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 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. Human health 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 (see Note 9).

The Animal Health segment discovers, develops, manufactures and markets animal health products, including pharmaceutical and vaccine products, for the prevention, treatment and control of disease in all major livestock and companion animal species, 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.

The Alliances segment primarily includes activity from the Company’s relationship with AstraZeneca LP related to sales of Nexium and Prilosec, which concluded in 2018 (see Note 9).

Sales of the Company’s products were as follows:



Years Ended December 31	2018						2017						2016
	U.S.		Int’l		Total		U.S.		Int’l		Total		U.S.		Int’l		Total
Pharmaceutical:
Oncology
Keytruda	$	4,150	$	3,021	$	7,171	$	2,309	$	1,500	$	3,809	$	792	$	610	$	1,402
Emend	312		210		522		342		213		556		356		193		549
Temodar	6		209		214		16		256		271		15		268		283
Alliance revenue - Lynparza	127		61		187		—		20		20		—		—		—
Alliance revenue - Lenvima	95		54		149		—		—		—		—		—		—
Vaccines ⁽¹⁾
Gardasil/Gardasil 9	1,873		1,279		3,151		1,565		743		2,308		1,780		393		2,173
ProQuad/M-M-R II/Varivax	1,430		368		1,798		1,374		303		1,676		1,362		279		1,640
Pneumovax 23	627		281		907		581		240		821		447		193		641
RotaTeq	496		232		728		481		204		686		482		169		652
Zostavax	22		195		217		422		246		668		518		168		685
Hospital Acute Care
Bridion	386		531		917		239		465		704		77		405		482
Noxafil	353		389		742		309		327		636		284		312		595
Invanz	253		243		496		361		241		602		329		233		561
Cubicin	191		176		367		189		193		382		906		181		1,087
Cancidas	12		314		326		20		402		422		25		533		558
Primaxin	7		258		265		10		270		280		4		293		297
Immunology
Simponi	—		893		893		—		819		819		—		766		766
Remicade	—		582		582		—		837		837		—		1,268		1,268
Neuroscience
Belsomra	96		164		260		98		112		210		84		70		154
Virology
Isentress/Isentress HD	513		627		1,140		565		639		1,204		721		666		1,387
Zepatier	8		447		455		771		888		1,660		488		67		555
Cardiovascular
Zetia	45		813		857		352		992		1,344		1,588		972		2,560
Vytorin	10		487		497		124		627		751		473		668		1,141
Atozet	—		347		347		—		225		225		1		146		146
Adempas	—		329		329		—		300		300		—		169		169
Diabetes
Januvia	1,969		1,718		3,686		2,153		1,584		3,737		2,286		1,622		3,908
Janumet	811		1,417		2,228		863		1,296		2,158		984		1,217		2,201
Women’s Health
NuvaRing	722		180		902		564		197		761		576		202		777
Implanon/Nexplanon	495		208		703		496		191		686		420		186		606
Diversified Brands
Singulair	20		688		708		40		692		732		40		874		915
Cozaar/Hyzaar	23		431		453		18		466		484		16		494		511
Nasonex	23		353		376		54		333		387		184		352		537
Arcoxia	—		335		335		—		363		363		—		450		450
Follistim AQ	115		153		268		123		174		298		157		197		355
Dulera	186		28		214		261		26		287		412		24		436
Fosamax	4		205		209		6		235		241		5		279		284
Other pharmaceutical ⁽²⁾	1,228		2,855		4,090		1,148		2,917		4,065		1,261		3,158		4,420
Total Pharmaceutical segment sales	16,608		21,081		37,689		15,854		19,536		35,390		17,073		18,077		35,151
Animal Health:
Livestock	528		2,102		2,630		471		2,013		2,484		446		1,841		2,287
Companion Animals	710		872		1,582		619		772		1,391		543		648		1,191
Total Animal Health segment sales	1,238		2,974		4,212		1,090		2,785		3,875		989		2,489		3,478
Other segment sales ⁽³⁾	248		2		250		396		1		397		385		—		385
Total segment sales	18,094		24,057		42,151		17,340		22,322		39,662		18,447		20,566		39,014
Other ⁽⁴⁾	118		26		143		84		376		460		31		763		793
	$	18,212	$	24,083	$	42,294	$	17,424	$	22,698	$	40,122	$	18,478	$	21,329	$	39,807

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

⁽¹⁾

On December 31, 2016, Merck and Sanofi terminated their equally-owned joint venture, SPMSD, which marketed vaccines in most major European markets (see Note 9). Accordingly, vaccine sales in 2018 and 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 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 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 2018, 2017 and 2016 also includes approximately $95 million, $85 million and $170 million, respectively, related to the sale of the marketing rights to certain products.

Consolidated revenues by geographic area where derived are as follows:



Years Ended December 31	2018		2017		2016
United States	$	18,212	$	17,424	$	18,478
Europe, Middle East and Africa	12,213		11,478		10,953
Japan	3,212		3,122		2,846
Asia Pacific (other than Japan and China)	2,909		2,751		2,483
Latin America	2,415		2,339		2,155
China	2,184		1,586		1,435
Other	1,149		1,422		1,457
	$	42,294	$	40,122	$	39,807

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



Years Ended December 31	2018			2017			2016
Segment profits:
Pharmaceutical segment	$	24,292		$	22,495		$	22,141
Animal Health segment	1,659			1,552			1,357
Other segments	103			275			146
Total segment profits	26,054			24,322			23,644
Other profits	6			26			481
Unallocated:
Interest income	343			385			328
Interest expense	(772		)	(754		)	(693		)
Depreciation and amortization	(1,334		)	(1,378		)	(1,585		)
Research and development	(8,853		)	(9,481		)	(9,218		)
Amortization of purchase accounting adjustments	(2,664		)	(3,056		)	(3,692		)
Restructuring costs	(632		)	(776		)	(651		)
Charge related to termination of collaboration agreement with Samsung	(423		)	—			—
Loss on extinguishment of debt	—			(191		)	—
Gain on sale of certain migraine clinical development programs	—			—			100
Charge related to the settlement of worldwide Keytruda patent litigation	—			—			(625		)
Other unallocated, net	(3,024		)	(2,576		)	(3,430		)
	$	8,701		$	6,521		$	4,659

Pharmaceutical segment profits are comprised of segment sales less standard costs, as well as selling, general and administrative expenses and research and development costs directly incurred by the segment. Animal Health segment profits are comprised of segment sales, less all cost of sales, as well as selling, general 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 cost of sales 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 liabilities for contingent consideration, and other miscellaneous income or expense items.

In 2018, the Company adopted a new accounting standard related to the classification of certain defined benefit plan costs (see Note 2), 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.

Equity (income) loss from affiliates and depreciation and amortization included in segment profits is as follows:



	Pharmaceutical			Animal Health		All Other		Total
Year Ended December 31, 2018
Included in segment profits:
Equity (income) loss from affiliates	$	4		$	—	$	—	$	4
Depreciation and amortization	243			82		10		335
Year Ended December 31, 2017
Included in segment profits:
Equity (income) loss from affiliates	$	7		$	—	$	—	$	7
Depreciation and amortization	125			75		12		212
Year Ended December 31, 2016
Included in segment profits:
Equity (income) loss from affiliates	$	(105	)	$	—	$	—	$	(105	)
Depreciation and amortization	160			10		13		183

Property, plant and equipment, net, by geographic area where located is as follows:



December 31	2018		2017		2016
United States	$	8,306	$	8,070	$	8,114
Europe, Middle East and Africa	3,706		3,151		2,732
Asia Pacific (other than Japan and China)	684		632		623
Latin America	264		271		234
China	167		150		152
Japan	159		158		164
Other	5		7		7
	$	13,291	$	12,439	$	12,026

The Company does not disaggregate assets on a products and services basis for internal management reporting and, therefore, such information is not presented.