Take a deep breath? Zhifei Biological and Merck & Co. agree to "loosen" restrictions, canceling the basic procurement amount and shifting to "flexible procurement"

At the pivotal point where the vaccine industry is shifting from “supply tightness” to “demand differentiation,” the domestic leading distributors’ long-standing cooperation model with multinational pharma companies—built over more than a decade—is now facing reconstruction.

On the evening of the 2nd, Zhifei Bio (300122.SZ) announced that the company has signed an amended and restated Supply, Distribution, and Co-promotion Agreement with Merck (Merck & Co.). The new agreement fully amends and restates the original agreement signed in 2023. The new agreement takes effect as of the date hereof, and the original agreement is simultaneously terminated.

The most core change is that the new agreement cancels the previously agreed base purchase amount and instead adopts a “rolling purchase on demand” mechanism. Under this arrangement, both parties will dynamically negotiate the procurement and supply plan based on market expectations for demand and the actual vaccination situation, with the details subject to purchase orders. The cooperation term continues through the end of 2028, with an option to further extend it by two additional years.

From the standpoint of the provisions, the overall cooperation framework between the two parties has not undergone fundamental change. Merck will still supply Zhifei Bio with the 9-valent HPV vaccine (Gardasil 9), the 5-valent rotavirus vaccine (Rotarix), and the 23-valent pneumococcal polysaccharide vaccine (Pneumovax 23), and authorize Zhifei Bio to exclusively import, promote, and sell the related products in mainland China.

The announcement also makes clear that this move will help “alleviate the company’s operating pressure and reduce risk,” while enhancing both parties’ ability to coordinate and respond to market changes. In the industry’s view, this wording has been fairly directly aimed at the inventory and performance pressure brought about by fluctuations in vaccine market demand over the past two years.

In fact, the cooperation between Zhifei Bio and Merck has, at one time, been the most representative “heavy-asset agency model” in China’s vaccine industry.

The cooperation between Zhifei Bio and Merck began in 2011. Over more than a decade, Zhifei Bio—leveraging Merck’s exclusive agency rights for HPV vaccines in mainland China—rose from a regional private vaccine company to become the “Vaccine King” among A-share listed companies.

However, the foundation for this model lies in a structural tailwind of “high demand + low supply.” Once the supply-demand relationship reverses, the inventory and cash-flow pressure brought about by “guaranteed minimum purchases plus large-scale stockpiling” quickly becomes apparent.

This turning point has become increasingly clear over the past two years. According to the company’s disclosures, from 2023 to 2025, Zhifei Bio’s purchase amounts for Merck’s products were 34.814 billion yuan, 26.377 billion yuan, and 2.179 billion yuan, respectively. The proportion of these purchases in the total annual procurement amount also fell from 96.06% to 59.21%. In particular, the sharp contraction of the procurement scale in 2025 intuitively reflects significant changes in terminal demand and channel inventory.

The pressure on the performance side is also showing up in tandem. According to its earnings forecast, in 2025, net profit attributable to shareholders will be a loss of 10.698 billion yuan to 13.726 billion yuan. In its earnings forecast, Zhifei Bio explained that sales of the company’s main products fell short of expectations, leading to pressure on year-over-year performance. The company’s accounting for impairment provisions for inventories was driven by factors including changes in market demand, near-expiry dates, and post-expiry dates, resulting in the realizable net value of the inventories being lower than their book value. In addition, due to changes in market demand, Merck also adjusted its shipment schedule on a phased basis.

This means that the vaccine distribution system, which once relied on high inventory turnover, is now facing the real constraint of inventory liquidation and structural excess.

According to long-term observations by reporters from Caixin Media, the 9-valent HPV vaccine market is entering a period of accelerated competition. Price wars among domestic manufacturers such as Walvax Biotech (603392.SH) and Watson Biotech (300142.SZ) for the bivalent HPV vaccines are fierce. Moreover, Walvax’s domestically developed 9-valent HPV vaccine has obtained approval for listing, and multiple domestically produced 9-valent HPV vaccines have already entered phase III clinical trials or are about to be approved, directly moving into Merck’s stronghold. On the other hand, after the concentrated vaccination in the early period, demand from age-eligible populations at the margin has begun to slow. Combined with increased price sensitivity, vaccination willingness at the terminal level has become differentiated.

Against this backdrop, Zhifei Bio and Merck will adjust the cooperation model from “deterministic scale procurement” to “flexible order-driven,” which is, in essence, a rebalancing of the business model.

However, the market is also widely concerned that, amid intensifying competition, whether the sales recovery pace and pricing system for the 9-valent HPV vaccine will be further adjusted will directly affect Zhifei Bio’s performance recovery path. In its announcement, the company also notes that the agreement’s impact on future performance will still depend on fulfillment and market conditions.

(Source: Caixin Media)