Shares of Merck & Co. Inc. tumbled further on Wednesday and dragged down the rest of the drug sector as the company's warning Tuesday of flat earnings growth next year infected other major pharmaceutical firms facing patent expirations of key medicines.

The Whitehouse Station, New Jersey-based firm's shares closed down $2.18, or 3.6 percent, at $58.52 after reaching a 21-month low of $57.50 on the New York Stock Exchange. The stock fell more than 9 percent on Tuesday, erasing nearly $15 billion from its market capitalization.

Merck's warning dragged down stocks of other major pharmaceutical firms that analysts expect will face patent expiration for key drugs next year, including Bristol-Myers Squibb Co. and Schering-Plough Corp.

Stock in Bristol-Myers, whose key diabetes drug Glucophage could face competition any day now from cheaper generics, fell $3.30, or 6.1 percent, to $50.45 as some analysts questioned whether Bristol-Myers might also post a 2002 earnings warning. Earlier in the day, it hit a session low of $50.20, a level not seen since July 2000.

Analyst Mike Krensavage of Raymond James & Associates said Merck's profit warning fueled speculation that Bristol-Myers would be the next major drugmaker to walk the plank.

"The failure to produce a 2002 earnings target may have generated some suspicion," he said, adding that the introduction of generic versions of Glucophage by next year could dent Bristol-Myers' profits.

An antitrust lawsuit filed on behalf of 29 states in federal court Wednesday against Bristol-Myers alleging the drug giant illegally kept cheaper, generic versions of its BuSpar anxiety medication off the market also weighed on the stock price.

Schering-Plough, which is slated to lose patent protection in late 2002 on its blockbuster allergy drug Claritin, fell $1.79, or 4.6 percent, to $36.86 on the New York Stock Exchange.

The American Stock Exchange Pharmaceutical index was off 4.65, or 1.21 percent, to 378.07, on a day the Dow Jones industrial average edged up 0.07 percent to 9894.81.

The shocking news from Merck, the world's No. 3 drugmaker and a member of the Dow Jones industrial average, along with the realization that strong profits are not a given with drugmakers clearly sent a shiver through Wall Street.

"I think maybe the industry is recession-resistant, but it's not recession-proof, as we are sorely learning," Krensavage said.

Salomon Smith Barney analyst Mark Striker said nearly every U.S. drug company he tracks has cut their earnings forecasts, including Eli Lilly and Co. and Merck.

"Only Bristol-Myers and Pfizer have not cut," Striker said. "Bristol-Myers and Schering-Plough could be next."

ANALYSTS DOWN ON MERCK

Wall Street analysts unleashed a crescendo of negative commentary on Merck, saying they were caught off guard by the warning. Merck shares were downgraded by a number of brokerages, including Credit Suisse First Boston and ABN-Amro, while others lowered price targets for the stock.

The stock fell so sharply in late trade Tuesday that Deutsche Banc Alex. Brown analyst Barbara Ryan cautioned investors, "It is too late to sell (the stock) as the damage is done." Instead, she advised shareholders to hold on to Merck shares and await an eventual comeback.

Merck officials forecast flat 2002 earnings, with research and development spending jumping to $2.9 billion from $2.5 billion in 2001. Wall Street had been expecting the company to post earnings growth of 8 percent.

Ryan maintained her "neutral" short-term rating on Merck but lowered her 2002 earnings estimate in line with the company's forecast.

Although she described 2002 as "a wipeout," Ryan noted that Merck expects its fortunes to revive in 2003 and beyond, with double-digit earnings growth in 2003.

Among analysts who downgraded the firm, Girish Tyagi of ABM-Amro focused on Merck's lower-than-expected gross margin projections and higher research and development spending in downgrading the stock to "add" from "buy."

Tyagi said he was lowering his 2001, 2002 and 2003 earnings per share forecasts to $3.13, $3.14 and $3.44, respectively, down 2 cents, 32 cents and 36 cents from previous targets.

"While the company's long-term prospects remain solid, as noted by a largely favorable research and development presentation, we are downgrading shares to 'add' to reflect a longer-term investment horizon," Tyagi said.

Tyagi also downgraded Bristol-Myers to "add" from "buy," saying he believes current Wall Street forecasts for the firm may have to come down, "particularly if Glucophage generics enter the market in early 2002."