On July 30th, Merck announced its first half of 2024 results, with a total revenue of 31.887 billion US dollars, a year-on-year increase of 8%. Merck's pharmaceutical business revenue was 28.415 billion US dollars, a year-on-year increase of 9%. Among them, the China region achieved a revenue of 3.534 billion US dollars, accounting for 12.4% of Merck's global market share. The R&D investment was 7.492 billion US dollars, a year-on-year decrease of 57%.
Reviewing Merck's financial report, it can be seen that Keytruda (pembrolizumab, K drug) still performs impressively. In the first half of the year, K Pharmaceutical's revenue reached 14.217 billion US dollars, a year-on-year increase of 18%. According to public information, as the new "Medicine King" who will bring down Xiu Meile, who has been the "Medicine King" for 11 years, K Medicine has now been approved for 40 indications, and there are still new indications being explored. The market may continue to grow.
However, the market competition in the PD-1 track remains fierce. On the one hand, O Pharmaceutical has partnered with local pharmaceutical company Zaiding Pharmaceutical to challenge K Pharmaceutical's leading position in the Chinese market; On the other hand, some key patents of K drug will expire in 2028, and the influx of biosimilars and the "going global" of domestically produced PD-1 will erode K drug's market share.
Besides K-drugs, GARDASIL/GARDASIL 9 (HPV vaccine) has made the greatest contribution to the revenue of Merck Dongying, but its sales in the Chinese market have declined. In the future, with the influx of more HPV vaccines, the market will face more intense price wars.
A pharmaceutical industry analyst from a securities firm told 21st Century Business Herald reporters that on the one hand, there are currently five HPV vaccines listed in China, and there are eight products under research that are about to be launched. As the supply increases, the competitive strategy gradually enters the stage of stock game; On the other hand, the effective period of HPV vaccine is relatively long, and as the population growth rate slows down, consumption gradually weakens. With the reorganization and reinvestment of resources, the productivity of the vaccine industry will increase, and the corresponding commodity value will decrease. This also means that vaccine layout enterprises need to explore new growth points
Therefore, Merck urgently needs to find the next "successor" to maintain its market leadership position.
The competition on the PD-1 track is fierce
For Merck, the influence of K medicine cannot be ignored.
PD-1/PD-L1 checkpoint inhibitors are one of the hot topics pursued by top pharmaceutical companies, and are known as the "king of involution" in the industry due to fierce market competition. According to IQVIA data, over the past five years, its performance has been significantly better than the global oncology market, with a compound annual growth rate of 45%, which is three times the overall growth rate of oncology.
However, in 2023, this "red sea" has created a new "medicine king" in the world, and Merck will bring down the 11 year "medicine king" Xiumeile with its "K-drug" Keytruda (pembrolizumab). In 2023, K Pharmaceutical's annual revenue was $25.011 billion, a year-on-year increase of 19%, surpassing the performance of Xiumeile. In 2023, Xiumeile achieved a revenue of 14.404 billion US dollars, but its annual sales plummeted by 32.2% due to factors such as patent expiration and continuous use of biosimilars.
When it comes to the PD-1 field, it is inevitable to mention Merck and Bristol Myers Squibb (BMS), as the market competition between their respective Keytruda (K drug) and Opdivo (O drug) is the most intense battle in the field of tumor immunology.
BMS's "O drug" and Merck's "K drug" two PD-1 inhibitors were both approved by the US FDA in 2014. In the first three years of approval, the sales revenue of drug O far exceeded that of drug K. In order to catch up with the O drug, Merck launched a large number of clinical trials and continuously expanded its indications, ultimately developing 19 indications, surpassing the only 11 O drugs. Therefore, in the fourth year of approval, K's sales exceeded O's, establishing K's absolute position in PD-1.
According to statistics from Minsheng Securities, K drug's global sales have been increasing year by year, while O drug's sales growth has stagnated. Specifically, from 2019 to 2022, K Pharmaceuticals' global sales were $11.08 billion, $14.38 billion, $17.19 billion, and $20.94 billion, respectively, up 49.4%, 52.8%, 54.1%, and 58.4% year-on-year; During the same period, the global sales of O drug were 8.01 billion US dollars, 7.92 billion US dollars, 8.58 billion US dollars, and 8.25 billion US dollars.
In the first quarter of 2024, K Pharmaceutical's sales revenue was 6.9 billion US dollars, a year-on-year increase of 24%; And the sales revenue of O drug was 2.1 billion US dollars, a year-on-year decrease of 6%, while the revenue of K drug was three times that of O drug. According to the H1 2024 results released by BMS on July 26th, the sales of Opdivo (nivolumab), the "O drug", increased by 3% in the second quarter, reaching nearly $2.4 billion, with sales of $4.465 billion in the first half of the year. However, K Pharmaceutical's performance in the first half of the year was even stronger, achieving a revenue of 7.22 billion US dollars in the second quarter, a year-on-year increase of 16%, and reaching a revenue of 14.217 billion US dollars in the first half of the year at a growth rate of 18%. Under the high double-digit growth, some industry insiders believe that K drug may create a sales record of $30 billion this year.
However, it is worth noting that some key patents of K drug will expire in 2028. Once the patent protection period of a new drug expires and biosimilars flood the market, the sales and prices of "K-drug" will plummet, and its market share will soon be eroded.
According to incomplete statistics, as of now, nearly 10 pharmaceutical companies have entered the clinical trial stage of K-drug biosimilars. According to the public information on the Clinicaltrials.gov website, six pharmaceutical companies, including Amgen, Sandoz, Biotec, R-Pharm, Biocad, and Laboratorio ELEA, have successively registered or initiated phase III clinical trials for their K-drug biosimilars.
Domestic PD-1 is also continuously expanding overseas in order to gain a share of the global market. At present, domestic PD-1 monoclonal antibody companies including BeiGene, Hengrui Pharmaceutical, Junshi Biotechnology, and Xinda Biotechnology have all conducted overseas authorization transactions for PD-1 products. For example, in 2023, Junshi Biotechnology and Dr Reddys Laboratories Limited and Rxilient Biotech Pte. Ltd. have reached a commercial cooperation agreement on trastuzumab in multiple markets such as Latin America and India. In addition, this product has also been approved for market by the US FDA, successfully firing the first shot in the domestic PD-1's breakthrough in the United States.
Faced with the constant pressure from biosimilars such as Amgen and Sandoz under the patent cliff, as well as the accelerated pursuit of Novo Nordisk's weight loss and blood sugar lowering star drug semaglutide, Merck's defense of the "drug king" cannot tolerate any slackness.
The HPV market is experiencing sluggish growth
Apart from K-drug, GARDASIL/GARDASIL 9 (HPV vaccine) in the vaccine field has made the greatest contribution to the revenue of Merck Dongying. In the second quarter, it achieved sales of 2.478 billion US dollars, an increase of only 4%. In the first half of the year, sales reached 4.727 billion US dollars, a year-on-year increase of 7%.
The financial report believes that the main reason for the growth is the increase in US sales, which is due to higher pricing, demand, and public sector purchasing patterns. Compared to the same period last year, sales in the Chinese market have decreased, largely offsetting the growth.
As the exclusive agent of Merck's nine valent vaccine in China, Zhifei Biotechnology has always relied on this vaccine to dominate the domestic HPV vaccine market. However, Zhifei Biotechnology has already shown a situation of increasing revenue without increasing profits in the fourth quarter of 2023. According to the annual report data, in 2023, the gross profit margin of Zhifei Biotechnology's agency products was 25.68%, a decrease of 2.98 percentage points from 2022. This trend will further manifest in the first quarter of 2024. In the first quarter of this year, the company's operating revenue increased by 2% year-on-year, while the net profit attributable to shareholders of the listed company decreased by 28.26% year-on-year. The net cash flow generated from operating activities was -427 million yuan, a year-on-year decrease of 310.92%, reaching a new low for the same period since its listing.
More importantly, the domestic HPV vaccine is a stock market, and with the clinical progress of multiple higher priced HPV vaccines advancing, competition for HPV vaccines will become even more intense in the future. In the face of an increasing number of nine valent HPV vaccines being launched in the future, price wars may also be inevitable.
According to a research report by Huatai Securities, currently, due to weakened market demand expectations and weak research and development willingness of domestic enterprises, two companies have already listed for bivalent vaccines and one company is in clinical trials, while no company has listed for quadrivalent vaccines and two companies are in clinical trials. And the nine valent vaccine is where companies compete. Wantai Biotechnology, Shanghai Zerun, Shanghai Bowei, Kangle Defender, and Jiangsu Ruike and Zhonghui Yuantong are expected to be launched between 2025 and 2027, ushering in a wave of localization.
When it comes to the current situation of the HPV market, the above analyst pointed out to 21st Century Business Herald reporters that increasing vaccination rates is a comprehensive topic that includes individuals, markets, and governments. At the individual level, there needs to be sufficient willingness to consume, including the improvement of health awareness and consumption capacity. To make consumers "have the money to fight and willing to fight", it is necessary to increase consumer income and supplement it with large-scale health education activities and professional science popularization. In addition, at the market level, it is necessary to lower product prices and develop differentiation strategies; The government needs to provide economic subsidies or free vaccination services to reduce vaccination costs. Special support can be provided for high-risk groups, and vaccination points can be increased, such as community hospitals, pharmacies, mobile vaccination vehicles, etc., to facilitate the public to receive vaccinations nearby.
Especially in the context of the current price war, in order for enterprises to dominate the market, they must analyze whether their product positioning is high-end, mid-range, or low-end, and how costs compare to prices. Based on this, they should choose to adopt low price competition or stable price differentiation strategies. They should also determine whether their product positioning is' cash flow recovery 'or' occupying strategic territory ', and make appropriate concessions to adapt to this wave of price reductions from a long-term perspective and cater to the long-term development strategy of the enterprise
Find the next 'internet celebrity'
The competition for K drugs is fierce, and HPV is growing rapidly. Merck needs to seek new growth points. According to the annual report, K Pharmaceutical accounted for approximately 46% of Merck's pharmaceutical revenue in 2023, making it an unquestionable pillar product. How to accelerate the cultivation of successor varieties and mitigate the sales impact of biosimilar drugs on K drugs is an urgent challenge faced by Merck.
At present, Merck is also increasing its research and development investment, actively exploring new product development and expanding indications to consolidate its leading position in the field of cancer. The research and commercialization of ADC (antibody drug conjugates) drugs are expected to drive new growth.
In April 2024, in order to consolidate its ADC pipeline, Merck announced the acquisition of the rights to HER3-DXd, I-DXd, and R-DXd ADC drugs from Daiichi Sankyo for $22 billion. The announcement stated that the two parties have reached a global development and commercialization agreement on three candidate ADC drugs, and will jointly develop and potentially commercialize the above-mentioned candidate ADC therapies on a global scale. This is the second ADC transaction record, following AstraZeneca's acquisition of the third ADC drug DS-8201 for a total price of $6.9 billion in 2019. It is also another major investment by Merck after introducing ADC drug transactions worth over 10 billion US dollars three times with Chinese pharmaceutical company Kolombotai.
HER3 has a faster internalization rate compared to HER2 and HER1 (EGFR), which is more conducive to the efficacy of ADC drugs in tumor cells and improves treatment outcomes.
However, on June 27th, the marketing application for HER3 ADC drug developed by First Third Republic and Merck was rejected by the FDA due to chemical, manufacturing, and control (CMC) issues. On June 18th, the Phase I clinical trial of YL202/BNT326 by BioNTech was also halted by the FDA due to the deaths of three subjects caused by drug side effects.
The consecutive setbacks of two star ADCs indicate that there are still risks to the prospects of the HER3 race track. However, the FDA has not raised any objections to the effectiveness and safety of HER3 DXd. After rectifying production issues, HER3 DXd is still expected to become the world's first HER3 ADC drug. However, whether ADC can become a competitive tool for Merck in the future still requires time and market validation.
In addition to ADC, Merck is also accelerating its layout in other areas. On April 16th, Merck and Prometheus Biosciences (referred to as "Prometheus") jointly announced the acquisition of Prometheus at a price of $200 per share for a total purchase price of approximately $10.8 billion. Prometheus was founded in 2016 and is a clinical biotechnology company that uses precision medicine methods to discover, develop, and commercialize novel treatments and auxiliary diagnostic products for the treatment of immune-mediated diseases. This includes drugs related to inflammatory bowel disease (IBD), which is also a popular market that many pharmaceutical companies are competing to expand into.
According to a report by GrandViewer Search, the overall market size of IBD in 2018 was $15.9 billion, and it is expected to maintain a compound annual growth rate of 4.4% until 2026.
When choosing investment or research and development projects, companies should not only consider the prospects of individual projects, but also the strategic layout of the entire product pipeline. For example, whether it can form synergies with other products of the company, or whether it can enhance the company's competitiveness in specific treatment fields. "Chen Jinhao, head of IQVIA China Management Consulting Department, pointed out to 21st Century Business Herald reporters that companies need to make quick and decisive decisions when choosing new growth points. If the market match is high and the expected ROI is good, resources should be fully invested. On the contrary, if the matching degree is poor or the risk is too high, the project should be adjusted or abandoned in a timely manner.
After all, any investment project requires detailed financial analysis to predict its potential return rate, and whether Merck can find a successor to K-drug also needs market validation.