On a day when Merck reported strong sales for its launch of pulmonary arterial hypertension (PAH) treatment Winrevair (sotatercept) and stalwart cancer medicine Keytruda, the positive news was overshadowed by the suddenly flat sales of Gardasil.
The HPV vaccine, which has been on a juggernaut trajectory this decade thanks to booming sales in China, generated revenue of $2.48 billion in the second quarter, a 1% increase year over year. Merck stressed that Gardasil's sales were up in every region outside of China.
In its release, Merck said that growth was "primarily due to higher sales in the U.S. driven by higher pricing, demand and public-sector buying patterns, as well as higher demand in certain ex-U.S. markets." But this growth was offset by lower sales in China due to the "timing of shipments compared with prior year."
With the news, Merck's share price tumbled by 9%. The last time the company's stock had a daily drop of at least 9% was in November 5 of 2021, noted Third Bridge analyst Lee Brown. On that day during the pandemic, Pfizer reported efficacy for its COVID antiviral Paxlovid which was superior to Merck's antiviral Lagevrio.
The recent revenue increase for Gardasil, which was approved in 2006, has been dramatic—from $3.9 billion in 2020, to $5.7 billion in 2021, $6.9 billion in 2022 and $8.9 billion last year. The momentum continued in the first quarter of this year with a 14% increase in sales.
CEO Rob Davis said on Tuesday that China accounts for between 60% and 70% of Gardasil’s international sales. In China, the vaccine is handled by Merck’s commercial partner, Zhifei Biological Products.
“What’s unclear to us and what we’re trying to understand is that during the second quarter we saw a significant step down in shipments from Zhifei to the points of vaccination,” Davis said. “The reduction during the second quarter was surprising and I would point out, was a meaningful departure from prior trends we’ve seen.”
Davis said that there could be “multiple factors” that could be at play and that Merck was working with Zhifei to “tease these out.”
The entire HPV market in China “experienced this step down,” the CEO said, adding that it wasn’t a “Merck-specific event.” He also noted that HPV sales in China in general have been impacted by an “anti-bribery” and "anti-corruption” drive, which the country kicked off early this year.
Merck still believes Gardasil's prospects are bright in China as more than 60% of eligible females have yet to be vaccinated for HPV. The company also is preparing a male indication, which represents “a significant opportunity,” Davis said.
For now, Merck is sticking to its projection that Gardasil’s annual sales will exceed $11 billion by 2030. But chief financial officer Caroline Litchfield said that short-term revenue projections might have to be adjusted if the company has to reduce shipments of Gardasil to Zhifei because of the growing inventory in China.
After reporting an overall second-quarter revenue increase of 7% to $16.1 billion, Merck has bumped up it estimate for annual sales to fall between $63.4 billion to $64.4 billion, a $200 million increase at the mid-point from Merck's April projection. The new midpoint would provide a 6% revenue increase from 2023.
Meanwhile, as Merck girds for the loss of exclusivity of the world’s best-selling drug, Keytruda, it is counting heavily on the success of Winrevair, which exceeded analyst expectations, generating $70 million in revenue in its first quarter on the market.
Data analytics group FactSet, which has projected sales of Winrevair to reach $3.9 billion by 2029, estimated that its sales in the quarter would come to $56 million.
It’s a quick start for the first disease-modifying treatment for the lung disorder, which was acquired in an $11.5 billion buyout of Acceleron in 2021. The FDA signed off on Winrevair in the final days of the first quarter, with a broader label and fewer warnings than analysts expected.
At the end of June, more than 2,000 patients have received a prescription for Winrevair, Litschfield said, with more than 500 physicians writing them up.
As for Keytruda, its sales were up 16% to $7.3 billion for the quarter. The cancer powerhouse accounted for 45% of the company's revenue in the period.