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 Animal Health segment discovers, develops, manufactures and markets animal health products, including vaccines, which the Company sells to veterinarians, distributors and animal producers.

The 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 September 30,														Nine Months Ended September 30,
	2018							2017							2018							2017
($ in millions)	U.S.			Int’l		Total		U.S.			Int’l		Total		U.S.		Int’l			Total		U.S.		Int’l		Total
Pharmaceutical:
Oncology
Keytruda	$	1,109		$	780	$	1,889	$	604		$	442	$	1,047	$	2,906	$	2,114		$	5,020	$	1,522	$	990	$	2,512
Emend	71			52		123		88			49		137		239		157			396		257		156		413
Temodar	—			46		46		—			68		68		3		156			159		4		194		198
Alliance revenue - Lynparza	33			15		49		—			5		5		88		37			125		—		5		5
Alliance revenue - Lenvima	30			13		43		—			—		—		49		29			78		—		—		—
Vaccines
Gardasil/Gardasil 9	740			308		1,048		484			191		675		1,422		894			2,317		1,195		481		1,675
ProQuad/M-M-R II/Varivax	429			96		525		419			100		519		1,097		246			1,343		1,058		215		1,273
Pneumovax 23	160			54		214		174			56		229		394		192			586		392		166		558
RotaTeq	134			57		191		127			52		179		384		156			540		377		148		525
Zostavax	(1		)	56		54		139			94		234		16		147			163		356		191		547
Hospital Acute Care
Bridion	96			120		217		63			122		185		272		389			661		162		333		495
Noxafil	89			99		188		78			83		162		257		294			551		220		237		458
Invanz	74			62		137		93			66		159		252		185			437		268		177		445
Cubicin	55			40		95		41			50		91		150		137			287		148		141		290
Cancidas	2			77		79		6			88		94		10		247			257		17		310		327
Primaxin	1			71		72		5			68		73		6		206			212		7		199		206
Immunology
Simponi	—			210		210		—			219		219		—		673			673		—		602		602
Remicade	—			135		135		—			214		214		—		459			459		—		651		651
Neuroscience
Belsomra	23			43		66		27			30		56		76		115			191		72		78		150
Virology
Isentress/Isentress HD	123			151		275		143			167		310		383		477			860		422		474		896
Zepatier	18			86		104		228			241		468		8		339			347		683		680		1,363
Cardiovascular
Zetia	9			157		165		65			255		320		34		662			696		298		723		1,021
Vytorin	—			92		92		(6		)	148		142		11		402			414		114		451		565
Atozet	—			84		84		—			59		59		—		258			258		—		171		171
Adempas	—			94		94		—			70		70		—		238			238		—		221		221
Diabetes
Januvia	498			429		927		598			414		1,012		1,466		1,291			2,756		1,646		1,153		2,799
Janumet	225			339		563		197			316		513		625		1,067			1,693		640		933		1,572
Women’s Health
NuvaRing	193			41		234		160			54		214		550		135			686		425		148		573
Implanon/Nexplanon	133			53		186		110			45		155		375		160			535		367		137		503
Diversified Brands
Singulair	5			156		161		16			145		161		16		505			521		28		522		550
Cozaar/Hyzaar	4			99		103		9			119		128		18		330			348		15		345		360
Nasonex	7			64		71		(23		)	65		42		8		266			274		16		250		266
Arcoxia	—			83		83		—			80		80		—		249			249		—		272		272
Follistim AQ	26			34		60		30			41		72		83		115			198		104		128		232
Fosamax	2			42		45		4			48		53		3		155			159		7		173		180
Dulera	44			6		50		52			7		59		128		21			149		191		19		210
Other pharmaceutical ⁽¹⁾	317			666		980		266			688		952		877		2,150			3,023		876		2,140		3,017
Total Pharmaceutical segment sales	4,649			5,010		9,658		4,197			4,959		9,156		12,206		15,653			27,859		11,887		14,214		26,101
Animal Health:
Livestock	153			508		660		137			518		655		383		1,563			1,946		359		1,457		1,816
Companion Animals	153			207		361		153			192		345		541		689			1,230		483		595		1,078
Total Animal Health segment sales	306			715		1,021		290			710		1,000		924		2,252			3,176		842		2,052		2,894
Other segment sales ⁽²⁾	55			—		55		100			—		100		194		1			195		294		—		294
Total segment sales	5,010			5,725		10,734		4,587			5,669		10,256		13,324		17,906			31,230		13,023		16,266		29,289
Other ⁽³⁾	20			39		60		7			63		69		101		(35		)	66		73		327		400
	$	5,030		$	5,764	$	10,794	$	4,594		$	5,732	$	10,325	$	13,425	$	17,871		$	31,296	$	13,096	$	16,593	$	29,689

U.S. plus international may not equal total due to rounding.


⁽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 nine months of 2018 and 2017 also includes $81 million and $60 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 September 30,				Nine Months Ended September 30,
($ in millions)	2018		2017		2018		2017
United States	$	5,030	$	4,594	$	13,425	$	13,096
Europe, Middle East and Africa	2,884		2,941		9,218		8,374
Asia Pacific	1,178		1,112		3,766		3,164
Japan	761		775		2,353		2,320
Latin America	622		585		1,748		1,654
Other	319		318		786		1,081
	$	10,794	$	10,325	$	31,296	$	29,689

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



	Three Months Ended September 30,						Nine Months Ended September 30,
($ in millions)	2018			2017			2018			2017
Segment profits:
Pharmaceutical segment	$	6,479		$	5,906		$	18,109		$	16,657
Animal Health segment	409			389			1,273			1,202
Other segments	5			93			94			234
Total segment profits	6,893			6,388			19,476			18,093
Other profits (losses)	55			(78		)	(35		)	107
Unallocated:
Interest income	92			90			257			284
Interest expense	(190		)	(189		)	(569		)	(564		)
Equity income from affiliates	85			23			101			16
Depreciation and amortization	(324		)	(334		)	(1,006		)	(1,036		)
Research and development	(1,855		)	(4,208		)	(6,878		)	(7,399		)
Amortization of purchase accounting adjustments	(679		)	(765		)	(2,144		)	(2,322		)
Restructuring costs	(171		)	(153		)	(494		)	(470		)
Aggregate charge related to termination of collaboration agreement with Samsung	(420		)	—			(420		)	—
Other unallocated, net	(821		)	(574		)	(2,191		)	(2,067		)
	$	2,665		$	200		$	6,097		$	4,642

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 other 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.