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Founder and Principal Consultant at 1st Line Partners.

Introducing a new Pharma Commerce column focused on combating illicit trade and protecting product integrity—and ultimately patients.

Welcome to the 'Dark Side'

Merck’s recent earnings call revealed that although the company generated worldwide sales of $64.2 billion—a 7% increase over 2023—the company will be temporarily suspending Gardasil shipments to China until at least June, citing a decline in sales and excess inventory that needs to be cleared as the main reasons behind the decision.

Gardasil—a vaccine that combats human papillomavirus (HPV)—made $8.6 billion in global sales last year, but this represented a 3% decline over 2023 numbers.

"Like many other companies, we've seen increased pressure on discretionary consumer spending, including across the vaccine space more broadly, and demand for Gardasil has not recovered to the level we had expected," Merck CEO Rob Davis said during the company's conference call, as reported by 

Concerns date back to Q2 2024, when Caroline Litchfield, Merck’s executive vice president and CFO, pointed out a decrease in shipments from China.

“For Gardasil, over the past few years, we've benefited from extremely strong demand in China including from the expanded indication of Gardasil 9 to the 9- to 45-year age cohort in late 2022,” she explained. “In the second quarter, however, there was a significant step down in shipments from our distributor and commercialization partner, Zhifei, into the points of vaccination compared with prior quarters, resulting in above-normal inventory levels at Zhifei.”

Merck executives also noted that they would pulling the plug on its goal of reaching $11 billion in sales by the year 2030.

This takes place amid the heightened tensions between the United States and China in which the US has imposed a 10% tax on goods; in response, China has imposed tariffs of their own that will become active Feb. 10, including a 15% tax on coal and liquefied natural gas, along with a 10% tax on crude oil, agricultural machinery, large-displacement cars, and pickup trucks.

1. Merck Announces Fourth-Quarter and Full-Year 2024 Financial Results. 

. February 4, 2025. Accessed February 5, 2025. 

https://www.merck.com/news/merck-announces-fourth-quarter-and-full-year-2024-financial-results/

2. Erman M﻿, Sunny ME. Merck stops Gardasil shipments to China, hitting 2025 outlook; shares tumble. 

https://www.reuters.com/business/healthcare-pharmaceuticals/merck-pauses-gardasil-shipments-china-hitting-its-2025-outlook-2025-02-04/

3. Motley Fool Transcribing. Merck (MRK) Q2 2024 Earnings Call Transcript. 

 July 30, 2024. Accessed February 5, 2025. 

https://www.fool.com/earnings/call-transcripts/2024/07/30/merck-mrk-q2-2024-earnings-call-transcript/

4. Armstrong A. Merck’s Gardasil Woes Grow as China Trade War Heats Up. 

https://www.biospace.com/business/mercks-gardasil-woes-grow-as-china-trade-war-heats-up

5. Saraceno N. Trump Pauses Canada and Mexico Tariffs. 

. February 4, 2025. Accessed February 4, 2025. 

https://www.pharmaceuticalcommerce.com/view/trump-pauses-canada-mexico-tariffs

The company cites a decline in sales and excess inventory as the main contributing factors. 

Merck Temporarily Halts Gardasil Shipments to China 

How Tariffs Could Affect Generic Drug Prices and the Global Pharmaceutical Market

chair of the FDA Regulatory practice at Lowenstein Sandler, discusses the potential impact of upcoming tariffs on pharmaceutical supply chains, focusing on Canada, Mexico, and China. He believes that tariffs on Mexico and Canada would have minimal effects on supply chains, as the pharmaceutical industry sources relatively little from these countries. The real concern lies with China, which is a major supplier of active pharmaceutical ingredients (APIs) and finished drug products. A significant portion of recent pharmaceutical deals has involved licensing Chinese drugs, which could be affected by tariffs if they disrupt supply chains.

If the relationship between the United States and China worsens, tariffs could have a more substantial impact. Specifically, they might increase the cost of generic drugs, since China is a crucial supplier for these products. Despite this, Shehan notes that many generic drugs are already extremely cheap, with some prescriptions costing just a few cents. Even if prices doubled, it may not drastically affect consumers. Specialty generic drugs, however, could see more noticeable price increases.

He also points out that if trade tensions extend to regions like the EU, India, or Japan, the situation could change. A broader trade conflict could influence drug prices, especially for certain medications. Overall, while tariffs on China may increase drug prices in the short term, the full impact will depend on the nature of global trade relations and the extent of supply disruptions.

Shehan also comments on how he believes the new administration will influence FDA approval processes for commercial products, other specific regulatory updates that drug developers should be closely monitoring in the current landscape, and much more.

Moving forward, what should the approach of pharma companies be amid the latest/pending tariffs imposed on Canada, Mexico, and China? What is their potential impact on the pharma supply chain?

If they were to come to pass the tariffs on Mexico and Canada, I don't think it would have a huge impact on supply, etc., basically because we don't source a lot of drug and drug products from those two countries. A little bit more from Canada, is my understanding. That I would kind of put aside, but China's more interesting. We do know that a very large percentage of the recent deal making has been in licensing of Chinese drugs by the global pharmaceutical industry. If there's a supply aspect to that deal, I guess tariffs have an effect. If there isn't, I don't think it substantially reduces that.

Now, if relationships with China deteriorate and one country or the other decides that that's an area they want to meddle in, I think that would have a big impact, but we haven't seen that yet. Tariffs on China will make generic drug prices go up I assume because China is such an important supplier of active pharmaceutical ingredients, as well as finished products. On the other hand, a lot of generic drugs are so dirt-cheap right now. I’ve literally had prescriptions filled for two cents, which they list the prices at $1.08 or something, and I'm responsible for two cents. I don't know how anyone makes money on that, but if you double the price of that, you're probably not going to have a huge impact. Some of the specialty, generic products are more expensive, but in terms of your pills and tablets, I don't think there's much of a difference there. If a trade war continues and spreads to say the EU, India, and other places—but mainly the EU and Japan—I think you're talking a different story there that may have an impact on prices.

In the first part of his video interview with Pharma Commerce Editor Nicholas Saraceno, Jim Shehan, chair of the FDA regulatory practice at Lowenstein Sandler, describes what the approach of pharma companies should be amid the latest/pending tariffs imposed on Canada, Mexico, and China, along with their potential impact on the pharma supply chain.

There is a growing, widespread desire for sustainable products across industries, and the pharmaceutical sector is no exception. Patients, healthcare providers, and regulators are putting increasing pressure on pharmaceutical manufacturers to adopt environmentally friendly practices. In fact, a 2024 consumer survey by PwC

 found that 85% of respondents are seeing the impact of climate change on their lives firsthand, while 46% said they were buying more sustainable products as a way to reduce their impact on the environment. More than 80% of consumers said they were willing to pay more for these “green” products, with an average 9.7% sustainable premium, even with the rising cost-of-living and inflation.

One packaging component that is oftentimes overlooked when determining sustainable alternatives in manufacturing is tape, an essential part of packing and shipping. Tape is also a simple and seamless transition from virgin plastic to a more sustainable alternative, but consumers are paying attention. The aforementioned PwC survey also found that buyers are assessing producers' sustainability practices through tangible attributes, with 40% of those surveyed saying they pay attention to production methods and recycling, 38% to eco-friendly packaging, and 34% saying they want to know if companies are making a positive impact on nature and water conservation.

Fortunately, with new products on the market, suppliers can adjust their traditional packaging methods to utilize sustainable sealing options to meet consumer demand, while also keeping the strength and resilience they are accustomed to from their tape.

Pharmaceutical companies can benefit greatly from shifting to more sustainable packaging options. These packaging tools can have a large impact on both economic and environmental fronts.

The value of sustainable packaging in pharma

In the pharmaceutical sector, packaging plays a critical role not only in protecting products but also in maintaining compliance with strict safety regulations. Sustainable packaging—including recyclable packaging tape and packaging tapes made from 90% post-consumer recycled (PCR) polyester—offers a unique opportunity for companies to reduce their use of virgin plastic and minimize waste while ensuring the safety and security of their products during transit. As consumers and businesses alike prioritize sustainability, adopting greener packaging practices can help pharmaceutical companies enhance their brand image and bottom line while supporting their environmental goals.

Recyclable tapes are often made from performance-grade paper and can be recycled alongside the packaging materials they seal, which significantly reduces the use of plastic in pharmaceutical packaging. This aids in the conservation of natural resources and reduces the waste footprint that is associated with the pharmaceutical industry.

Other versions of sustainable tapes are made from 90% post-consumer recycled polyester, found in PET bottles, and are aligned with moving to a more circular packaging alternative. Making the switch to a tape made from post-consumer recycled materials results in individual shippers significantly reducing their use of virgin plastics.

Often, corporations are forced to choose between going “green” and product performance, but choosing a sustainable solution doesn't have to mean sacrificing performance. These sustainable tapes are designed to offer the same strength, durability, and adhesion as traditional plastic packaging tapes, ensuring cartons remain tamper-evident and securely sealed during transportation, helping prevent counterfeiting and product contamination.

Many sustainable tapes are also crafted to meet safety standards, with some complying with FDA specifications for indirect food contact.

Switching to a more sustainable tape doesn’t require a complete overhaul of your current packaging processes and machines. One of the key benefits of these tapes is their ease of integration. Both curbside recyclable tape and tape made from post-consumer recycled plastic can be used with existing dispensers and packaging machinery, minimizing the need for additional investment or retraining of staff.

This seamless transition allows businesses to adopt more sustainable practices without disrupting their operations. Integrating more sustainable packaging tape into a supply chain is a straightforward process that yields significant environmental benefits with minimal effort.

For pharmaceutical companies, selecting the right packaging tape is more than just a logistical choice, it’s an opportunity to advance sustainable practices. Recyclable tapes and those made from post-consumer recycled plastics both provide a viable solution that aligns with regulatory standards and sustainability goals, offering strong performance while reducing waste and minimizing environmental impact.

As the demand for eco-friendly products continues to grow, pharmaceutical companies that embrace sustainable packaging solutions can reduce their carbon footprint, improve operation efficiency, and build a stronger reputation for corporate environmental responsibility. This simple switch can profoundly impact both the environment and the bottom line, making it an essential consideration for the future of pharmaceutical packaging.

Bradley Dunlap is Director of Product Marketing, Packaging, at Shurtape Technologies, LCC.

1. Consumers willing to pay 9.7% sustainability premium, even as cost-of-living and inflationary concerns weigh: PwC 2024 Voice of the Consumer Survey. PwC. May 15, 2024. 

https://www.pwc.com/gx/en/news-room/press-releases/2024/pwc-2024-voice-of-consumer-survey.html

One packaging aspect—the tape—is often overlooked, but is a valuable component of the shipping process. 

Why Pharmaceutical Products Need Sustainable Packaging

Properly Preparing for Tariffs and Other Supply Chain Obstacles

, Jenna Dale, direct of client relations at Cencora, shares how pharmaceutical manufacturers are able to handle supply chain disruptions. She explains that while these issues may arise due to political or environmental factors, they aren't new challenges for the industry. Manufacturers have faced similar hurdles before and are accustomed to managing risks that affect production. The key to overcoming these challenges, according to Dale, is having a robust continuity plan in place. Such plans help ensure that manufacturing remains uninterrupted, even when external factors like tariffs create obstacles. By identifying potential risks and preparing for them, manufacturers can continue the development and commercialization of therapies despite external pressures.

Dale also comments on key challenges preventing the United States from meeting the FDA’s forecast of 10 to 20 cell and gene therapy (CGT) approvals per year by 2025, the need for continued investment by the FDA in reviewers and staff to support clinical reviews, and much more.

In your opinion, how do the imposed/pending trade tariffs impact pharma manufacturers?

In general, these aren't new topics for us. COVID was another time where manufacturers were really struggling with supply chain and trying to find alternatives to maintain continuity of manufacturing. Regardless of whatever the political environment is or other ecosystem kind of environmentally-related topics may be of concern here, I think that it comes back to the manufacturers really having a continuity plan in place across their entire business and understanding how they can try to mitigate any risks, hurdles, or challenges that they may face, and ultimately, try to achieve development and commercialization of these therapies.

In the first part of her video interview with Pharma Commerce Editor Nicholas Saraceno, Jenna Dale, director of client relations at Cencora, shares how the imposed/pending trade tariffs impact pharma manufacturers.

Addressing Legal Battles in the Pharma Space

, Donald Prentiss, founder and CEO of Qualthera, describes how compounding pharmacies play a critical role in addressing unique and unmet medication needs that cannot be met by commercially available drugs. Their role in the pharmaceutical supply chain varies depending on the type of compounding facility: 503A or 503B.

A 503B facility, also known as an outsourcing facility, primarily supplies office-use medications to healthcare providers, who then administer them to patients. These facilities must adhere to current Good Manufacturing Practice (cGMP) standards, as they are FDA-registered and subject to inspections. In contrast, a 503A facility focuses on compounding medications based on individual prescriptions, typically in smaller, patient-specific batches. This allows for customization, such as removing allergens or adjusting dosage forms to better suit a patient's needs.

Both types of compounding pharmacies are particularly useful in cases of drug shortages or when commercially available drugs are insufficient. For example, if a patient requires a medication that is in short supply, a compounding pharmacy can step in to provide a tailored solution. This flexibility makes compounding pharmacies essential for meeting the unique needs of patients, whether by modifying an existing medication or creating entirely new formulations to address specific medical conditions.

Ultimately, the primary function of compounding pharmacies is to bridge gaps in the pharmaceutical market by providing personalized, alternative treatments that meet the diverse needs of patients.

Prentiss also comments on the tirzepatide shortage, the notion that commercialized and compounded drugs are competing with one another, what needs to be done amid the various legal battles pertaining to GLP-1s that are currently taking place, and much more.

What do you believe needs to be done amid the various legal battles pertaining to GLP-1s that are currently taking place?

I totally sympathize with drug manufacturing. You spend all this money to get the patent, get your drug to market, and it's successful. Then, you run out and try to gear back up; you look around, and there's thousands of these facilities now making your drug and getting that revenue. They go through the process. They respect the FDA process to get these things approved, and so they want to protect their interests. They have stakeholders too, so I totally get that side. On the compounding side, as I alluded to before, there is a statutory framework that allows compounders to make these drugs in shortage, and if there's a medical need to alter that drug in some form or fashion. Both sides have the right to engage in these battles based on what's allowed from a regulatory perspective.

To answer your question, what brings it together goes back to collaboration. When the shortage happened with all these weight loss drugs, compounding arguably helped further the success of the drugs. They made it more widely available. More people started to use it, and saw the benefits of it, and so they kept that demand alive, arguably in the best interest of the Lillies of the world. How do you work together to say, thank you for helping us out, but now we want to transition back to our supply chain. We want to keep you in mind, so maybe we can come up with a preferred list of compounding pharmacies or outsourcing facilities that we can refer out to (contract outsourcing), but more collaboration there, so that we're not having to settle this in the courts and with the FDA.

I believe I saw it from the Ros, and the Hims, and the Hers of the world—they're largely used compounding pharmacies to supply their medications. What was really neat was that I think it was Ro who had some kind of agreement with Lily to channel their drugs to that platform now too, so that was a nice little kind of collaboration that I saw there. If these telehealth platforms can collaborate with drug manufacturers, and compounders having already collaborated with telehealth platforms, let's bring in the FDA. Let's bring in other stakeholders. Let's give the patients a voice. What do they want? A lot of these patients are paying cash for this stuff. That's how important it is for them to reach their healthcare goals, and and I think that's another kind of underlying thing here.

Even through COVID, we still saw demand for compounds. They're willing to pay cash even through economic downturns, because it was so powerful. Health is a great equalizer, as you know, and so without it, money is worthless, so I think collaboration is the key. The FDA does a good job of creating listening sessions and other conferences on the compounding side. They have a whole website dedicated to compounding excellence. A lot of useful materials on how to educate compounders on how to do things appropriately—getting that information from the industry. I think really pushing that, bringing in the trade groups like the OFA [Outsourcing Facilities Association], just to put our heads together to solve this together, instead of fighting each other across it.

In the third part of his video interview with Pharma Commerce Editor Nicholas Saraceno, Donald Prentiss, founder and CEO, Qualthera, explains how collaboration between compounding pharmacies, drug manufacturers, and telehealth platforms can drive success, despite the various litigations pertaining to GLP-1s that are currently taking place.

The latest staff report from the FTC revealed that CVS Caremark, Express Scripts, and OptumRx also known as the “Big 3” pharmacy benefit managers (PBMs)—hiked up the prices of various specialty generic drugs that were dispensed at their affiliated pharmacies by as much as thousands of percent, resulting in them (and their affiliated pharmacies) making more than $7.3 billion in excess revenue when measured alongside the national average drug acquisition cost, or NADAC.

The report examined 51 specialty generic drugs—including 882 total National Drug Codes (NDCS) that were dispensed from 2017 to 2022, for members of commercial health plans and Medicare Part D prescription drug plans that were managed by the Big 3. NDCs are universal identifiers for all human drugs. The report also noted that these revenues were accumulating while patient, employer, and other healthcare plan sponsor payments for drugs were rising yearly.

“The FTC staff’s second interim report finds that the three major pharmacy benefit managers hiked costs for a wide range of lifesaving drugs, including medications to treat heart disease and cancer,” said FTC Chair Lina M. Khan. “The FTC should keep using its tools to investigate practices that may inflate drug costs, squeeze independent pharmacies, and deprive Americans of affordable, accessible healthcare—and should act swiftly to stop any illegal conduct.”

FTC’s latest deep dive builds off an original July 2024 report,

 which had uncovered that pharmacies that were affiliated with the Big 3 had received 68% of the dispensing revenue amassed by specialty drugs in 2023, a boost from the 54% figure in 2016. The latest report analyzed a broader set of specialty generic drugs—as opposed to two specialty generic drugs analyzed in the July 2024 report—and determined that the Big 3 PBMs impose significant markups on a wide array of specialty generic drugs.

Other key findings of the report included:

From 2017-2021, PBM-affiliated pharmacy dispensing revenue in excess of NADAC rose at a compound annual growth rate of 42%. In that timeframe, the top 10 specialty generic drugs generated $6.2 billion of dispensing revenue in excess of NADAC, representing 85% of the total.

Several drug categories, including oncology, had drugs that were marked up over 1000%. For example, Capecitabine—a branded form of Xeloda for the treatment of breast and colorectal cancer—experienced a 3,289% markup in 2021.

These PBMs accumulated an estimated $1.4 billion worth of income from spread pricing on these specialty generic drugs, which is when they bill their plan sponsor clients more than they reimburse pharmacies.

1. Specialty Generic Drugs: A Growing Profit Center for Vertically Integrated Pharmacy Benefit Managers. 

. January 14, 2025. Accessed January 16, 2025. 

https://www.ftc.gov/system/files/ftc_gov/pdf/PBM-6b-Second-Interim-Staff-Report.pdf

2. FTC Releases Second Interim Staff Report on Prescription Drug Middlemen. 

https://www.ftc.gov/news-events/news/press-releases/2025/01/ftc-releases-second-interim-staff-report-prescription-drug-middlemen

3. Pharmacy Benefit Managers: The Powerful Middlemen Inflating Drug Costs and Squeezing Main Street Pharmacies. 

. July 9, 2024. Accessed January 16, 2025. 

https://www.ftc.gov/system/files/ftc_gov/pdf/pharmacy-benefit-managers-staff-report.pdf

4. FTC Releases Interim Staff Report on Prescription Drug Middlemen. 

https://www.ftc.gov/news-events/news/press-releases/2024/07/ftc-releases-interim-staff-report-prescription-drug-middlemen

CVS Caremark, Express Scripts, OptumRx made more than $7.3 billion in revenue, with markups as high as thousands of percent. 

Sean O’Hearen, 1st Line Partners

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