On Monday, Bernstein SocGen Group adjusted its outlook on shares of Merck (NS:PROR) & Co., Inc. (NYSE:MRK), reducing the pharmaceutical giant's price target from $115.00 to $110.00, but maintaining a Market Perform rating on the stock.
The revision reflects a recalibrated forecast for Gardasil, Merck's HPV prevention vaccine, which has experienced a plateau in revenue in China, one of its significant markets.
Gardasil, which represented 14.8% of Merck's revenues in 2023, has seen robust growth outside of China, a trend expected to continue and contribute to the company's overall revenue growth. The company maintains strong fundamentals with a 76.6% gross profit margin and revenue growth of 6.5% over the last twelve months, reaching $63.2 billion.
However, the vaccine's performance in China has faced setbacks, with a year-on-year decline in revenues in 2024. This downturn is attributed to a combination of market dynamics and product-specific challenges.
Despite previous supply constraints and strong reliance on Gardasil's growth as a key driver for the business, the Chinese market has seen stagnation. The international revenues from China, which had been growing at a double-digit compound annual growth rate (CAGR) since 2017, have ceased to expand.
Analysts anticipate that inventory, macro-economic, and market penetration pressures will remain, further impacted by the introduction of local competitors in 2025 and 2026.
The potential for offsetting some of the challenges lies in the growth of Gardasil's new male indication. However, projections for market penetration in males are modest, estimated at around 10%, compared to the 30-40% penetration rate achieved among females in China.
The lower penetration rates for HPV vaccines in males, coupled with the significant consumer cost of Gardasil in China, suggest a difficult market landscape ahead.
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In other recent news, Merck has seen a series of significant developments. The pharmaceutical company reported a 4% increase in third-quarter revenue for 2024, reaching $16.7 billion, driven by strong sales of its cancer drug KEYTRUDA and the introduction of WINREVAIR.
Analysts at BMO Capital reiterated their Outperform rating on Merck shares, following the successful cessation of the ZENITH trial investigating sotatercept's effectiveness in treating pulmonary arterial hypertension. This success could potentially bolster Winrevair's market presence and increase company revenue.
Merck also received a positive opinion from the European Medicines Agency's Committee for Medicinal Products for Human Use for the use of KEYTRUDA for mesothelioma treatment. This development comes after the IND.227/KEYNOTE-483 trial showed significant improvements in overall survival rates with KEYTRUDA.
In terms of analyst notes, Jefferies raised the company's share target to $148, following Merck's strategic move to license a preclinical PD1xVEGF therapy from LaNova. However, BMO Capital Markets revised its outlook on Merck, reducing the price target due to concerns over the Gardasil vaccine's performance in China.
Finally, in collaboration with Alexion (NASDAQ:ALXN) and AstraZeneca (NASDAQ:AZN) Rare Disease, Merck announced positive results from the Phase 3 KOMET trial of KOSELUGO in adults with neurofibromatosis type 1. These are the most recent developments from Merck's operations.
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