900 million euros that year.

To contact the reporter on this story: Kerry Dooley in Washington kdooley@bloomberg.net.

Last Updated: September 30, 2004 12:15 EDT