Will Declining Gardasil Sales Ail MRK's Top Line in Q3 Earnings?

Core Insights - Merck is experiencing significant challenges with its second-largest product, Gardasil, which is a vaccine for preventing certain cancers caused by human papillomavirus. Sales, which had been rising until 2022, began to decline in 2024 and continued to struggle in 2025 [1][10]. Sales Performance - In the first half of 2025, Gardasil sales dropped 48% year-over-year to $2.45 billion, primarily due to weak demand in China amid an economic slowdown. This decline has led to higher-than-normal inventory levels at Merck's partner in China, Zhifei [2][10]. - Merck has decided to temporarily halt shipments of Gardasil to China to allow for inventory reduction, with no expected resumption of shipments until at least the end of 2025. Sales are projected to decline significantly in 2025 compared to 2024 levels [3][10]. - Demand for Gardasil is also weak in Japan, with expectations of continued low sales in both China and Japan for the latter half of 2025. Estimates suggest a negative compound annual growth rate (CAGR) of 15.1% for Gardasil sales over the next three years [4]. Other Vaccines and Competitive Landscape - Besides Gardasil, Merck markets several other vaccines, including ProQuad, M-M-R II, Varivax, Vaxneuvance, RotaTeq, Pneumovax 23, and the newly approved Capvaxive [5]. - Sales of other vaccines, such as ProQuad and Pneumovax 23, also saw declines in the first half of 2025. Merck's new RSV antibody, Enflonsia, was approved in the U.S. in June 2025 and is under review in the EU, aimed at protecting infants during their first RSV season [6]. - Enflonsia is the first treatment designed to protect infants with a uniform dose regardless of weight, but it faces competition from AstraZeneca and Sanofi's RSV antibody, Beyfortus, which achieved blockbuster status in its first full year of sales in 2024 [7][8]. Financial Performance and Valuation - Year-to-date, Merck's shares have declined by 15.8%, underperforming the industry, sector, and S&P 500 [9]. - From a valuation perspective, Merck's shares trade at a forward price/earnings ratio of 8.97, which is lower than the industry average of 15.62 and its 5-year mean of 12.64 [11]. - The Zacks Consensus Estimate for 2025 earnings per share has decreased from $8.94 to $8.92, and for 2026, it has decreased from $9.55 to $9.44 over the past 60 days [12].