The biggest difference is that Amgen’s issues were safety related, which is the largest concern of the FDA. The Vytorin issue is not one of safety, just one of perhaps overstating the positive benefits. There are still benefits associated with Vytorin, but they could be less than previously thought.

From an investment standpoint, which is what we are most interested in, we are dealing with the same general concept; comparing the actual financial impact from drug-related news to the near-term reaction of the stock. The process for investment analysis is the same with AMGN and MRK/SGP. Is the stock drop appropriately discounting the reality of the situation? If not, then markets are inefficient and there are opportunities to make money.

Obviously the Vytorin results are unknown at this point, but let’s look at Amgen. Amgen stock dropped 32% in 2007 due to its problems with its anemia drugs. However, earnings per share for Amgen actually rose by 10% for the year.
For value investors, this is the key point as there is a disconnect between short term perception and long term reality.

But yes, I am making the same case this time around; the drop in the stock is not going to reflect the actual profit loss associated with the news. I agree with you that in the short term, there won’t be much money made. But value investors are in it for the long term, so the short term is irrelevent in this particular case to people like me.

In the meantime, AMGN is still down and still getting lower.

I think the whole brand drugs industry is under heavy pressure.

Whether and when it will get out of it I could not say, but I would stay away from it short term.

At least that’s what I learned with AMGN :-)