Merck quadruples Gardasil supply in China contract but still might not meet full demand

Facing buoyant demand in China for its HPV vaccines on the back of its Gardasil 9 launch, Merck & Co. has promised almost quadrupled supply in the coming years in a renewed contract with a local distributor. But that still might not be enough to meet the full demand there, a Merck representative says.

Merck will provide 5.51 billion Chinese yuan ($790 million) worth of the Gardasil products in China in 2019 and 8.33 billion yuan ($1.20 billion) in 2020, according to a recent disclosure from Merck’s local distribution partner, Chongqing Zhifei Biological Products.

Those figures are significantly higher than what the pair laid out in their previous contract. Back in September 2017, when Gardasil 9 was not yet approved in China and the deal only included the quadrivalent shot, the planned numbers were 1.78 billion yuan for 2019 and 2.23 billion yuan for 2020.

"Increasing global supply of our HPV vaccines is a top priority for Merck, and plans are in place to triple global supply from our 2017 base over the next several years," a company spokeswoman said. But even with that additional capacity, she said Merck "will not be able to meet some of the unplanned program initiations and will not be able to meet the full demand in China."

A lot has changed over the past year. In what a spokeswoman characterized as "an unprecedented rapid regulatory approval," Chinese regulators conditionally approved Gardasil 9 late April in just nine days into reviewing Merck’s application.

Though Merck and Zhifei immediately renewed their contract to include the 9-valent version, they left out the key procurement amount back then. Wide media coverage on HPV vaccines’ cancer-fighting function has raised awareness and spurred demand for both Gardasil and Gardasil 9, as uptake went beyond the company’s previous forecasts and caused shortages.

"We’re still trying to ensure that we understand what’s the demand there because it is such a large opportunity," Merck’s human health president, Adam Schechter, said on the company’s second-quarter earnings call in mid-July.

Merck has said strong growth will come from the Gardasil franchise, or in Schechter’s own words from the third-quarter call, "we see a real long runway of growth for Gardasil over time." For example, in the third quarter, the franchise generated $1.05 billion in sales, a 55% increase over the same period last year.

China will be a meaningful contributor, said Schechter, but it is not just China that will fuel the growth—and pressure Merck’s manufacturing capacity along the way.

"We have seen an unprecedented increase in worldwide demand for our HPV vaccines, with it doubling in the last year alone," the Merck spokeswoman told FiercePharma via email.

Schechter has also pointed to Gardasil 9’s recent FDA approval that expanded its use in people up to 45 years of age. And the U.K. government has updated its immunization program to offer Gardasil to boys as well. Supply has become key for Merck to be able to ride on those tailwinds.

In its Q3 earnings release, Merck said it now plans to invest $16 billion on new capital projects over the next five years, up from the $12 billion announced in February. Some of the money will go into expanding manufacturing capacity for oncology, vaccines and animal health, said the spokeswoman.

Gardasil is also not the only vaccine for which Merck is facing supply constraints. Citing manufacturing capacity limitations, the company is phasing out a deal with Gavi to supply rotavirus vaccine RotaTeq to four African countries. That plan has sparked controversy, as Merck is also rolling out the vaccine in China through Zhifei, presumably at a higher price.

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