Recently, Merck announced in a earnings call after the disclosure of its financial report that it would suspend the supply of HPV vaccines to China until mid-2025 or longer.

This is undoubtedly extremely explosive news. You must know that Merck's quadrivalent and nine-valent HPV vaccine sales achieved US$8.9 billion in sales in 2023, of which 60%-70% came from the Chinese market. Its chairman and CEO Rob Davis even proposed a goal of exceeding US$11 billion in sales in 2030.

Why did Merck do this, and what chain reactions will the domestic vaccine market and vaccine manufacturers have as a result?

Overdrawn market, weak subsequent growth

In the earnings call, Rob Davis bluntly stated that the sales dynamics of Merck's HPV vaccine product Gardasil in China in 2025 are still challenging, and market demand has not yet returned to the company's expectations, so the overall channel inventory is still higher than normal.

"In view of this, based on further discussions with our commercialization partner Zhifei Bio in the past few weeks, especially regarding their recent financial disclosures and working capital levels, we have decided to take a new approach to suspend shipments to China starting this month, at least until mid-year. We believe that taking this action now will help reduce inventory faster and help support the financial situation of our important partners." Rob Davis said.

In fact, it is not surprising that Zhifei Bio's performance is under pressure. As early as the 2023 annual report, Zhifei Bio's high receivables and high inventory were obvious. Zhifei Bio's nine-valent HPV vaccine batch issuance volume was 36.5508 million doses that year, while the annual vaccine sales volume was only 27.4906 million doses, and there were still 42.096 million doses in inventory to be digested.

By the first quarter of 2024, Zhifei Bio's net profit fell by about 28.26% year-on-year, while its revenue increased slightly year-on-year, and its inventory balance increased significantly to 12.607 billion yuan. Its financial report showed that the sharp increase in inventory was mainly due to the increase in planned purchases of imported products during the reporting period.

Since then, Zhifei Bio's revenue and net profit have been declining. In the latest performance forecast, the company's revenue and net profit in 2024 both showed a downward trend, both of which fell by more than 60% year-on-year.

The HPV vaccine market was once a good business full of imagination. Since the launch of Merck's quadrivalent HPV vaccine as the world's first HPV vaccine in 2006, the two giants Merck and GSK have long firmly controlled the domestic market, of which Merck is the only nine-valent HPV vaccine production provider in the world.

During this period, Zhifei Bio maintained a high-speed growth period for nearly five years. The relevant approval data showed that from 2018 to 2023, the approval volume of the nine-valent HPV vaccine increased by more than 50%, and the approval volume of the nine-valent vaccine increased by 136.16% year-on-year in 2023.

"The market for the nine-valent HPV vaccine itself is limited. The supply has increased, but the demand is limited. The number of consumers who meet the age, want to get vaccinated, and can afford it is also limited. The current oversupply situation should be expected." A senior vaccine industry practitioner told the reporter of China Times.

Zhi Peiyuan, vice chairman of the Investment Committee of Listed Companies of the China Investment Association, also told the reporter of this newspaper that the demand for Gardasil sales in China has decreased, and there may be many factors. From the perspective of market competition, the domestic HPV vaccine market has become increasingly competitive in recent years. With more domestic and imported similar vaccines approved for listing, consumers have more choices, the competitive pressure faced by Gardasil has increased, and the market share has been diverted.

In terms of vaccination concepts and strategies, the public's understanding of HPV vaccines has gradually deepened, and vaccination strategies have also been adjusted. Some people may no longer simply prefer Gardasil because of their new understanding of the age and procedures of vaccination. Moreover, various places are actively promoting the free HPV vaccination project, and the preferred vaccine variety may not be Gardasil, which also affects its market demand.

Is HPV vaccine still a good business?
For a long time, insufficient production capacity has been the core contradiction of the domestic HPV vaccine market. Before the domestic vaccine was launched, it was difficult to regulate its supply to the Chinese market because the HPV vaccines of Merck and GSK were supplied to the global market.

This situation has now been greatly improved. The above-mentioned senior practitioners in the vaccine industry told our reporter that under the premise of mature technology, vaccine production capacity is very flexible. After 2019, Merck has been investing in and expanding HPV production capacity, and the current increase in supply is also a foreseeable fact.

The practitioner mentioned that from the perspective of research and development progress, many domestic nine-valent HPV vaccines have reached the third phase of clinical trials, and Wantai Biological's products are about to be launched. In this case, Merck's early release can be said to be an effective measure to expand the market.

It is worth noting that the successive launch of domestic HPV vaccines not only fills the shortcoming of insufficient production capacity supply in the domestic vaccine market, but also provides more levels of prices for users to choose from.

For vaccine manufacturers, the "battle" for the market is far from over.

Compared with other diseases, cervical cancer is the only cancer that can be prevented by vaccination. The 2030 plan for eliminating cervical cancer released by the World Health Organization requires 90% of girls to complete HPV vaccination before the age of 15.

This group of people will not become the direct payer of the vaccine. It will take a period of market education and cognitive transmission to hope that their parents will purchase it independently. It is more likely that the government will pay for it. Under this premise, HPV vaccine is expected to become a type of vaccine in the future.

It can be seen that in the past few years, more and more local governments have put HPV vaccination for women of appropriate age on the agenda.

Rob Davis also mentioned in the conference call that there are still more than 120 million women in the Chinese market who have not yet been protected by the HPV vaccine. In addition, the quadrivalent Gardasil was approved on January 8, 2025 for male indications aged 9 to 26, which also represents the development of another important market.

Although female patients account for the majority, the HPV virus is not unique to women, and may also cause male foreskin and glans cancer, anal cancer, etc. The United Kingdom and the United States have stated that they will vaccinate male children with HPV vaccines. Previously, Qiu Zixin, chairman of Wantai Bio, mentioned in the performance statement that the company's clinical trials for the nine-valent HPV vaccine male group are being planned. At present, there are also many domestic HPV vaccine manufacturers that have laid out male indications, and the specific progress has yet to be disclosed by listed companies.

When the domestic market has gradually become saturated, entering the overseas market has become the unanimous choice of domestic HPV vaccine companies.

Wantai Bio once stated on the interactive platform that the company will carry out market expansion and sales work in countries around the world that have not yet included HPV vaccines in the national immunization plan in 2024. In 2024, Wantai Bio visited the ministries of health of three countries to promote Xinkening. The ministries of health of Thailand and Nicaragua both confirmed that they would continue to use Xinkening as a national immunization project in 2024.

Kanglewei, which is waiting in line for listing on the Hong Kong stock market, also set its sights on going overseas. In 2023, one of Kanglewei's core products under development, the nine-valent HPV vaccine, obtained a Phase III clinical trial approval in Indonesia. At the same time, the company has set up an office in Jakarta, Indonesia to promote international clinical and industrial cooperation on the nine-valent HPV vaccine.

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