Segment Reporting

The Company’s operations are principally managed on a products basis and include four operating segments, which are the Pharmaceutical, Animal Health, Healthcare Services and Alliances segments. The Pharmaceutical and Animal Health segments are the only reportable segments. The Animal Health segment met the criteria for separate reporting and became a reportable segment in the first quarter of 2018.

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.

The Company’s Animal Health segment 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 March 31,
	2018									2017
($ in millions)	U.S.			Int’l			Total			U.S.		Int’l		Total
Pharmaceutical:
Oncology
Keytruda	$	838		$	626		$	1,464		$	361	$	223	$	584
Emend	79			46			125			86		47		133
Temodar	1			56			57			1		65		66
Alliance revenue - Lynparza	24			9			33			—		—		—
Vaccines
Gardasil/Gardasil 9	380			280			660			398		134		532
ProQuad/M-M-R II/Varivax	312			80			392			298		57		355
RotaTeq	151			42			193			178		45		224
Pneumovax 23	112			66			179			114		49		163
Zostavax	16			48			65			109		45		154
Hospital Acute Care
Bridion	80			124			204			45		102		148
Noxafil	81			94			176			65		76		141
Invanz	91			60			151			82		54		136
Cubicin	47			51			98			54		41		96
Cancidas	3			88			91			5		116		121
Primaxin	5			67			72			—		62		62
Immunology
Simponi	—			231			231			—		184		184
Remicade	—			167			167			—		229		229
Neuroscience
Belsomra	23			31			54			20		21		42
Virology
Isentress/Isentress HD	128			152			281			143		162		305
Zepatier	—			131			131			200		178		378
Cardiovascular
Zetia	17			287			305			111		222		334
Vytorin	8			158			167			90		151		241
Atozet	—			73			73			—		49		49
Adempas	—			68			68			—		84		84
Diabetes
Januvia	465			416			880			507		332		839
Janumet	192			352			544			195		302		496
Women’s Health
NuvaRing	171			46			216			113		47		160
Implanon/Nexplanon	128			46			174			132		39		170
Diversified Brands
Singulair	6			170			175			6		180		186
Nasonex	1			121			122			18		121		139
Cozaar/Hyzaar	7			113			120			3		109		112
Arcoxia	—			83			83			—		103		103
Follistim AQ	29			39			67			42		40		81
Dulera	50			7			57			75		7		82
Fosamax	(2		)	57			55			1		60		61
Other pharmaceutical ⁽¹⁾	273			717			989			309		688		995
Total Pharmaceutical segment sales	3,716			5,202			8,919			3,761		4,424		8,185
Animal Health:
Livestock	124			529			652			119		459		578
Companion Animals	183			229			413			164		197		361
Total Animal Health segment sales	307			758			1,065			283		656		939
Other segment sales ⁽²⁾	84			—			84			94		—		94
Total segment sales	4,107			5,960			10,068			4,138		5,080		9,218
Other ⁽³⁾	26			(56		)	(31		)	57		159		216
	$	4,133		$	5,904		$	10,037		$	4,195	$	5,239	$	9,434


⁽¹⁾	Other pharmaceutical primarily reflects sales of other human health pharmaceutical products, including products within the franchises not listed separately.


⁽²⁾	Represents the non-reportable segments of Healthcare Services and Alliances.


⁽³⁾	Other is primarily comprised of miscellaneous corporate revenues, including revenue hedging activities, as well as third-party manufacturing sales. Other in the first quarter of 2018 and 2017 also includes $21 million and $50 million, respectively, related to the sale of the marketing rights to certain products.

Consolidated revenues by geographic area where derived are as follows:



	Three Months Ended March 31,
($ in millions)	2018		2017
United States	$	4,133	$	4,195
Europe, Middle East and Africa	3,191		2,629
Asia Pacific	1,238		1,001
Japan	737		705
Latin America	532		485
Other	206		419
	$	10,037	$	9,434

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



	Three Months Ended March 31,
($ in millions)	2018			2017
Segment profits:
Pharmaceutical segment	$	5,804		$	5,160
Animal Health segment	413			417
Other segments	63			33
Total segment profits	6,280			5,610
Other profits	(87		)	142
Unallocated:
Interest income	85			97
Interest expense	(185		)	(182		)
Equity income from affiliates	(50		)	(12		)
Depreciation and amortization	(350		)	(370		)
Research and development	(2,982		)	(1,632		)
Amortization of purchase accounting adjustments	(733		)	(778		)
Restructuring costs	(95		)	(151		)
Other unallocated, net	(538		)	(721		)
	$	1,345		$	2,003

Pharmaceutical segment profits are comprised of segment sales less standard costs, as well as marketing and administrative expenses and research and development costs directly incurred by the segment. Animal Health segment profits are comprised of segment sales, less all materials and production costs, as well as marketing and administrative expenses and research and development costs directly incurred by the segment. For internal management reporting presented to the chief operating decision maker, Merck does not allocate the remaining materials and production costs not included in segment profits as described above, research and development expenses incurred in Merck Research Laboratories, the Company’s research and development division that focuses on human health-related activities, 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.

In the first quarter of 2018, the Company adopted a new accounting standard related to the classification of certain defined benefit plan costs (see Note 1), which resulted in a change to the measurement of segment profits. Net periodic benefit cost (credit) other than service cost is no longer included as a component of segment profits. Prior period amounts have been recast to conform to the new presentation.