Merck (NYSE: MRK) is in wait and drop mode.

Sales dropped about $400 million compared with the combined Merck plus Schering-Plough sales in the year-ago quarter. Not coincidently, sales of blood-pressure pills Cozaar and Hyzaar, which began facing generic competition in the past year, dropped by $438 million year over year. Essentially, the adjusted sales are flat year over year if you exclude the drop in Cozaar and Hyzaar sales.

Sure, some drugs went up. Sales of Januvia-containing drugs were up 28% year over year. The woes of GlaxoSmithKline's (NYSE: GSK) Avandia may have helped, and Onglyza from Bristol-Myers Squibb (NYSE: BMY) and AstraZeneca (NYSE: AZN) doesn't seem to be much of a threat.

But sales of other drugs went down. PegIntron, which Merck got from Schering-Plough, dropped 15%. The company has a next-generation hepatitis C drug, boceprevir, in development, but it sure looks like Vertex Pharmaceuticals' (Nasdaq: VRTX) telaprevir will beat it to the marketplace.

For several drugs, sales stayed roughly the same. Gardasil was just about flat, showing a 2% increase year over year. Considering how much sales have fallen from the peak, a quarter of flat sales could be considered a win.

Add it all up, and you've got a stagnant drugmaker, which is no way to run a business. Drugmakers need to not only increase sales of their current drugs, but also launch new ones to make up for the inevitable loss of sales from generic competition.

Merck did launch three drugs in the quarter, but none are likely to shore up the holes in the dam. Instead, investors should look to the pipeline for potential revenue growth. Both blood-clot reducer vorapaxar and osteoporosis treatment odanacatib could be huge sellers, given the big markets they'll enter. But we'll have to wait until phase 3 data is released before we know for sure.

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Vertex Pharmaceuticals is a Motley Fool Rule Breakers recommendation. The Fool owns shares of GlaxoSmithKline, which is a Motley Fool Global Gains selection. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Fool contributor Brian Orelli, Ph.D., doesn't own shares of any company mentioned in this article. The Fool has a disclosure policy.