Merck reported a 2% decline in Gardasil sales, after reaching a peak of $8.9 billion in 2023. Now with shipments to China paused, the HPV vaccine faces significant headwinds going into 2025.
Shares of Merck declined more than 12% to $87.71 as the market opened Tuesday on the news that shipments of the Gardasil vaccine to China will be paused until at least mid-year. The company’s move is the latest in an ongoing battle to restore sales of the HPV vaccine in the region and comes amid heightened anxiety about a trade war between China and the U.S.
Merck reported a 2% decline in Gardasil sales for the full-year 2024 to $8.6 billion, according to a Tuesday morning Q4 and full year earnings report. Merck also today reduced its 2030 sales target of $11 billion for Gardasil. This change “introducing further doubt into the long-term potential of this franchise,” according to Guggenheim analysts.
Issues with the vaccine arose last summer, when Merck flagged a decline in shipments from its distributor of the vaccine in China.
“As we close out 2024 and enter 2025, the market dynamics for Gardasil in China have remained challenging,” CEO Rob Davis said on the earnings call. “Like many other companies, we’ve seen increased pressure on discretionary consumer spending, including across the vaccine space more broadly, and demand for Gardasil has not recovered to the level we have expected.”
This led to elevated inventory levels, the CEO explained, and so, after discussions with the distribution partner Chongqing Zhifei Biological Products Co., Merck has decided to pause shipments of Gardasil to China to allow inventory levels to recover.
“We believe taking this action now will facilitate a more rapid reduction of inventory and help support the financial position of our important and valued partner,” Davis said.
The CEO would not comment specifically on how much inventory the partner has on hand but said the goal is to accelerate the drawdown. The pause could go on longer than the currently prescribed mid-year estimate.
“We think if we can put the inventory situation behind us, we can get to a more normal market dynamic, one where with the underlying demand and the fact that we have the male indication coming, it can come back to growth,” Davis said. The vaccine was recently approved in China for males, adding to a label that has seen more than 50 million females receive the shot. Davis said there are still about 100 million or more women eligible for the shot in China.
The CEO noted that sales outside of China were strong with continued momentum expected in those regions. He also said that Gardasil sales were always expected to plateau in time as the market shifted from adults back to younger children. CFO Caroline Litchfield added that growth in the oncology, animal health and new product launches more than offset the Gardasil headwinds.
So the challenges with Gardasil do not impact Merck’s overall deal strategy as it looks to shore up its pipeline, Davis said. “We have always said we do believe we need to do more to continue to augment the pipeline we’ve built, and so we will continue to drive business development.”
The company is looking for deals up to $15 billion, including companies with commercialized products, Davis said. He added that vaccines are not really a focus right now, as “we just haven’t seen that many opportunities in the space.”
Trade War Heats Up
The pause in shipments comes as tensions flared between the U.S. and China over President Donald Trump’s plan to impose tariffs of 10% on imports of Chinese goods. While Trump paused the action on Canada and Mexico on Monday, the fees for China went into effect today. China responded by levying a 15% tax on certain energy products from the U.S.
“While we do not know the specifics of the trade war, any additional pressure on the U.S./China relationship is not good for the near-term commercial prospects of the product,” BMO said of Gardasil.
Speaking to potential supply chain disruptions that could occur as a result of the tariffs, Litchfield said Merck has limited operations in China, Mexico and Canada, so the company is expecting “a very immaterial impact” from what was proposed over the weekend. Davis estimated that Gardasil sales in China represent about 1% of Merck’s total revenue.
Overall, Merck outperformed analyst expectations with worldwide sales of $64.2 billion, a 7% increase. The company clocked $15.6 billion for the fourth quarter alone, which was also a 7% increase over the same period a year ago. The company reported earnings per share of $6.74 for the full year.
Sales of Keytruda increased 18% to $29.5 billion for the full-year. This blockbuster is scheduled to go off patent TK, but David said he was confident in Merck’s ability to ride out that loss of exclusivity.
Indeed, the focus today was more squarely focused on China. BMO Capital Markets said that the ongoing struggles in that country are likely to impact Merck earnings throughout 2025.
“We need to get the China situation figured out,” Davis said. “We need to lap this market dynamic and figure out what the actual growth and opportunity is in China.”
Merck now expects 2025 revenue of $64.85 billion and earnings per share of $7.99, which is 3% and 13% below BMO’s consensus.
