Merck Extends China Gardasil Shipment Pause Until Year-End

Merck & Co. Extends Hold on Gardasil Shipments to China

Merck & Co. has announced that it will continue to hold back shipments of its popular human papillomavirus (HPV) vaccine, Gardasil, to China until at least the end of 2025. This decision comes as a response to ongoing weak demand for the drug, which has significantly impacted the company's financial performance. The move caused Merck's stock to drop by as much as 8% following the announcement.

The initial hold on Gardasil shipments was put in place in January and was expected to last until the middle of this year. However, with continued low demand, Merck has extended the period. Gardasil has long been one of the company’s key growth drivers, alongside its blockbuster cancer immunotherapy drug, Keytruda. Much of Merck’s international expansion has come from the Chinese market, making the current situation particularly concerning.

In addition to China, weaker demand for Gardasil in Japan has also affected Merck's sales. Analysts predict that this region will be a more significant challenge in the second half of the year. Bernstein analyst Courtney Breen noted that "Gardasil pain looks like it might drift into 2026," adding that management's credibility on this issue remains questionable.

Despite these challenges, Merck’s Chief Financial Officer, Caroline Litchfield, attempted to reassure investors by stating that "Gardasil China represents a fraction of our company now, much less than 1%, we're not counting on it for growth." This statement aims to shift focus away from the underperforming product and toward other areas of the business.

Cost-Cutting Measures and Strategic Shifts

To address the financial pressures, Merck has announced a series of cost-cutting measures that are expected to save $3 billion annually by the end of 2027. These cuts include $1.7 billion in annual savings from eliminating certain administrative, sales, and research and development positions. The company also plans to reduce its global real estate footprint and optimize its manufacturing network.

CEO Rob Davis emphasized that the goal is to "reallocate money and resources from the slower growth areas of the business to fully fund fast-growing areas of our business." This strategic shift highlights Merck's focus on newer drugs and innovative treatments.

One such area of focus is lung disease treatments, including Winrevair and Ohtuvayre, which were acquired through a $10 billion takeover of UK-based Verona Pharma. These acquisitions signal Merck's commitment to expanding its portfolio in high-growth segments.

However, Bernstein's Breen noted that while Merck is "beginning to take some of the right actions," more substantial cuts may be necessary to ensure the company can navigate the challenges ahead.

Outlook and Investor Concerns

Merck has kept its outlook for tariff-related costs unchanged at $200 million, pending any additional government actions. Investors remain concerned about how the company will replace revenue from Keytruda, the world's best-selling drug, which is set to lose patent protection toward the end of the decade.

This concern was further amplified by the fact that sales of Gardasil, Merck's next biggest bet after Keytruda, fell short of already weak Wall Street estimates. In the most recent quarter, Merck sold $1.1 billion worth of the vaccine, a 55% decline from the previous year. Analysts had expected $1.3 billion in sales for the quarter.

Merck reported earnings of $5.4 billion, or $2.13 per share, for the quarter, below the $5.8 billion, or $2.28 per share, recorded a year earlier. On average, analysts had forecast earnings of $2.01 per share. Revenue for the quarter dropped to $15.8 billion from $16.1 billion a year earlier, slightly below analysts' estimate of $15.9 billion.

Despite these challenges, Merck has raised its 2025 earnings guidance to between $8.87 and $8.97 per share, which is above the analysts' estimate of $8.87. This suggests that the company remains optimistic about its future performance, even as it continues to face headwinds in key markets.