Demand Weakness Hits Vaccine Sales and Shares
Merck announced Tuesday that it will continue suspending shipments of its Gardasil vaccine to China until at least the end of 2025. The move follows persistent demand weakness in the region and pushed Merck shares down by as much as 8%. The vaccine, which targets human papillomavirus (HPV), had been a major international growth driver for the company alongside its flagship cancer drug Keytruda.
The company had initially paused Gardasil shipments to China in February, expecting the halt to last until mid-2025. However, demand has remained soft, not just in China but also in Japan, where sales have further weighed on Merck’s Asia-Pacific performance. Analysts now expect the headwinds from Asia to extend into 2026.
Leadership Downplays Gardasil’s Financial Role
Despite the sharp decline in Gardasil sales—down 55% year over year to $1.1 billion in the second quarter—Merck’s leadership attempted to calm investor concerns. CFO Caroline Litchfield emphasized that Gardasil China now represents “much less than 1%” of the company’s total business and is not a critical component of Merck’s future growth strategy.
Still, investor skepticism remains. Shares have lost more than 36% in value since Merck first flagged slowing Chinese demand last year. Analysts like Courtney Breen from Bernstein say management’s credibility on Gardasil remains fragile, given the prolonged uncertainty surrounding its recovery.
Cost Cuts and Strategic Refocus
In response to declining vaccine sales and looming patent cliffs, Merck unveiled a $3 billion cost-cutting initiative to be completed by 2027. The plan includes $1.7 billion in annual savings from job cuts in administration, sales, and R&D, as well as reductions in real estate and global manufacturing operations.
CEO Rob Davis said the strategy involves reallocating resources away from slower-growth areas and doubling down on high-potential assets. These include Winrevair and Ohtuvayre, two lung disease treatments recently added through Merck’s $10 billion acquisition of UK-based Verona Pharma.
Keytruda Concerns Remain Despite Earnings Beat
While the second-quarter adjusted earnings of $2.13 per share beat the $2.01 estimate, overall revenue slipped 2% to $15.8 billion, missing expectations. Investors remain cautious about Merck’s long-term outlook, particularly given that Keytruda—the world’s best-selling drug—will lose patent protection by the end of the decade.
James Harlow of Novare Capital Management noted that while the Verona acquisition is a step in the right direction, investors want more tangible signs that Merck can replace Keytruda’s revenue through either new drug development or further M&A activity. The company now expects full-year 2025 earnings of $8.87 to $8.97 per share, slightly above analysts’ projections.