Segment Reporting

6 Months Ended

Jun. 30, 2023

Segment Reporting [Abstract]

Segment Reporting

Segment Reporting

The Company’s operations are principally managed on a product basis and include two operating segments, Pharmaceutical and Animal Health, both of which are 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. 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.

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, animal producers, farmers and pet owners.

Sales of the Company’s products were as follows:

	Three Months Ended June 30,												Six Months Ended June 30,
	2023						2022						2023						2022
($ in millions)	U.S.		Int’l		Total		U.S.		Int’l		Total		U.S.		Int’l		Total		U.S.		Int’l		Total
Pharmaceutical:
Oncology
Keytruda	$	3,863	$	2,408	$	6,271	$	3,197	$	2,055	$	5,252	$	7,348	$	4,718	$	12,065	$	5,976	$	4,085	$	10,061
Alliance revenue-Lynparza (1)	144		166		310		143		132		275		286		299		585		283		257		541
Alliance revenue-Lenvima (1)	163		79		242		128		103		231		316		158		474		284		175		459
Welireg	49		2		50		27		—		27		90		3		92		45		—		45
Alliance revenue-Reblozyl (2)	36		11		47		28		5		33		66		24		90		55		30		86
Vaccines
Gardasil/Gardasil 9	464		1,994		2,458		428		1,245		1,674		880		3,550		4,430		846		2,287		3,133
ProQuad/M-M-R II/Varivax	447		135		582		434		143		578		868		242		1,109		805		243		1,047
RotaTeq	93		37		131		98		75		173		273		155		428		273		116		389
Vaxneuvance	147		20		168		11		—		12		241		33		274		16		1		16
Pneumovax 23	23		69		92		94		59		153		63		125		188		212		114		325
Vaqta	29		13		42		16		19		35		59		23		82		45		25		71
Hospital Acute Care
Bridion	299		203		502		237		190		426		576		413		989		432		389		821
Prevymis	61		82		143		47		56		103		116		157		273		87		110		197
Dificid	68		8		76		63		3		66		130		11		141		113		6		119
Primaxin	(2)		56		53		—		64		64		2		132		133		1		122		122
Noxafil	11		45		55		16		45		60		25		91		116		25		92		118
Zerbaxa	30		24		54		22		24		46		57		47		104		40		36		76
Cardiovascular
Alliance revenue-Adempas/Verquvo (3)	70		(2)		68		88		10		98		153		14		167		159		11		170
Adempas	—		65		65		—		63		63		—		125		125		—		124		124
Virology
Lagevrio	2		201		203		—		1,177		1,177		—		595		595		1,523		2,901		4,424
Isentress/Isentress HD	56		80		136		67		80		147		108		151		259		128		177		305
Neuroscience
Belsomra	21		42		63		19		50		69		37		82		119		39		98		137
Immunology
Simponi	—		180		180		—		181		181		—		359		359		—		366		366
Remicade	—		48		48		—		53		53		—		99		99		—		114		114
Diabetes
Januvia	243		267		511		301		455		756		514		548		1,062		626		909		1,535
Janumet	82		272		354		105		371		476		138		544		683		168		762		931
Other pharmaceutical (4)	171		382		553		157		372		528		342		793		1,138		317		814		1,131
Total Pharmaceutical segment sales	6,570		6,887		13,457		5,726		7,030		12,756		12,688		13,491		26,179		12,498		14,364		26,863
Animal Health:
Livestock	165		643		807		164		662		826		338		1,318		1,656		335		1,322		1,658
Companion Animal	310		339		649		313		328		641		618		673		1,291		616		676		1,291
Total Animal Health segment sales	475		982		1,456		477		990		1,467		956		1,991		2,947		951		1,998		2,949
Total segment sales	7,045		7,869		14,913		6,203		8,020		14,223		13,644		15,482		29,126		13,449		16,362		29,812
Other (5)	(27)		149		122		35		335		370		32		364		396		128		555		682
	$	7,018	$	8,018	$	15,035	$	6,238	$	8,355	$	14,593	$	13,676	$	15,846	$	29,522	$	13,577	$	16,917	$	30,494

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

(1)    Alliance revenue for Lynparza and Lenvima represents Merck’s share of profits, which are product sales net of cost of sales and commercialization costs (see Note 3).

(2)    Alliance revenue for Reblozyl represents royalties and, for the first six months of 2022, also includes the receipt of a regulatory approval milestone payment (see Note 3).

(3)    Alliance revenue for Adempas/Verquvo represents Merck’s share of profits from sales in Bayer’s marketing territories, which are product sales net of cost of sales and commercialization costs (see Note 3).

(4)    Other pharmaceutical primarily reflects sales of other human health pharmaceutical products, including products within the franchises not listed separately.

(5)    Other is primarily comprised of miscellaneous corporate revenue, including revenue hedging activities which increased sales by $128 million and $277 million for the six months ended June 30, 2023 and 2022, respectively, as well as revenue from third-party manufacturing arrangements (including sales to Organon). Other for the six months ended June 30, 2023 and 2022 also includes $54 million and $146 million, respectively, related to upfront and milestone payments received by Merck for out-licensing arrangements.

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 $3.2 billion and $3.0 billion for the three months ended June 30, 2023 and 2022, respectively, and $6.3 billion and $5.9 billion for the six months ended June 30, 2023 and 2022, respectively.

Consolidated sales by geographic area where derived are as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
($ in millions)	2023		2022		2023		2022
United States	$	7,018	$	6,238	$	13,676	$	13,577
Europe, Middle East and Africa	3,348		3,582		6,651		7,942
China	1,913		1,372		3,628		2,515
Asia Pacific (other than China and Japan)	848		1,008		1,694		1,938
Japan	675		1,114		1,434		2,103
Latin America	742		642		1,403		1,249
Other	491		637		1,036		1,170
	$	15,035	$	14,593	$	29,522	$	30,494

A reconciliation of segment profits to (Loss) Income Before Taxes is as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
($ in millions)	2023		2022		2023		2022
Segment profits:
Pharmaceutical segment	$	9,854	$	9,173	$	18,993	$	18,673
Animal Health segment	467		571		1,032		1,156
Total segment profits	10,321		9,744		20,025		19,829
Other profits	19		260		184		454
Unallocated:
Interest income	109		15		221		22
Interest expense	(277)		(240)		(519)		(483)
Amortization	(477)		(463)		(1,020)		(1,163)
Depreciation	(376)		(431)		(775)		(809)
Research and development	(13,194)		(2,652)		(17,341)		(5,097)
Restructuring costs	(151)		(142)		(218)		(194)
Charge for Zetia antitrust litigation settlements	—		—		(573)		—
Other unallocated, net	(1,309)		(1,604)		(1,669)		(3,211)
	$	(5,335)	$	4,487	$	(1,685)	$	9,348

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 intangible assets and 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 arrangements.

Other unallocated, net, includes expenses from corporate and manufacturing cost centers, intangible asset impairment charges, gains or losses on sales of businesses, expense or income related to changes in the estimated fair value measurement of liabilities for contingent consideration, and other miscellaneous income or expense items.