Goodwill and Other Intangibles

12 Months Ended

Dec. 31, 2019

Goodwill and Intangible Assets Disclosure [Abstract]

The following table summarizes goodwill activity by segment:



	Pharmaceutical		Animal Health			All Other			Total
Balance January 1, 2018	$	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
Acquisitions	19		1,322			—			1,341
Impairments	—		—			(162		)	(162		)
Other ⁽¹⁾	—		—			(7		)	(7		)
Balance December 31, 2019 ⁽²⁾	$	16,181	$	3,192		$	52		$	19,425

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

⁽²⁾ Accumulated goodwill impairment losses at December 31, 2019 and 2018 were $531 million and $369 million, respectively.

The additions to goodwill within the Animal Health segment in 2019 primarily relate to the acquisition of Antelliq (see Note 3). The impairments of goodwill within other non-reportable segments in 2019 and 2018 relate to certain businesses within the Healthcare Services segment.

Other intangibles at December 31 consisted of:



	2019						2018
	Gross Carrying Amount		Accumulated Amortization		Net		Gross Carrying Amount		Accumulated Amortization		Net
Products and product rights	$	45,947	$	38,852	$	7,095	$	46,615	$	37,585	$	9,030
Licenses	3,185		824		2,361		2,081		408		1,673
IPR&D	1,032		—		1,032		1,064		—		1,064
Trade names	2,899		217		2,682		209		107		102
Other	2,261		1,235		1,026		2,403		1,168		1,235
	$	55,324	$	41,128	$	14,196	$	52,372	$	39,268	$	13,104

Acquired intangibles include products and product rights, licenses, trade names 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, on a net basis, related to human health marketed products (included in products and product rights above) at December 31, 2019 include Zerbaxa, $2.4 billion; Implanon/Nexplanon, $412 million; Gardasil/Gardasil 9, $314 million; Dificid, $312 million; Bridion, $230 million; Sivextro, $171 million; and Simponi, $163 million. Additionally, the Company had $2.4 billion of acquired intangibles related to animal health marketed products at December 31, 2019. Some of the Company’s more significant intangible assets included in licenses above at December 31, 2019 include Lenvima, $956 million and Lynparza, $955 million as a result of collaborations with Eisai and AstraZeneca (see Note 4). The increase in trade names in 2019 reflects $2.7 billion of intangibles acquired in the Antelliq acquisition in 2019 (see Note 3). 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 $883 million at December 31, 2019 reflected in “Other” in the table above.

In 2019, the Company recorded impairment charges related to marketed products and other intangibles of $705 million within Cost of sales. Of this amount, $612 million related to Sivextro, a product for the treatment of acute bacterial skin and skin structure infections caused by designated susceptible Gram-positive organisms. As part of a reorganization and reprioritization of its internal sales force, the Company made the decision to cease promotion of Sivextro in the U.S. market by the end of 2019. This decision resulted in reduced cash flow projections for Sivextro, which indicated that the Sivextro 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 Sivextro that, when compared with its related carrying value, resulted in the impairment charge noted above.

In 2017, the Company recorded impairment charges related to marketed products and other intangibles of $58 million. Of this amount, $47 million related to Intron A, a treatment for certain types of cancers. Sales of Intron A were 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.

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 2019, the Company recorded $172 million of IPR&D impairment charges within Research and development expenses. Of this amount, $155 million relates to the write-off of the intangible asset balance for programs obtained in connection with the acquisition of IOmet Pharma Ltd following a review of clinical trial results conducted by Merck, along with external clinical trial results for similar compounds. The discontinuation of this clinical development program resulted in a reversal of the related liability for contingent consideration of $11 million.

In 2018, the Company recorded $152 million of IPR&D impairment charges. 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 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 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.

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 recorded within Cost of sales was $2.0 billion in 2019, $3.1 billion in 2018 and $3.2 billion in 2017. The estimated aggregate amortization expense for each of the next five years is as follows: 2020, $1.6 billion; 2021, $1.5 billion; 2022, $1.5 billion; 2023, $1.5 billion; 2024, $1.4 billion.