Merck & Co. (MRK) stock lost over 9% yesterday on announcing a temporary shipment halt of its Gardasil vaccine to China. The pharmaceutical giant’s CEO mentioned this in the Q4 earnings call held yesterday, noting that the halt begins in February and is expected to last at least until the first half of 2025. Merck beat both sales and earnings per share (EPS) estimates for the fourth quarter of Fiscal 2024. However, it lowered its full-year Fiscal 2025 sales guidance owing to the shipment halt. MRK stock has lost 26.1% of its value in the past year.
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Here’s Why Merck’s Vaccine Shipment Is Halted
Merck CEO Robert Davis mentioned that Gardasil’s inventory in China remains elevated currently because the Chinese population has reduced spending. The persistently weak demand for the shot during 2024 has led to above-normal inventory levels. This is also impacting Merck’s commercialization partner, Zhifei, in China.
Merck hopes that halting new shipments to the mainland will help clear the excess inventory at a faster pace. Plus, the shipping pause could bring down Gardasil’s inventory to more normalized levels in China and offset Zhifei’s inventory. Accordingly, Merck withdrew its earlier annual sales target of $11 billion for Gardasil, citing an uncertain macro environment in China. Having said that, the company remains optimistic about a recovery in Gardasil sales in the future.
Importantly, Merck is depending on Gardasil’s sales to offset the potential losses that could arise from losing the exclusivity license of its other drug, Keytruda. The cancer therapy drug is one of Merck’s hero products, but it stands to lose its exclusivity in 2028. Meanwhile, Merck is trying to get an expanded approval for Gardasil for use in men aged nine to 26 years in China. This expanded approval could bolster Gardasil’s sales in the mainland. Additionally, China boasts a large female population, which also represents a large market for Gardasil.
In Q4 FY24, Gardasil’s sales fell 17% year-over-year to $1.55 billion, missing the consensus estimate of $1.58 billion. At the same time, Keytruda’s sales climbed 19% year-over-year to $7.84 billion and beat analysts’ expectations of $7.63 billion.
Is Merck a Good Stock to Buy?
Following the Q4 print, only one analyst so far has reviewed the rating on Merck stock. Morgan Stanley analyst Terence Flynn cut the price target on MRK stock to $106 (16.8% upside) from $113 and maintained a Hold rating. Flynn cut his price target owing to the FY25 guidance revision and slowing sales of Gardasil in China.
Overall, MRK stock has a Moderate Buy consensus rating on TipRanks. This is based on 11 Buys versus seven Hold ratings. Also, the average Merck & Company stock price target of $120.33 implies 32.6% upside potential from current levels.
