Update: It’s open season on Schering-Plough (SGP). Shares of the drug company plunged 26% in early morning action Monday to a 52-week low after another big setback for Vytorin, the cholesterol drug the company makes with partner Merck (MRK). A panel of heart doctors at the American College of Cardiology conference in Chicago Sunday urged that physicians use other drugs to reduce patients’ cholesterol, after data that showed Vytorin, unlike older drugs called statins, failed to treat heart disease. The decision is likely to lead to a plunge in sales of Vytorin, which combines Schering-Plough’s Zetia with Merck’s Zocor and posted $5 billion in sales last year. A loss of those sales will hit smaller Schering-Plough especially hard, though Merck saw its shares drop 16% just before 10 a.m. The declines at Schering-Plough and Merck are the latest evidence that scientists may not know as much about treating heart disease as they once thought - though statins such as Lipitor emerge from the latest developments largely unscathed. “People need to turn back to statins,” Yale cardiologist Dr. Harlan Krumholz said.

Merck (MRK) is cleaning up another legal mess. The big drugmaker agreed Thursday to pay $649 million plus interest to settle lawsuits filed by federal and state authorities over misbilling allegations dating back to the 1990s. The suits had alleged that Merck, which continues to fight suits tied to its 2004 recall of painkiller Vioxx, overcharged the federal Medicaid program for drugs such as its Zocor cholesterol reducer while offering big discounts to private hospitals. Laws in states such as Nevada, where one of the suits was filed, specify that drugmakers must tell the government what prices they offer to private firms, so the government can take an appropriate rebate.

Merck continues to deny any liability or wrongdoing but agreed to enter into a corporate integrity agreement with the Office of Inspector General of the U.S. Department of Health and Human Services - a sign of how serious the allegations were. The news comes as Merck and Schering-Plough (SGP) continue to deal with questions over their handling of a study that showed the companies’ Vytorin anti-cholesterol drug worked no better than a much cheaper generic drug. Some skeptics wondered why it took so long for the results of the study to come out, though the companies have defended their actions - as Merck does in this case, and then some. “At Merck, we are dedicated to the highest standards of ethics and integrity,” the company said Thursday. “We have taken and will continue to take a leadership position in restoring trust in this industry and in ensuring that our interactions with healthcare professionals support the care of patients and further the public health.” Perhaps. As Fortune’s John Simons points out, the company has seen worse.