Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Chinese consumers, once the engine of growth for multinational companies, are cutting back on all kinds of things. Designer handbags, luxury face creams and trips to Paris have all fallen victim to changing habits. Now there’s a new one for the list: cancer prevention vaccines.
Merck, which makes the commonly used Gardasil shot, has shed 14 per cent of its market value since announcing last week that it expects to sell less of its human papillomavirus vaccine in China than hoped. Demand for the shot, which costs patients up to $550, has fallen so much that Merck has temporarily suspended shipments to the country. It has also ditched its goal of making $11bn in Gardasil revenue by 2030.
After its cancer treatment Keytruda, Gardasil is Merck’s top-selling drug, with $8.6bn of revenue in 2024. Given its stumble, it will be less helpful in offsetting the decline in revenues when Keytruda’s patent expires in 2028 and the drug — which currently produces about half of Merck’s pharmaceutical sales — is exposed to competition.
Making acquisitions is one potential back-up plan. Merck bought biotech group Acceleron Pharma for $11.5bn in 2021 and autoimmune disease specialist Prometheus Biosciences for $10.8bn in 2023. It said it remained on the prowl for more deals.
After years of industry consolidation, though, there are not many big, attractive targets left. Moreover, AbbVie, Bristol Myers Squibb, Johnson & Johnson, Pfizer and even Eli Lilly are in the same boat. Somewhere between 2027 and 2028, drugs accounting for nearly 7 per cent of prescription sales will be exposed to patent risk — the highest level since 2015, according to market-research firm Evaluate Pharma.
M&A is in any case an unreliable cure. Pfizer has spent nearly $70bn in acquisitions since the pandemic but its shares have halved since 2021.
Among the so-called Big Pharma companies, Merck’s valuation is the lowest after Bristol Myers Squibb and Pfizer. The stock trades on a forward earnings multiple of just 10 times, below its five-year average of 15 times.
Yet there may be another way to patch the patent wall. The group is trying to extend patent protection for Keytruda through new formulations and combination therapies. The drug is currently given intravenously, but an injectable version, if approved, would give Merck an edge against generic versions of Keytruda that rely on delivery through an IV line.
Merck’s strong late-stage drug pipeline is another potential bulwark against a drop-off in revenue after 2028, as analysts at Bank of America have noted. The gloom around China and Keytruda means even small successes should move the shares. Sometimes the best offence can be good defence.
