Over the past three years, drug manufacturers have enjoyed relatively strong returns. As more Americans have returned to work and once again have health insurance, drug sales have steadily improved. And during the recession, pharmaceutical companies were forced to slash expenses and wring greater efficiencies from their operations. Once profits returned following the downturn, their leaner operations led to expanding margins.

But drug companies have not attracted as much investor interest this year as in prior years. That’s due, in part, to the enormous patent cliff pharmaceutical firms face over the next two years. This year alone, drugmakers will lose patent protection for drugs accounting for roughly $30 billion in annual sales.

Merck (NYSE: MRK) has faced pressure due to the looming patent expiration of its blockbuster allergy drug Singulair, which goes off patent in August. With annual sales of about $5.2 billion, Singulair has contributed about 11.1 percent toward Merck’s annual revenue over the past two years, so it’s easy to understand why investors might be nervous. But Merck’s potential revenue loss due to patent expirations pales in comparison to its competitors. Drugs generating 42 percent of Eli Lilly’s (NYSE: LLY) revenue are set to lose patent protection, while drugs that generate 67 percent of Bristol-Myers Squibb’s (NYSE: BMY) revenue are about to go off patent.

In contrast to its peers, Merck still boasts a robust development pipeline, and it plans to file approval applications with the Food and Drug Administration (FDA) for three new drugs this year, five next year and seven in 2014. In fact, the company will submit more FDA approval applications over the next few years than any of the other major pharmaceutical outfits. While the odds of all 15 applications being approved are slim, data from ongoing clinical trials for most of its drug candidates appear promising.

Nevertheless, Merck has fallen out of favor with Wall Street. Of the 25 analysts currently following the stock, just 15 rate it as a “buy,” while 10 maintain “hold” ratings. That outlook is in line with the pharmaceutical industry as a whole, and the consensus forecast among analysts is for anemic revenue and earnings growth at best.

But this relatively gloomy outlook is largely a function of Merck’s stumbles during the past decade. After successfully launching a series of blockbuster drugs in the late 1990s and early last decade, Merck hit a drought and failed to perpetuate its success despite industry renowned for its research and development program. In an effort to bolster its development pipeline, Merck acquired Schering-Plough in 2009 and absorbed that company’s deep bench of attractive drug candidates at various stages of trials. Now some of the best of that former company’s slate of drug candidates, such as suvorexant for the treatment of insomnia, are in late-stage trials and will be submitted for FDA approval over the next couple of years.

It’s easy to understand why Merck has failed to excite the market about its prospects. Merck’s sales and earnings have fallen largely in line with Wall Street estimates over the past several quarters, with few surprises to the upside. But the company is financially strong, with attractive free cash f low and relatively low debt. Additionally, Merck’s shares offer an enticing 4.5 percent dividend yield with a 77 percent payout ratio, so there’s room for future dividend growth and research investment.

With manageable patent expirations and a solid dividend, Merck is an excellent play on a return to health for the American pharmaceutical industry.