Merck & Co., Inc. (NYSE: MRK) reported earnings per share of 82 cents, but excluding restructuring charges, the pharmaceutical company said it earned 86 cents per share, topping analyst estimates of 83 cents per share. Revenue came in at $6.1 billion for the quarter, a decrease of 1% from the second quarter of 2007, but in line with estimates. Yet the stock is plummeting 10% in after-hours trading, after closing at $35.33, down 6.24% during the session.

This shouldn't really be surprising, Merck is not providing 2008 equity income guidance and any long-term financial performance guidance while it is assessing the effects on the Vytorin/Zetia drugs after the failed study result. It also lowered sales guidance for Gardasil, which may not be surprising. But what is surprising is that the drugmaker also lowered sales estimates for its allergy-fighting Singulair.

If investors thought Merck has its work cut out for it, this earnings report underscored the issue even more. Already punished 35% year-to-date, Merck shares will likely continue to be soft until a clear outlook can be seen. Right now, with so many open question and even the company not willing to make educated predictions, many will likely stay away.

Shares of Schering-Plough Corp. (NYSE: SGP) and Merck & Co. (NYSE: MRK) were obliterated today after a major study cast doubt on the effectiveness of their cholesterol-fighting drugs Vytorin and Zetia.

Schering-Plough fell $5, nearly 26%, to $14.47 in early afternoon trading while Merck plunged $6.67, or 15%, to $37.84. As the New York Times and other media outlets noted, the news from the American College of Cardiology couldn't have been much worse for investors.

A scientific panel said the drugs failed to slow the growth of plaques in arteries associated with heart attacks and strokes. It also urged physicians and patients to "rely more heavily on older cholesterol-lowering drugs called statins, which have proven benefits and can be cheaper," according to the Times.

For Schering-Plough, the results are potentially devastating because both drugs account for about 70% of the company's profit, according to analysts' cited by the paper. You have to wonder how much longer Schering-Plough can remain independent.

About the only winners from this mess are the media companies. Those annoying commercials for the drugs helped fatten their bottom lines during a period of uncertain consumer spending. If the companies have any hope of salvaging these products, they are going to need to open up their checkbooks and buy lots and lots of advertising.

Freelance journalist Jonathan Berr writes and edits the blog Ketchup and Eggs.

The Wall Street Journal reports that Attorney General Andrew Cuomo has launched an investigation into both Merck (NYSE: MRK) and Schering-Plough (NYSE: SGP).

The New York AG is concerned that both companies may have "deliberately concealed" negative results from a clinical trial for Vytorin, known as Enhance. Vytorin is a drug marketed to treat cholesterol.

According to the article, "the Enhance clinical trial cast doubt about whether Vytorin is better than a cheaper generic drug in slowing the progression of cardiovascular disease, even though Vytorin was more effective in reducing LDL, the so-called bad cholesterol, which is a major risk factor for heart attacks."

Behind the issue is timing. According to the article, the Enhance trial was completed in April 2006, but the companies didn't disclose the results until January 2008. During that time, combined annual sales of Vytorin and a sister drug, Zetia, grew to more than $5 billion.

That's not chump change.

Both Merck and Schering-Plough are down pretty strongly off the news flow last week.

Cramer says to buy this extremism. What do you think?

Zack Miller is the Managing Editor of IsraelNewsletter.com and a former equity analyst for a leading multinational hedge fund.

MOST NOTEWORTHY: Home Depot (NYSE: HD) and Google (NASDAQ: GOOG) were the most notable upgrades for the first trading session of 2007.

• Home Depot (NYSE: HD) was upgraded to Strong Buy from Hold with a $50 target at Raymond James, expecting that the worst is over in the housing market with hopes 2007 will be a better year.

• Google (NASDAQ: GOOG) was added to Stifel Nicolaus' Select List while maintaining its Buy rating, citing Google's growth rate as compared to its peers. Note that Stifel removed eBay (NASDAQ: EBAY) from their Select List.

OTHER UPGRADES:

• Bear Stearns upgraded JB Hunt Transport (NASDAQ: JBHT) to Outperform from Peer Perform with a $27 target; the firm expects JB Hunt to Outperform its pure truckload competitors during the downturn and for a potential buyer to surface.

• Bear Stearns also upgraded Merck (NYSE: MRK) to Outperform from Peer Perform with a $53 target, based on improved sales growth for Vytorin/Zetia, growth from Junuvia and vaccines, along with pipeline catalysts.

• Piper Jaffray upgraded shares of Pacific Sunwear (NASDAQ: PSUN) to Outperform from Market Perform with a $25 target, believing that tight inventory management favors margin improvement and that business at core stores have stabilized.

• Calyon upgraded UAL Corp (NASDAQ: UAUA) to Add from Neutral and raised their target to $48 from $35 based on good prospects for 2007.

Analyst summaries provided by TheFlyOnTheWall.com (subscription required).