By Michael Erman

(Reuters) – Merck & Co posted higher-than-expected quarterly earnings on Thursday on strong sales of its blockbuster cancer treatment Keytruda, but the drugmaker also flagged a second straight quarter of weak demand for its Gardasil vaccine in China.

Gardasil, which prevents cancers caused by the human papillomavirus, has been one of Merck’s top growth drivers aside from Keytruda and much of its international growth has come from China.

Gardasil sales fell 11% to $2.31 billion, missing the average analyst estimate of $2.46 billion, according to data compiled by LSEG.

“It is both a demand issue driven by the economy, some impact on promotional activity we think related to concerns about anti-corruption, as well as continuing adjustment of inventory levels in the marketplace,” Chief Executive Rob Davis said of the vaccine’s China sales in an interview.

“Ultimately, what we have to do is drive demand.”

The company expects Gardasil shipments to China in the fourth quarter to be similar to the third quarter. Merck’s shares were down nearly 1% in premarket trading.

The worst of the company’s challenges in China could likely be behind them by the end of the year, J.P.Morgan analyst Chris Schott said.

The company posted third-quarter earnings of $3.99 billion, or $1.57 a share, down from $5.43 billion, or $2.13 a share, a year ago due to costs from acquisitions. Analysts on average expected earnings of around $1.50 a share.

Overall sales in the quarter rose 4% to $16.66 billion, topping analyst forecasts of $16.45 billion.

Keytruda sales rose 17% to $7.43 billion in the quarter, beating Wall Street expectations of $7.20 billion.

The company had similar issues with Gardasil in China in the second quarter. Beijing has been running a campaign targeting bribery of doctors that disrupts business and scuttles hospital deals with international pharmaceutical companies.

Gardasil sales have more than doubled since 2020 and are expected to top $9 billion this year.

Merck’s overall pharmaceutical sales in China fell 40% to $996 million in the third quarter.

“Outside of China, we’re seeing strong growth,” CEO Davis said, adding that the company has seen “double-digit growth in almost every other major region.”

Davis said Merck still believes the long-term opportunity for Gardasil in China is significant with a meaningful population of women who could receive the vaccine as well as a potential expansion to men.

The company still expects to hit its goal of $11 billion in global sales for the vaccine by 2030.

Gardasil is not the only vaccine that has been hurt by weakness in China. GSK said on Wednesday that sales of its shingles vaccine Shingrix fell in the largest Asian economy.

Merck shares closed at $104.83 on Wednesday. They are down around 7% this year, underperforming the S&P 500, which is up over 22% over the same period.

(Reporting by Michael Erman and Leroy Leo; Editing by Bill Berkrot, Richard Chang and Shounak Dasgupta)

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