Goodwill and Other Intangibles

The following table summarizes goodwill activity by segment:



	Pharmaceutical			All Other			Total
Balance January 1, 2015	$	11,108		$	1,884		$	12,992
Acquisitions	4,684			29			4,713
Divestitures	(18		)	—			(18		)
Impairments	—			(47		)	(47		)
Other ⁽¹⁾	88			(5		)	83
Balance December 31, 2015 ⁽²⁾	15,862			1,861			17,723
Acquisitions	207			275			482
Impairments	—			(47		)	(47		)
Other ⁽¹⁾	6			(2		)	4
Balance December 31, 2016 ⁽²⁾	$	16,075		$	2,087		$	18,162

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

⁽²⁾ Accumulated goodwill impairment losses at December 31, 2016 and 2015 were $187 million and $140 million, respectively.

In 2016, the additions to goodwill in the Pharmaceutical segment resulted primarily from the acquisitions of Afferent and IOmet (see Note 3), as well as from the termination of the SPMSD joint venture, which was treated as a step-acquisition for accounting purposes (see Note 8). The addition to goodwill within other non-reportable segments in 2016 relates to the acquisition of StayWell, which is part of the Healthcare Services segment (see Note 3). In 2015, the additions to goodwill in the Pharmaceutical segment resulted primarily from the acquisition of Cubist and the reductions resulted from the divestiture of the Company’s remaining ophthalmics business in international markets (see Note 3). The impairments of goodwill within other non-reportable segments in 2016 and 2015 relate to certain businesses within the Healthcare Services segment.

Other intangibles at December 31 consisted of:



	2016						2015
	Gross Carrying Amount		Accumulated Amortization		Net		Gross Carrying Amount		Accumulated Amortization		Net
Products and product rights	$	46,269	$	31,919	$	14,350	$	45,949	$	28,514	$	17,435
IPR&D	1,653		—		1,653		4,226		—		4,226
Tradenames	215		89		126		198		79		119
Other	1,947		771		1,176		1,418		596		822
	$	50,084	$	32,779	$	17,305	$	51,791	$	29,189	$	22,602

Acquired intangibles include products and product rights, tradenames and patents, which are recorded at fair value, assigned an estimated useful life, and are amortized primarily on a straight-line basis over their estimated useful lives. The increase in intangible assets for products and product rights in 2016 primarily relates to the recognition of intangible assets in connection with the termination of the SPMSD joint venture (see Note 8). Some of the Company’s more significant acquired intangibles related to marketed products (included in product and product rights above) at December 31, 2016 include Zerbaxa, $3.3 billion; Zetia, $1.5 billion; Sivextro, $955 million; Vytorin, $938 million; Implanon/Nexplanon $587 million; Dificid, $561 million; Gardasil/Gardasil 9, $468 million; NuvaRing, $319 million; and Nasonex, $308 million. The Company recognized an intangible asset related to Adempas as a result of the formation of a collaboration with Bayer in 2014 (see Note 3) that had a carrying value of $872 million at December 31, 2016 reflected in “Other” in the table above.

During 2016, 2015 and 2014, the Company recorded impairment charges related to marketed products and other intangibles of $347 million, $45 million and $1.1 billion, respectively, within Material and production costs. In 2016, the Company lowered its cash flow projections for Zontivity, a product for the reduction of thrombotic cardiovascular events in patients with a history of myocardial infarction or with peripheral arterial disease, following several business decisions that reduced sales expectations for Zontivity in the United States and Europe. The Company utilized market participant assumptions and considered several different scenarios to determine the fair value of the intangible asset related to Zontivity that, when compared with its related carrying value, resulted in an impairment charge of $252 million. Also during 2016, the Company wrote-off $95 million that had been capitalized in connection with in-licensed products Grastek and Ragwitek, allergy immunotherapy tablets that, for business reasons, the Company has determined it will return to the licensor. The charges in 2015 primarily relate to the impairment of customer relationship and tradename intangibles for certain businesses within in the Healthcare Services segment. Of the amount recorded in 2014, $793 million related to PegIntron, $244 million related to Victrelis and $35 million related to Rebetol, all of which are products for the treatment of chronic HCV infection. During 2014, developments in the competitive HCV treatment market led to market share losses that were greater than the Company had predicted causing changes in cash flow projections for PegIntron, Victrelis and Rebetol that indicated the intangible asset values were not recoverable on an undiscounted cash flows basis. The Company utilized market participant assumptions to determine its best estimate of the fair values of the intangible assets related to PegIntron, Victrelis and Rebetol that, when compared with their related carrying values, resulted in the impairment charges noted above.

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. During 2016, 2015 and 2014, $8 million, $280 million and $654 million, respectively, of IPR&D was reclassified to products and product rights upon receipt of marketing approval in a major market.

During 2016, the Company recorded $3.6 billion of IPR&D impairment charges within Research and development expenses. Of this amount, $2.9 billion relates to the clinical development program for uprifosbuvir, a nucleotide prodrug in clinical development being evaluated for the treatment of HCV. The Company determined that recent changes to the product profile, as well as changes to Merck’s expectations for pricing and the market opportunity, taken together constituted a triggering event that required the Company to evaluate the uprifosbuvir intangible asset for impairment. Utilizing market participant assumptions, and considering different scenarios, the Company concluded that its best estimate of the current fair value of the intangible asset related to uprifosbuvir was $240 million, resulting in the recognition of the pretax impairment charge noted above. The IPR&D impairment charges in 2016 also include charges of $180 million and $143 million related to the discontinuation of programs obtained in connection with the acquisitions of cCAM and OncoEthix, respectively, resulting from unfavorable efficacy data. An additional $72 million relates to programs obtained in connection with the SmartCells acquisition following a decision to terminate the lead compound due to a lack of efficacy and to pursue a back-up compound which reduced projected future cash flows. The IPR&D impairment charges in 2016 also include $112 million related to an in-licensed program for house dust mite allergies that, for business reasons, will be returned to the licensor. The remaining IPR&D impairment charges for 2016 primarily relate to deprioritized pipeline programs that were deemed to have no alternative use during the period, including a $79 million impairment charge for an investigational candidate for contraception. The discontinuation or delay of certain of these clinical development programs resulted in a reduction of the related liabilities for contingent consideration (see Note 3).

During 2015, the Company recorded $63 million of IPR&D impairment charges, of which $50 million related to the surotomycin clinical development program. During 2015, the Company received unfavorable efficacy data from a clinical trial for surotomycin. The evaluation of this data, combined with an assessment of the commercial opportunity for surotomycin, resulted in the discontinuation of the program and the IPR&D impairment charge noted above.

During 2014, the Company recorded $49 million of IPR&D impairment charges primarily as a result of changes in cash flow assumptions for certain compounds obtained in connection with the Company’s joint venture with Supera Farma Laboratorios S.A. (Supera), as well as for the discontinuation of certain Animal Health programs.

All of 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 primarily recorded within Materials and production costs was $3.8 billion in 2016, $4.8 billion in 2015 and $4.2 billion in 2014. The estimated aggregate amortization expense for each of the next five years is as follows: 2017, $3.2 billion; 2018, $2.8 billion; 2019, $1.4 billion; 2020, $1.2 billion; 2021, $1.1 billion.