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 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. During 2019, as a result of changes to the Company’s internal reporting structure, certain costs that were previously included in the Pharmaceutical segment are now being included as part of non-segment expenses within Merck Research Laboratories. Prior period Pharmaceutical segment profits have been recast to reflect these changes on a comparable basis.

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.

Sales of the Company’s products were as follows:



	Three Months Ended March 31,
	2019							2018
($ in millions)	U.S.			Int’l		Total		U.S.		Int’l			Total
Pharmaceutical:
Oncology
Keytruda	$	1,284		$	985	$	2,269	$	838	$	626		$	1,464
Emend	63			53		117		79		46			125
Alliance revenue - Lynparza	50			29		79		24		9			33
Alliance revenue - Lenvima	50			24		74		—		—			—
Vaccines
Gardasil/Gardasil 9	362			476		838		380		280			660
ProQuad/M-M-R II/Varivax	343			153		496		312		80			392
RotaTeq	154			57		211		151		42			193
Pneumovax 23	125			59		185		112		66			179
Vaqta	29			18		47		18		18			37
Hospital Acute Care
Bridion	119			136		255		80		124			204
Noxafil	91			99		190		81		94			176
Cubicin	42			46		88		47		51			98
Invanz	14			58		72		91		60			151
Cancidas	1			60		61		3		88			91
Primaxin	—			59		59		5		67			72
Immunology
Simponi	—			208		208		—		231			231
Remicade	—			123		123		—		167			167
Neuroscience
Belsomra	24			44		67		23		31			54
Virology
Isentress/Isentress HD	108			147		255		128		152			281
Zepatier	33			81		114		—		131			131
Cardiovascular
Zetia	—			140		140		17		287			305
Vytorin	3			94		97		8		158			167
Atozet	—			94		94		—		73			73
Adempas	—			90		90		—		68			68
Diabetes
Januvia	384			440		824		465		416			880
Janumet	167			364		530		192		352			544
Women’s Health
NuvaRing	185			34		219		171		46			216
Implanon/Nexplanon	149			50		199		128		46			174
Diversified Brands
Singulair	5			186		191		6		170			175
Cozaar/Hyzaar	4			99		103		7		113			120
Nasonex	(1		)	97		96		1		121			122
Arcoxia	—			75		75		—		83			83
Follistim AQ	29			28		57		29		39			67
Other pharmaceutical ⁽¹⁾	358			782		1,140		320		867			1,186
Total Pharmaceutical segment sales	4,175			5,488		9,663		3,716		5,202			8,919
Animal Health:
Livestock	117			494		611		124		529			652
Companion Animals	177			237		414		183		229			413
Total Animal Health segment sales	294			731		1,025		307		758			1,065
Other segment sales ⁽²⁾	39			—		39		84		—			84
Total segment sales	4,508			6,219		10,727		4,107		5,960			10,068
Other ⁽³⁾	7			82		89		26		(56		)	(31		)
	$	4,515		$	6,301	$	10,816	$	4,133	$	5,904		$	10,037

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.

Product sales are recorded net of the provision for discounts, including chargebacks, which are customer discounts that occur when a contracted customer purchases through an intermediary wholesale purchaser, and rebates that are owed based upon definitive contractual agreements or legal requirements with private sector and public sector (Medicaid and Medicare Part D) benefit providers, after the final dispensing of the product by a pharmacy to a benefit plan participant. These discounts, in the aggregate, reduced U.S. sales by $2.6 billion and $2.4 billion for the three months ended March 31, 2019 and 2018, respectively.

Consolidated sales by geographic area where derived are as follows:



	Three Months Ended March 31,
($ in millions)	2019		2018
United States	$	4,515	$	4,133
Europe, Middle East and Africa	3,103		3,191
Japan	799		737
China	746		486
Asia Pacific (other than Japan and China)	745		752
Latin America	561		532
Other	347		206
	$	10,816	$	10,037

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



	Three Months Ended March 31,
($ in millions)	2019			2018
Segment profits:
Pharmaceutical segment	$	6,574		$	5,939
Animal Health segment	415			413
Other segments	2			63
Total segment profits	6,991			6,415
Other profits (losses)	30			(87		)
Unallocated:
Interest income	89			85
Interest expense	(209		)	(185		)
Depreciation and amortization	(359		)	(350		)
Research and development	(1,843		)	(3,117		)
Amortization of purchase accounting adjustments	(397		)	(733		)
Restructuring costs	(153		)	(95		)
Other unallocated, net	(1,082		)	(588		)
	$	3,067		$	1,345

Pharmaceutical segment profits are comprised of segment sales less standard costs, as well as selling, general and administrative expenses 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 contingent consideration, and other miscellaneous income or expense items.