Gardasil: Merck's cold calculations

A few weeks back, Merck & Co announced that they were suspending their lobbying efforts to get various state govts to mandate Gardasil (their HPV vaccine) for pre-teen girls. Prior to the suspension of Merck's lobbying efforts, 19 states & DC had already issued state-wide mandates for this vaccination. Most state mandates require that girls get this vaccination by grade 6 & have an opt out provision. Merck thru its aggresive lobbying efforts had succeeded in alienating both sides of the political divide. By the time Merck announced its decision to suspend lobbying, a consensus (albeit for entirely different reasons) was emerging between the left and right, that while this vaccine should be widely available (and perhaps priced lower), it should not be mandatory.

By suspending their lobbying efforts, it appeared that Merck was sacrificing a lot of potential revenues given that the remaining 31 states were not going to mandate Gardasil. Pharmalyst did some back of the envelope calculations and concludes that the financial hit to Merck is about $130 million per year (till Galxo & others come up with competing products). These calculations also show that this is a lucrative market and despite Gardasil not being mandatory, Merck is likely to generate about $950 million from sixth grade female students each year.

To make these estimates, Pharmalyst took US census projections for 2005 (for 50 states and DC) of children aged 14 to 17 (could not find more granular data). From these census figures, I assumed that roughly 33% are aged 14. The next assumption was to assume that the population of 11 year olds (Gardasil target 6th grade mkt) would be the same as 14 year old females (females assumed to be 50%). For each of the 19 states and DC where there was an HPV mandate, I assumed that 95% of the 6th grade females would get vaccinated each year at $400 per course. The vaccination rate in the other states would be about 25% lower (10-12% uninsured children, rest being opt-out candidates for religious, scientific or lack of care reasons).

So by stopping lobbying and letting 31 states have no mandate, Merck is losing about 20% of 6th grade female student customers in each of the 31 states. This works out to $130 million at $400 per course. Actually they stand to lose a couple of millions less once you factor in their lobbying cost savings. Forgoing 130 million in incremental revenue is a no brainer once you consider the fact that at least some of the potential jurors in the thousands of pending Vioxx cases would probably be biased against Merck due to the negative publicity around this lobbying. Merck has been accused by critics of price gouging on Gardasil to "HPV" (help pay for Vioxx)...sometimes in subtle ways indeed! Detailed calculations below: