Drug maker Merck & Co. (MRK) probably made a lot of its shareholders ill in 2008.

In a bad year for nearly all publicly traded companies, the Whitehouse Station, N.J.-based pharmaceutical giant fared the worst of all of the large drug companies.

Merck’s stock plunged nearly 50%.

But investment adviser John Wilkins, president of Wilkins Investment Counsel in Boston, is a true believer.

“Merck should be the kind of high-quality franchise that investors will return to as the recovery begins to take shape in 2009,” said Wilkins, who has held Merck shares for about four years.

Merck seemed to have righted itself after its disastrous episode with the painkiller Vioxx, sales of which were halted in 2004 after studies showed it raised the likelihood of heart disease in some users.

The move prompted many thousands of lawsuits against the company, all but four of which were settled with a $4.85 billion settlement with plaintiffs.

Wilkins noted that some analysts had predicted that Merck would face $80 billion to $90 billion in liability from Vioxx suits, and that the final resolution represented a victory for Merck.

The stock climbed all the way back up to $60 in January of 2008, but tumbled through the year to a low of about $24 in November due to efficacy and safety concerns over cholesterol drugs it sells with partner Schering-Plough Corp. (SGP)

Wilkins said the stock, much like its value after being pounded in the wake of Merck’s Vioxx troubles, is currently undervalued.

Still, Merck is not immune to the difficult dynamics facing all of the big pharmaceutical companies.

One of the industry’s biggest problems remains a limited supply of late-stage blockbuster drugs to replace those approved  in the 1990s, many of which are facing a “patent cliff” -- the period between 2010 and 2013 when patent protection on many top-selling drugs will expire, and lower-cost generic drugs may reach the market.

The industry is estimated to lose a combined $30 billion in revenue during that period.

To fill the gaps in their pipelines quickly, some companies are buying up biotechs and smaller partners, an area into which Merck has already made forays.  

The incoming Obama administration is considered likely to open the door to development of generic biologic drugs. Merck recently announced plans to jump into that area.

Wilkins said any federal policies seeking to cut healthcare costs will likely benefit the big drug makers because companies that make medications that help prevent long and costly hospital stays are likely to benefit as costs are trimmed. 

Meanwhile, pharmaceutical companies are also facing a tougher road to drug approval from the Food and Drug Administration.

In the wake of health scandals like Vioxx, the agency has been delaying drug decisions and sometimes requiring new patient studies, often to check for safety issues like heart problems. This has added to drugmakers' costs and delayed revenue growth.

So the path upward isn’t going to be easy, but Wilkins is staying the course.

“It’s a great opportunity,” he insists.