Segment Reporting

The Company’s operations are principally managed on a products basis and include the Pharmaceutical, Animal Health, Healthcare Services and Alliances operating segments. The Animal Health, Healthcare Services and Alliances segments are not material for separate reporting.

The Pharmaceutical segment includes human health pharmaceutical and vaccine products. Human health pharmaceutical products consist of therapeutic and preventive agents, generally sold by prescription, for the treatment of human disorders. The Company sells these human health pharmaceutical products primarily to drug wholesalers and retailers, hospitals, government agencies and managed health care providers such as health maintenance organizations, pharmacy benefit managers and other institutions. Vaccine products consist of preventive pediatric, adolescent and adult vaccines, primarily administered at physician offices. The Company sells these human health vaccines primarily to physicians, wholesalers, physician distributors and government entities. A large component of pediatric and adolescent vaccine sales are made to the U.S. Centers for Disease Control and Prevention Vaccines for Children program, which is funded by the U.S. government. Additionally, the Company sells vaccines to the Federal government for placement into vaccine stockpiles. Sales of vaccines in most major European markets were marketed through the Company’s SPMSD joint venture until its termination on December 31, 2016.

The Company also has an Animal Health segment that discovers, develops, manufactures and markets animal health products, including vaccines, which the Company sells to veterinarians, distributors and animal producers. The Company’s Healthcare Services segment provides services and solutions that focus on engagement, health analytics and clinical services to improve the value of care delivered to patients.

Sales of the Company’s products were as follows:



	Three Months Ended June 30,				Six Months Ended June 30,
($ in millions)	2017		2016		2017		2016
Primary Care and Women’s Health
Cardiovascular
Zetia	$	367	$	702	$	701	$	1,314
Vytorin	182		293		423		570
Atozet	63		33		112		56
Adempas	67		40		151		72
Diabetes
Januvia	948		1,064		1,787		1,970
Janumet	563		569		1,059		1,075
General Medicine and Women’s Health
NuvaRing	199		200		359		376
Implanon/Nexplanon	178		164		349		298
Follistim AQ	79		73		160		167
Hospital and Specialty
Hepatitis
Zepatier	517		112		895		161
HIV
Isentress/Isentress HD	282		338		587		678
Hospital Acute Care
Bridion	163		113		310		204
Noxafil	155		143		296		288
Invanz	150		143		286		257
Cancidas	112		131		233		263
Cubicin	103		357		198		649
Primaxin	71		81		133		154
Immunology
Remicade	208		339		437		688
Simponi	199		199		383		387
Oncology
Keytruda	881		314		1,465		563
Emend	143		143		276		268
Temodar	65		73		130		139
Diversified Brands
Respiratory
Singulair	203		229		389		465
Nasonex	85		101		224		331
Dulera	69		121		151		234
Other
Cozaar/Hyzaar	119		132		231		258
Arcoxia	89		117		192		228
Fosamax	66		73		127		148
Vaccines ⁽¹⁾
Gardasil/Gardasil 9	469		393		1,001		770
ProQuad/M-M-R II/Varivax	399		383		754		739
RotaTeq	123		130		347		318
Pneumovax 23	166		120		329		228
Zostavax	160		149		313		274
Other pharmaceutical ⁽²⁾	1,116		1,128		2,156		2,214
Total Pharmaceutical segment sales	8,759		8,700		16,944		16,804
Other segment sales ⁽³⁾	1,056		980		2,089		1,885
Total segment sales	9,815		9,680		19,033		18,689
Other ⁽⁴⁾	115		164		332		467
	$	9,930	$	9,844	$	19,365	$	19,156

⁽¹⁾

On December 31, 2016, Merck and Sanofi terminated their equally-owned joint venture, SPMSD, which marketed vaccines in most major European markets. Accordingly, vaccine sales in 2017 include sales in the European markets that were previously part of SPMSD. Amounts for 2016 do not include sales of vaccines sold through SPMSD, the results of which are reflected in equity income from affiliates which is included in Other (income) expense, net. Amounts for 2016 do, however, include supply sales to SPMSD.


⁽²⁾	Other pharmaceutical primarily reflects sales of other human health pharmaceutical products, including products within the franchises not listed separately.


⁽³⁾	Represents the non-reportable segments of Animal Health, Healthcare Services and Alliances.


⁽⁴⁾	Other is primarily comprised of miscellaneous corporate revenues, including revenue hedging activities, as well as third-party manufacturing sales. Other in the first six months of 2017 and 2016 also includes $50 million and $75 million, respectively, related to the sale of the marketing rights to certain products.

A reconciliation of segment profits to Income before taxes is as follows:



	Three Months Ended June 30,						Six Months Ended June 30,
($ in millions)	2017			2016			2017			2016
Segment profits:
Pharmaceutical segment	$	5,613		$	5,420		$	10,793		$	10,537
Other segments	508			386			961			739
Total segment profits	6,121			5,806			11,754			11,276
Other profits	43			93			186			320
Unallocated:
Interest income	96			78			194			157
Interest expense	(193		)	(171		)	(375		)	(343		)
Equity income from affiliates	5			(6		)	(7		)	14
Depreciation and amortization	(332		)	(438		)	(702		)	(864		)
Research and development	(1,527		)	(1,833		)	(3,126		)	(3,206		)
Amortization of purchase accounting adjustments	(779		)	(1,027		)	(1,557		)	(2,161		)
Restructuring costs	(166		)	(134		)	(317		)	(225		)
Other unallocated, net	(829		)	(864		)	(1,608		)	(1,840		)
	$	2,439		$	1,504		$	4,442		$	3,128

Segment profits are comprised of segment sales less standard costs and certain operating expenses directly incurred by the segments. For internal management reporting presented to the chief operating decision maker, Merck does not allocate materials and production costs, other than standard costs, the majority of research and development expenses or general and administrative expenses, nor the cost of financing these activities. Separate divisions maintain responsibility for monitoring and managing these costs, including depreciation related to fixed assets utilized by these divisions and, therefore, they are not included in segment profits. In addition, costs related to restructuring activities, as well as the amortization of purchase accounting adjustments are not allocated to segments.

Other profits are primarily comprised of miscellaneous corporate profits, as well as operating profits related to third-party manufacturing sales.

Other unallocated, net includes expenses from corporate and manufacturing cost centers, goodwill and intangible asset impairment charges, gains or losses on sales of businesses, expense or income related to changes in the estimated fair value of contingent consideration, and other miscellaneous income or expense items.