Goodwill and Other Intangibles

The following table summarizes goodwill activity by segment:



	Pharmaceutical			Animal Health			All Other			Total
Balance January 1, 2017	$	16,075		$	1,708		$	379		$	18,162
Acquisitions	—			177			—			177
Impairments	—			—			(38		)	(38		)
Other ⁽¹⁾	(9		)	(8		)	—			(17		)
Balance December 31, 2017 ⁽²⁾	16,066			1,877			341			18,284
Acquisitions	—			17			24			41
Impairments	—			—			(144		)	(144		)
Other ⁽¹⁾	96			(24		)	—			72
Balance December 31, 2018 ⁽²⁾	$	16,162		$	1,870		$	221		$	18,253

⁽¹⁾Other includes cumulative translation adjustments on goodwill balances and certain other adjustments.

⁽²⁾ Accumulated goodwill impairment losses at December 31, 2018 and 2017 were $369 million and $225 million, respectively.

The additions to goodwill within the Animal Health segment in 2017 primarily relate to the acquisition of Vallée (see Note 3). The impairments of goodwill within other non-reportable segments in 2018 and 2017 relate to certain businesses within the Healthcare Services segment.

Other intangibles at December 31 consisted of:



	2018						2017
	Gross Carrying Amount		Accumulated Amortization		Net		Gross Carrying Amount		Accumulated Amortization		Net
Products and product rights	$	46,615	$	37,585	$	9,030	$	46,693	$	34,950	$	11,743
IPR&D	1,064		—		1,064		1,194		—		1,194
Tradenames	209		107		102		209		97		112
Other	2,403		1,168		1,235		2,035		901		1,134
	$	50,291	$	38,860	$	11,431	$	50,131	$	35,948	$	14,183

Acquired intangibles include products and product rights, tradenames and patents, which are initially recorded at fair value, assigned an estimated useful life, and amortized primarily on a straight-line basis over their estimated useful lives. Some of the Company’s more significant acquired intangibles related to marketed products (included in products and product rights above) at December 31, 2018 include Zerbaxa, $2.7 billion; Sivextro, $833 million; Implanon/Nexplanon $470 million; Dificid, $395 million; Gardasil/Gardasil 9, $384 million; Bridion, $275 million; and Simponi, $194 million. The Company has an intangible asset related to Adempas as a result of a collaboration with Bayer (see Note 4) that had a carrying value of $1.0 billion at December 31, 2018 reflected in “Other” in the table above.

During 2017 and 2016, the Company recorded impairment charges related to marketed products and other intangibles of $58 million and $347 million, respectively, within Cost of sales. During 2017, the Company recorded an intangible asset impairment charge of $47 million related to Intron A, a treatment for certain types of cancers. Sales of Intron A are being adversely affected by the availability of new therapeutic options. In 2017, sales of Intron A in the United States eroded more rapidly than previously anticipated by the Company, which led to changes in the cash flow assumptions for Intron A. These revisions to cash flows indicated that the Intron A intangible asset value was not fully recoverable on an undiscounted cash flows basis. The Company utilized market participant assumptions to determine its best estimate of the fair value of the intangible asset related to Intron A that, when compared with its related carrying value, resulted in the impairment charge noted above. The remaining charges in 2017 relate to the impairment of customer relationship, tradename and developed technology intangibles for certain businesses in the Healthcare Services segment. In 2016, the Company lowered its cash flow projections for Zontivity, a product for the reduction of thrombotic cardiovascular events in patients with a history of myocardial infarction or with peripheral arterial disease, following several business decisions that reduced sales expectations for Zontivity in the United States and Europe. The Company utilized market participant assumptions and considered several different scenarios to determine the fair value of the intangible asset related to Zontivity that, when compared with its related carrying value, resulted in an impairment charge of $252 million. Also during 2016, the Company wrote-off $95 million that had been capitalized in connection with in-licensed products Grastek and Ragwitek, allergy immunotherapy tablets that, for business reasons, the Company returned to the licensor.

IPR&D that the Company acquires through business combinations represents the fair value assigned to incomplete research projects which, at the time of acquisition, have not reached technological feasibility. Amounts capitalized as IPR&D are accounted for as indefinite-lived intangible assets, subject to impairment testing until completion or abandonment of the projects. Upon successful completion of each project, the Company will make a separate determination as to the then useful life of the asset and begin amortization.

In 2018, the Company recorded $152 million of IPR&D impairment charges within Research and development expenses. Of this amount, $139 million relates to the write-off of the remaining intangible asset balance for a program obtained in connection with the SmartCells acquisition following a decision to terminate the program due to product development issues. The Company previously recorded an impairment charge in 2016 for the other programs obtained in connection with the acquisition of SmartCells as described below. The discontinuation of this clinical development program resulted in a reversal of the related liability for contingent consideration of $60 million (see Note 6).

In 2017, the Company recorded $483 million of IPR&D impairment charges. Of this amount, $240 million resulted from a strategic decision to discontinue the development of the investigational combination regimens MK-3682B (grazoprevir/ruzasvir/uprifosbuvir) and MK-3682C (ruzasvir/uprifosbuvir) for the treatment of chronic hepatitis C virus (HCV) infection. This decision was made based on a review of available Phase 2 efficacy data and in consideration of the evolving marketplace and the growing number of treatment options available for patients with chronic HCV infection, including Zepatier, which is marketed by the Company for the treatment of adult patients with chronic HCV infection. As a result of this decision, the Company recorded an IPR&D impairment charge to write-off the remaining intangible asset related to uprifosbuvir. The Company had previously recorded an impairment charge for uprifosbuvir in 2016 as described below. The IPR&D impairment charges in 2017 also include a charge of $226 million to write-off the intangible asset related to verubecestat, an investigational small molecule inhibitor of the beta-site amyloid precursor protein cleaving enzyme 1 (BACE1), resulting from a decision in February 2018 to stop a Phase 3 study evaluating verubecestat in people with prodromal Alzheimer’s disease. The decision to stop the study followed a recommendation by the external Data Monitoring Committee (eDMC), which assessed overall benefit/risk during an interim safety analysis. The eDMC concluded that it was unlikely that positive benefit/risk could be established if the trial continued.

During 2016, the Company recorded $3.6 billion of IPR&D impairment charges. Of this amount, $2.9 billion related to the clinical development program for uprifosbuvir, a nucleotide prodrug that was being evaluated for the treatment of HCV. The Company determined that changes to the product profile, as well as changes to Merck’s expectations for pricing and the market opportunity, taken together constituted a triggering event that required the Company to evaluate the uprifosbuvir intangible asset for impairment. Utilizing market participant assumptions, and considering different scenarios, the Company concluded that its best estimate of the fair value of the intangible asset related to uprifosbuvir was $240 million, resulting in the recognition of the impairment charge noted above. The IPR&D impairment charges in 2016 also included charges of $180 million and $143 million related to the discontinuation of programs obtained in connection with the acquisitions of cCAM Biotherapeutics Ltd. and OncoEthix, respectively, resulting from unfavorable efficacy data. An additional $72 million related to programs obtained in connection with the SmartCells acquisition following a decision to terminate the lead compound due to a lack of efficacy and to pursue a back-up compound which reduced projected future cash flows. The IPR&D impairment charges in 2016 also included $112 million related to an in-licensed program for house dust mite allergies that, for business reasons, was returned to the licensor. The remaining IPR&D impairment charges in 2016 primarily related to deprioritized pipeline programs that were deemed to have no alternative use during the period, including a $79 million impairment charge for an investigational candidate for contraception. The discontinuation or delay of certain of these clinical development programs resulted in a reduction of the related liabilities for contingent consideration.

The IPR&D projects that remain in development are subject to the inherent risks and uncertainties in drug development and it is possible that the Company will not be able to successfully develop and complete the IPR&D programs and profitably commercialize the underlying product candidates.

The Company may recognize additional non-cash impairment charges in the future related to other marketed products or pipeline programs and such charges could be material.

Aggregate amortization expense primarily recorded within Cost of sales was $2.9 billion in 2018, $3.2 billion in 2017 and $3.8 billion in 2016. The estimated aggregate amortization expense for each of the next five years is as follows: 2019, $1.5 billion; 2020, $1.2 billion; 2021, $1.1 billion; 2022, $1.1 billion; 2023, $1.1 billion.