NEW YORK (CNNMoney.com) - Merck is funding a large-scale study to see if an experimental drug that boosts a certain type of cholesterol can prevent heart attacks and strokes, possibly strengthening its position in the $25 billion cholesterol industry even as a key blockbuster teeters on the brink of patent expiration.

In the late-stage study, the experimental drug MK-0524A will be combined with niacin, a vitamin also known as B-3. Oxford University is coordinating the $78 million study and plans to recruit 20,000 patients from the United Kingdom, China and Scandinavia.

"This is an important cardiovascular outcome study," said Merck spokeswoman Janet Skidmore. "It's going to determine whether this compound (MK-0524A) could prevent heart attacks and strokes."

The MK-0524A-niacin combination will be tested to see how much it increases high-density lipoprotein, known as HDL or "good" cholesterol because it seems to prevent heart attacks. The purpose of the Merck-Oxford study is to provide hard clinical data on the experimental drug's ability to raise HDL and to lower the risk of heart attacks and strokes.

"We think that we should be able to increase HDL by at least 20 percent and we hope that will produce 15 to 20 percent reduction in heart attacks and strokes," said Dr. Jane Armitage, principal investigator of Oxford's Clinical Trial Service Unit. "Obviously we need to do this in a good-sized trial and that's what we're trying to do."

Armitage also hopes the Merck compound will reduce the "facial flushing" side effect from niacin, which is not harmful but is unpleasant enough to keep many patients from regularly taking the vitamin.

Barbara Ryan, analyst for Deutsche Bank North America, said that MK-0524A "can be a nice opportunity for Merck, but we're not extraordinarily bullish about it." Ryan projects annual sales of $550 million by 2009, eventually peaking at $800 million to $900 million.

Les Funtleyder, analyst for Miller Tabak, sees the drug as a potential blockbuster, projecting annual sales of between $900 million and $1 billion.

"If it can show that it raises HDL without the flushing side effect, that can be really important," said Funtleyder of Miller Tabak. "I think that the importance of raising HDL is underappreciated. The market could be potentially very large."

The fast-growing, multi-billion dollar business for cholesterol drugs is considered one of the most lucrative in the healthcare industry. Ryan of Deutsche Bank North America estimates the cholesterol industry at $25 billion. The dominating drug in this industry - and the world's top seller - is Lipitor from Pfizer, with $12.2 billion in 2005 sales.

Merck's blockbuster Zocor, which reduces LDL, also makes up a large chunk of that industry, but not for much longer. Zocor sales totaled $4.4 billion in 2005, but the drug loses patent protection June 23, and generic competition will cause sales to plunge by as much as 80 percent. Merck is trying to discover prospective blockbusters that could help fill the impending sales vacuum.

Merck (up $0.53 to $33.29, Research), the no. 2 drugmaker in America, plans to file an application for MK-0524A with the Food and Drug Administration in 2007. In addition, the Whitehouse Station, N.J.-based company is testing MK-0524B, which combines MK-0524A with Zocor. Merck also plans to file that cholesterol-cutting concoction to the FDA on 2007.

Pfizer (up $0.08 to $23.66, Research), the world's biggest drug company, is also experimenting with new drugs to try and shore up its future as the cholesterol market king. The New York-based drug giant is testing Lipitor, which lowers LDL, in conjunction with the experimental drug torcetrapib, which increases HDL. Al Rauch, analyst for A.G. Edwards, has projected that a successful Lipitor-torcetrapib combination could add $8 billion in annual sales for Pfizer.

The analysts interviewed for this story do not own shares of the companies mentioned here, though Deutsche Bank North America seeks business with them.

__________________

To read about Merck's experimental vaccine Gardasil, click here.