Can Merck Sustain 2013's Healthy Climb in the New Year?

This year has been kind to investors: Stocks have surged across many industries, the Dow Jones Industrial Average has gained nearly 20% on the year and breached the 16,000-point mark, and many shareholders have reaped great rewards. But can 2014 keep up with the sort of returns that 2013 delivered?

For big pharma's Merck , it's a question of how this Dow health care staple can rebound from the patent cliff's withering effects on sales. Merck's stock has done well despite its falling sales, with shares gaining more than 21% year to date -- although Merck has found itself in the bottom half of the Dow's members in 2013. While investors haven't been disappointed by this stock's gains, can Merck perform even better next year?

The worst is over for Singulair
Step one for Merck will be slowing down how quickly the company is losing sales due to patent expirations on top drugs. That should be the easy part: Former top-seller Singulair, which lost patent protection last year, has been largely responsible for Merck's declining financials this year. Singulair has lost around 74% of its sales year over year through the first nine months of 2013, putting a big dent in the growth from some of Merck's other drugs.

Fortunately, Singulair won't be such a singularly destructive force next year, as the biggest blows have been dealt. That's one bit of good news for Merck investors going into 2014, but the company also needs to keep its drugs currently on the market rolling along. Top diabetes-fighting drugs Januvia and Janumet are two huge keys to the future of this company's success, but Januvia in particular has underperformed this year. Still, the long-term prognosis for the drug is good: After all, diabetes is raging across the world in a global epidemic, becoming more prevalent in many large nations, including India and China. According to the American Diabetes Association, the United States alone had more than 25 million people with diabetes in 2011.

That's a big market for Januvia and Janumet to capitalize on, but it won't come all at once. Merck will need to reinvigorate these drugs' growth, and don't be surprised if sales growth for either of the drugs next year is slim -- or nonexistent.

Merck also needs to keep some of its other top drugs moving forward. Investors can count on immunology star Remicade continuing to pick up the slack at the company: Remicade has superstar status at rival pharmaceutical company Johnson & Johnson , and Merck receives some of its sales. Johnson & Johnson has made a killing off the drug, which grew sales at 7% through the first nine months of the year -- impressive for a therapy that sold nearly $5 billion over that time. Merck only made around a third of what Johnson & Johnson did over that time with its sales of Remicade, but it has also seen revenues grow, and this should only continue into 2014.

Looking into the pipeline
Merck's pipeline will guide this company's long-term future, and fortunately for investors there's a big event coming up in the new year.

Osteoporosis therapy odanacatib, one of Merck's most promising developmental drugs, is set to be filed for regulatory approval sometime next year. Merck originally slated for the filing to happen in 2013, but a disappointing delay in February meant odanacatib will head off to regulators next year.

Odancatib could see peak sales of up to $3 billion or even more, making the drug's face off with regulators a must watch for shareholders. So far it's cleared every hurdle, but no drug's a sure thing when going before the FDA. Keep an eye on odancatib's status in 2014.

Another top drug under development is cancer therapy MK-3475, which investors need to keep an eye on as well. In November, MK-3475 showed off promising interim data in a clinical trial. This drug is currently in a phase 3 registration study, and some peak-sales estimates have pegged the drug at garnering up to $3 billion in annual revenue down the road. Watch for more announcements on this drug -- one of Merck's most important pipeline stars -- in the coming year.

A turnaround year for Merck's top line
Overall, 2014 will be a bounce-back year for Merck -- even though its stock has soared this year. Merck's sales have a great opportunity to recover from 2013's bloodbath considering Singular already has suffered the worst of its patent-cliff demolition. If Januvia and Janumet can get back on track -- or if Merck's other top drugs can churn out respectable growth -- this company will be ready to keep its stock and finances heading in the right direction.

But in the long term, it's Merck's pipeline that deserves attention. The company's research and development division has been criticized in the past for its costliness and underperformance, and while Merck is shaking up that segment of its business, it's time to see just whether or not pipeline stars like odanacatib can come through.

The market opportunity you can't miss in 2014
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