Merck halts Gardasil shipments to China, withdraws $11B sales target as demand nosedives

The continued decline of Merck & Co.’s HPV vaccine Gardasil in China has come to a head as the New Jersey drug giant is halting shipments to the world’s second-most populous country.

Thanks to ongoing market challenges, Merck is temporarily cutting off Gardasil deliveries to China from February through at least the middle of 2025. The move should help the drugmaker clear out excess doses of the vaccine cluttering its inventory, Merck said (PDF) in an earnings presentation Tuesday.

Over the last three months of 2024, Gardasil generated $1.6 billion in sales globally, signaling an 18% decline compared to the same period in 2023. For the full year, during which Merck generated total revenues of $64.2 billion, Gardasil sales dropped 3% to $8.6 billion.

Merck’s share price took a nearly 11% hit in Tuesday trading on the news.

Sales of Gardasil, which is Merck’s top-earning product behind the megablockbuster Keytruda, started to trend flat last July, with Merck at the time blaming the issue on lower adoption in China.

The situation grew thornier in the fall, when Merck revealed that third-quarter Gardasil sales fell 11% to $2.3 billion. The company again cited plunging demand in China, despite Gardasil ginning up double-digit growth across almost every other region where the vaccine is sold.

Merck’s CEO, Robert Davis, noted on an October conference call that the situation was unlikely to be resolved by the fourth quarter.

The headwinds continue to play out despite Gardasil just last month nabbing an expanded approval in China to prevent certain HPV-related cancers and diseases in men ages 9 to 25, Merck pointed out Tuesday.

“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 had expected,” Davis explained on a call with analysts Tuesday. “As a result, overall channel inventory remains elevated at above normal levels.”

The decision to pause Gardasil shipments to China, which Merck hashed out with its local distribution partner Zhifei, should help the companies “facilitate a more rapid reduction of inventory,” the CEO said.

Additionally, Merck continues to maintain faith in Gardasil’s future sales prospects in China overall, Davis added, citing the large number of people in the country who’ve yet to be immunized against HPV.

Factoring the Gardasil shipment pause into the equation, Merck currently expects to generate full-year 2025 sales between $64.1 billion and $65.5 billion.

“For Gardasil in China, our guidance assumes no further shipments at the low end and less than $1 billion at the high end,” Caroline Litchfield, chief financial officer at Merck, said on the call.

Meanwhile, Merck previously set the goal for Gardasil to eventually reach a sales threshold of $11 billion. While Litchfield believes “there continues to be a path” toward that objective, she said the company feels that it’s “prudent to withdraw this target given the uncertain timing of an economic recovery in China.”

“Our growth expectations outside of China for this important vaccine remain unchanged, and we are well-positioned to protect more lives and drive strong growth beyond 2025,” she added.

Davis echoed that sentiment, noting on the call that Merck expects the shot to deliver growth stats in the second half of 2025, as well as in 2026 and 2027.

On the decision to roll back Gardasil’s $11-billion sales prospect, the CEO stressed that “[w]e need to lap this market dynamic and figure out what the actual growth and opportunity is in China.”

“Until we do that, I just want to remove this from the dialogue, because by continuing to always come back to this [guidance], I feel like we miss so much else we have in the strength of our pipeline and in the growing breadth of our business.”

Davis explained that Merck doesn’t depend on Gardasil as a growth driver given the long-held expectation that the vaccine would eventually “plateau” once enough patients were immunized.

Nevertheless, given how big Gardasil is, “we do believe that we need to do more to continue to augment the pipeline we’ve built, and so we will continue to drive business development,” he said.

Davis said Merck is eyeing a “full range” of potential business development opportunities, with deals up to $15 billion firmly in the company’s “sweet spot.” Merck would be open to picking up commercial assets as well, he added.

The Gardasil move was no doubt “disappointing,” according to Edward Jones healthcare analyst John Boylan, who nonetheless praised Merck for “acting on the matter.”

Elsewhere, Merck’s immuno-oncology stalwart Keytruda continued to hold its own on the cancer market, posting full-year 2024 sales growth of 18% to $29.5 billion.

Meanwhile, Winrevair, Merck’s recently approved pulmonary arterial hypertension (PAH) drug, delivered total sales of $419 million last year. The activin signaling inhibitor, which has posted two more phase 3 wins following its FDA green light last March, continues to enjoy steady growth, Merck’s CFO Litchfield said. 

Along with other products, Merck is banking on the drug’s blockbuster potential to help offset Keytruda’s expected loss of exclusivity toward the end of the decade.