Segment Reporting

12 Months Ended

Dec. 31, 2019

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 a wide range of veterinary pharmaceutical and vaccine products, as well as health management solutions and services, for the prevention, treatment and control of disease in all major livestock and companion animal species. The Company also offers an extensive suite of digitally connected identification, traceability and monitoring products. The Company sells its products 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 Company has recently sold certain businesses in the Healthcare Services segment and is in the process of divesting the remaining businesses.

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:



Years Ended December 31	2019						2018						2017
	U.S.		Int’l		Total		U.S.		Int’l		Total		U.S.		Int’l		Total
Pharmaceutical:
Oncology
Keytruda	$	6,305	$	4,779	$	11,084	$	4,150	$	3,021	$	7,171	$	2,309	$	1,500	$	3,809
Alliance revenue - Lynparza ⁽¹⁾	269		176		444		127		61		187		—		20		20
Alliance revenue - Lenvima ⁽¹⁾	239		165		404		95		54		149		—		—		—
Emend	183		205		388		312		210		522		342		213		556
Vaccines
Gardasil/Gardasil 9	1,831		1,905		3,737		1,873		1,279		3,151		1,565		743		2,308
ProQuad/M-M-R II/Varivax	1,683		592		2,275		1,430		368		1,798		1,374		303		1,676
Pneumovax 23	679		247		926		627		281		907		581		240		821
RotaTeq	506		284		791		496		232		728		481		204		686
Vaqta	130		108		238		127		112		239		94		124		218
Hospital Acute Care
Bridion	533		598		1,131		386		531		917		239		465		704
Noxafil	282		380		662		353		389		742		309		327		636
Primaxin	2		271		273		7		258		265		10		270		280
Invanz	30		233		263		253		243		496		361		241		602
Cubicin	92		165		257		191		176		367		189		193		382
Cancidas	6		242		249		12		314		326		20		402		422
Immunology
Simponi	—		830		830		—		893		893		—		819		819
Remicade	—		411		411		—		582		582		—		837		837
Neuroscience
Belsomra	92		214		306		96		164		260		98		112		210
Virology
Isentress/Isentress HD	398		576		975		513		627		1,140		565		639		1,204
Zepatier	118		252		370		8		447		455		771		888		1,660
Cardiovascular
Zetia	14		575		590		45		813		857		352		992		1,344
Vytorin	16		269		285		10		487		497		124		627		751
Atozet	—		391		391		—		347		347		—		225		225
Adempas	—		419		419		—		329		329		—		300		300
Diabetes
Januvia	1,724		1,758		3,482		1,969		1,718		3,686		2,153		1,584		3,737
Janumet	589		1,452		2,041		811		1,417		2,228		863		1,296		2,158
Women’s Health
NuvaRing	742		136		879		722		180		902		564		197		761
Implanon/Nexplanon	568		219		787		495		208		703		496		191		686
Diversified Brands
Singulair	29		669		698		20		688		708		40		692		732
Cozaar/Hyzaar	24		418		442		23		431		453		18		466		484
Nasonex	9		284		293		23		353		376		54		333		387
Arcoxia	—		288		288		—		335		335		—		363		363
Follistim AQ	103		138		241		115		153		268		123		174		298
Other pharmaceutical ⁽²⁾	1,563		3,343		4,901		1,319		3,380		4,705		1,759		3,556		5,314
Total Pharmaceutical segment sales	18,759		22,992		41,751		16,608		21,081		37,689		15,854		19,536		35,390
Animal Health:
Livestock	582		2,201		2,784		528		2,102		2,630		471		2,013		2,484
Companion Animals	724		885		1,609		710		872		1,582		619		772		1,391
Total Animal Health segment sales	1,306		3,086		4,393		1,238		2,974		4,212		1,090		2,785		3,875
Other segment sales ⁽³⁾	174		1		175		248		2		250		396		1		397
Total segment sales	20,239		26,079		46,319		18,094		24,057		42,151		17,340		22,322		39,662
Other ⁽⁴⁾	86		436		521		118		26		143		84		376		460
	$	20,325	$	26,515	$	46,840	$	18,212	$	24,083	$	42,294	$	17,424	$	22,698	$	40,122

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


⁽¹⁾	Alliance revenue represents Merck’s share of profits, which are product sales net of cost of sales and commercialization costs (see Note 4).


⁽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 2019, 2018 and 2017 also includes approximately $80 million, $95 million and $85 million, respectively, related to the sale of the marketing rights to certain products.

Consolidated sales by geographic area where derived are as follows:



Years Ended December 31	2019		2018		2017
United States	$	20,325	$	18,212	$	17,424
Europe, Middle East and Africa	12,707		12,213		11,478
Japan	3,583		3,212		3,122
China	3,207		2,184		1,586
Asia Pacific (other than Japan and China)	2,943		2,909		2,751
Latin America	2,469		2,415		2,339
Other	1,606		1,149		1,422
	$	46,840	$	42,294	$	40,122

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



Years Ended December 31	2019			2018			2017
Segment profits:
Pharmaceutical segment	$	28,324		$	24,871		$	23,018
Animal Health segment	1,609			1,659			1,552
Other segments	(7		)	103			275
Total segment profits	29,926			26,633			24,845
Other profits	363			6			26
Unallocated:
Interest income	274			343			385
Interest expense	(893		)	(772		)	(754		)
Depreciation and amortization	(1,573		)	(1,334		)	(1,378		)
Research and development	(9,499		)	(9,432		)	(10,004		)
Amortization of purchase accounting adjustments	(1,419		)	(2,664		)	(3,056		)
Restructuring costs	(638		)	(632		)	(776		)
Charge related to the termination of a collaboration with Samsung	—			(423		)	—
Loss on extinguishment of debt	—			—			(191		)
Other unallocated, net	(5,077		)	(3,024		)	(2,576		)
Income Before Taxes	$	11,464		$	8,701		$	6,521

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 liabilities for contingent consideration, and other miscellaneous income or expense items.

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, 2019
Included in segment profits:
Equity (income) loss from affiliates	$	—	$	—	$	—	$	—
Depreciation and amortization	137		109		10		256
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

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



December 31	2019		2018		2017
United States	$	8,974	$	8,306	$	8,070
Europe, Middle East and Africa	4,767		3,706		3,151
Asia Pacific (other than Japan and China)	714		684		632
Latin America	266		264		271
China	174		167		150
Japan	152		159		158
Other	6		5		7
	$	15,053	$	13,291	$	12,439

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