Merck & Co. announced a significant operational shift in its HPV vaccine distribution strategy, implementing an immediate pause on Gardasil shipments to China that will extend at least through mid-2024. The decision comes as the pharmaceutical giant grapples with mounting inventory levels at its Chinese marketing partner, Zhifei Biological Products, amid persistent demand challenges.
The announcement, made during Merck's fourth quarter earnings call, triggered an immediate market response, with the company's shares plummeting up to 12% in morning trading. CEO Rob Davis emphasized the pause was necessary to "facilitate a more rapid reduction of inventory and help support the financial position of our important and valued partner."
Market Impact and Financial Performance
The vaccine's performance has shown concerning trends, with full-year 2024 sales declining 3% to $8.6 billion. The downturn became particularly pronounced in the latter half of the year, with double-digit decreases in both third and fourth quarters. China, representing 60-70% of Gardasil's international sales, stands as the largest market outside the United States.
The ongoing challenges have forced Merck to abandon its ambitious target of achieving $11 billion in Gardasil sales by 2030. However, Leerink Partners analyst Daina Graybosch suggests the market's reaction might be overly pessimistic, noting that "this continued uncertainty is likely driving more downside than warranted."
Contributing Factors and Future Outlook
Multiple factors have contributed to the sales decline in China, including increased pressure on discretionary consumer spending and an anti-corruption probe targeting non-Chinese companies in the medical products market. Despite these challenges, CEO Davis maintains an optimistic long-term view, particularly following recent regulatory approval for male vaccination in China.
"China still represents a significant long-term opportunity for Gardasil given the large number of females, and now males with our recent approval, that are not yet immunized," Davis stated during the earnings call.
Broader Company Performance
While Gardasil faces headwinds in China, Merck's overall performance remains robust. The company's flagship cancer immunotherapy, Keytruda, demonstrated impressive growth with a 21% increase in fourth-quarter sales to $7.8 billion, contributing to full-year sales of $29.5 billion. This strong performance helped drive Merck's total annual revenue to $64.2 billion, marking a 7% increase from the previous year.
Looking ahead, Merck is preparing for Keytruda's patent expiration in 2028. The company is developing strategies to maintain growth, including a subcutaneous formulation and advancing late-stage pipeline candidates in oncology and infectious diseases.
