Download - Johnson and Johnson (JNJ) Earnings Report: Q2 2015 ...s.t.st/media/xtranscript/2015/Q3/13218079.pdf · Johnson and Johnson (JNJ) Earnings Report: Q2 2015 Conference Call Transcript

CompanyName:Johnson&JohnsonCompanyTicker:JNJSector:HealthCareIndustry:Drugs

EventDescription:Q22015EarningsCallMarketCapasofEventDate:276.00BPriceasofEventDate:99.5

©2014TheStreet,Inc.Al l R ightsReserved Page1of35

JohnsonandJohnson(JNJ)EarningsReport:Q22015ConferenceCallTranscriptThefollowingJohnsonandJohnsonconferencecalltookplaceonJuly14,2015,08:30AMET.Thisisatranscriptofthatearningscall:

CompanyPart icipants

LouiseMehrotra;JohnsonandJohnson;V.P-InvestorRelationsAlexGorsky;JohnsonandJohnson;ChairmanoftheBoardofDirectors,CEOSandyPeterson;JohnsonandJohnson;GroupWorldwideChairmanDominicCaruso;JohnsonandJohsnon;V.PFinance,CFO

OtherPart icipants

GlennNovarro;RBCCapitalMarkets;AnalystKristenStewart;DeutscheBank;AnalystMikeWeinstein;JPMorgan;AnalystLarryBiegelsen;WellsFargo;AnalystJamiRubin;GoldmanSachs;AnalystJoshJennings;CowenandCompany;AnalystVamilDivan;CreditSuisse;AnalystJaysonBedford;RaymondJames;AnalystDavidLewis;MorganStanley;Analyst

MANAGEMENTDISCUSSIONSECTION

Operator :

Goodmorning,andwelcometoJohnson&Johnson'ssecondquarter2015earningsconferencecall.

Allparticipantswillbeabletolistenonlyuntilthequestion-and-answersessionoftheconference.

Thiscallisbeingrecorded.Ifanyonehasanyobjections,youmaydisconnectatthistime.

(OperatorInstructions).

IwouldnowliketoturntheconferencecallovertoJohnson&Johnson.

Youmaybegin.

LouiseMehrotra(V.P-InvestorRelations):

Goodmorningandwelcome.

I'mLouiseMehrotra,VicePresidentofInvestorRelationsforJohnson&Johnsonanditismypleasurethismorningtoreviewourbusinessresultsforthesecondquarterof2015.

JoiningmeonthecalltodayareAlexGorsky,ChairmanoftheBoardofDirectorsandChiefExecutiveOfficer,SandyPeterson,groupworldwideChairmanandDominicCaruso,VicePresidentfinanceandChiefFinancialOfficer.




Afewlogisticsbeforewegetintothedetails.

ThisreviewisbeingmadeavailableviaWebcastaccessiblethroughtheInvestorRelationssectionoftheJohnson&Johnsonwebsiteatinvestor.J&J.com.

I'llbeginbybrieflyreviewingsecondquarterforthecorporationandforourthreebusinesssegments.

Alexwillprovideadditionalcommentaryonthebusinessandourprogresseswithregardstoourneartermpriorities.

Next,Sandywillprovideanupdateonourconsumerandconsumermedicaldevicebusinesses.

Lastly,Dominicwillreviewtheincomestatementanddiscussguidancefor2015.Wewillthenopenthecalltoyourquestions.

Weexpectthecalltolastapproximately90minutes.

Includedwiththepressreleasethatwasissuedearlierthismorningisascheduleofsalesforkeyproductsand/orbusinessestofacilitateupdatingyourmodels.

TheseschedulesareavailableontheJohnson&Johnsonwebsiteasisthepressrelease.

Pleasenotewewillbeusingapresentationtocomplementtoday'scommentary.

Thepresentationisalsoavailableonourwebsite.

Beforewebegin,letmeremindyouthatsomeofthestatementsmadeduringthisreviewareormaybeconsideredforward-lookingstatements.

The10-Kforthefiscalyear2014andtheCompany'ssubsequentfilingsidentifycertainfactorsthatcouldcausetheCompany'sactualresultstodiffermateriallyfromthoseprojectedinanyforward-lookingstatementsmadetoday.

TheCompanydoesnotundertaketoupdateanyforward-lookingstatementsasaresultofnewinformationorfutureeventsordevelopments.

OurSECfilingsincludingthe10-KareavailablethroughtheCompanyandonourwebsite.

Duringthereview,non-GAAPfinancialmeasuresareusedtoprovideinformationpenth.ShouldnotbeconsideredreplacementsforandshouldbereadtogetherwithGAAPresults.

TablesreconcilingthesemeasurestothemostcomparableGAAPmeasuresareavailableintheschedulesaccompanyingthepressreleaseandontheInvestorRelationssectionoftheJohnson&Johnsonwebsite.

NowIwouldliketoreviewresultsforthesecondquarterof2015.Worldwidesalestocustomerswere$17.8billionforthesecondquarterof2015,down8.8%versussecondquarter2014.Onanoperationalbasis,salesweredown0.9%andcurrencyhadanegativeimpactof7.9%.

IntheUS,salesweredown2.4%.

InregionsoutsidetheUS,ouroperationalgrowthwas0.5%whiletheeffectivecurrencyexchangeratesnegativelyimpactedourreportedresultsby14.8%.

OnanoperationalbasistheAsia-PacificAfricaregiongrewby2.2%,whileEuropegrow1%andtheWesternHemisphereexcludingtheUSdeclined4%.GrowthintheUSandJapanwasnegatively




impactedbyhepatitisCcompetition.

Growthinallregionswasimpactedwhichdivestitures,themostsignificantonebeingOrthoClinicalDiagnostics.

Excludingthenetimpactofacquisitionsanddivestitures,underlyingoperationalgrowthwas1.7%worldwide,0.6%intheUS,and2.7%outsidetheUS.AdditionallyexcludinghepatitisCsales,underlyingoperationalgrowthwas5%.Turningnowtoearnings.

Netearningswere$4.5billionandearningspersharewere$1.61versus$1.51ayearago.

Asreferencedinthetablereconcilingnon-GAAPmeasures,2015secondquarternetearningswereadjustedtoexcludeaftertaxamortizationexpenseof$230million,andachargeof$66millionforaftertaxspecialitems.2014secondquarternetearningswereadjustedtoexcludeachargeof$807million.

Dominicwilldiscussspecialitemsinhisremarks.

Excludingamortizationexpenseandspecialitemsforbothperiods,adjustednetearningsforthecurrentquarterwere$4.8billion,andadjusteddilutedearningspersharewere$1.71,representingdecreasesof6.3%and3.9%respectivelyascomparedtothesameperiodin2014.Currencytranslationsignificantlyimpactednetearnings.

Onanoperationalbasis,adjusteddilutedearningspersharegrew6.7%.

Turningnowtobusinesssegmenthighlights.

Pleasenotepercentagesquotedrepresentoperationalsaleschangeincomparisontothesecondquarterof2014unlessotherwisestated,andthereforeexcludetheimpactofcurrencytranslation.

I'llbeginwiththeconsumersegment.

Worldwideconsumersegmentsalesof$3.5billionincreased2.3%withUSsalesup2.7%,whileoutsidetheUSsalesgrew2.1%.

Excludingthenetimpactofacquisitionsanddivestitures,underlyingoperationalgrowthwas3.1%worldwide,2.9%intheUS,and3.2%outsidetheUS.GrowthwasdrivenbyOTCworldwide.

Women'shealthoutsidetheUSandoralcare.

OTCsalesgrowthwasdrivenbyworldwideanalgesics,intheUSandotherupperrespiratoryproductsoutsidetheUS.Upperrespiratory.

Includedaseasonalinventorybuild.

IntheUS,adultanalgesicmarketsharewasapproximately12%,upfromapproximately11%ayearago,whileUSpediatricsharewasnearly44%upfrom39%ayearago.

NewproductlaunchesandsuccessfulmarketingcampaignsdrovetheresultsforListerineinoralcareandwomen'shealthproductsoutsidetheUS.Movingnowtoourpharmaceuticalsegment.

Worldwidesalesof$7.9billionincreased1%withUSsalesdown1.5%andsalesoutsidetheUSup3.8%.

NewcompetitorsinhepatitisCsignificantlyimpactedsalesresults.

ExcludingsalesofourhepatitisCproducts,O lysioand,aswellastheimpactofacquisitionsand




divestitures,underlyinggrowthworldwideUSandoutsidetheUSwasapproximately9.7%,16.5%,and2.5%respectively.

USresultsincludedapositiveadjustmenttosalesreservesformanagedMedicaidrebatesreflectingfinaldatareceived.

UScomparisonstosecondquarter2014werepositivelyimpactedbyapproximately2%andworldwidebyapproximately1%.ThemostsignificantimpactfromthemanagedMedicaidadjustmentwastocontraceptive.

SignificantcontributorstogrowthwereInvokanaInvokamet,Imbruvica,Xarelto,Zytiga,InvegaSustenna,Concerta,andimmunologyproducts.

StrongmomentuminmarketshareincreasesdroveresultsforInvokanaInvokamet.

IntheUSInvokanaInvokametachievedTRxwithinthedefinedmarketoftype2diabetes.

Upfrom5.1%inthefirstquarterof2015.TRxwithendocrinologistsyougrewto13.2%forthequarterand5.2%inprimarycare.

0.8%respectivelyonasequentialbasis.

InvokanaInvokametremainsacategoryleaderinnewtobrandsharewithendocrinologistsandhasgreaterthan80%preferredaccessacrosscommercialandPartDplans.

StrongpatientuptakewithnewindicationsyouapprovalsanddemonstratedefficacydroveresultsforImbruvicaintheUS.ImbruvicaisaleaderinbothnewandtotalpatientregimentshareinthesecondlineCLLandNCL.

OutsidetheUS,resultsweredrivenprimarilybyEuropewithstrongpatientuptakeparticularlyinGermany,FranceandtheUK.Xareltosaleswereupnearly31%andtotalprescriptionsharefor.

Grewto15.4%.

TRxinprimarycarereached12.4%andincardiology23.7%.

Xareltoisbroadlyreimbursedwithover90%ofcommercialandMedicarePartDpatientscoveredatthelowestbrandedproductcopay.

Stronggrowthofthecombinedresistantprostatecancermarketatnearly12.5%drovetheresultsforZytigaintheUS.Zytigasharewasapproximately28.6%ofthatmarket,downapproximately1.7pointsonasequentialbasisduetoincreasedcompetition.

Asanupdate,duringthequarterwereceivedseveralparagraph4notificationsfromgenericmanufacturersadvisingtheyfiledAbbreviatedNewDrugApplicationwastheFDAseek.

Beforetheexpirationoftherelevantpatentslistedintheorangebook.

ThecompositionofmatterpatentisownedbyourpartnerandexpiresinDecember2016andthemethodoftreatmentpatentisownedby(inaudible)andexpiresinAugust2027.Wearecurrentlyevaluatingthenotices.

OutsidetheUS,ZytigaachievedverystronggrowthinAsiaandLatinAmerica,whichwaspartiallyoffsetbylowersalesinEuropeduetoincreasedcompetition.InvegaSustennaor[zeplion]achievedstrongresultsdueprimarilytoincreasedmarketsharewhileConcertagrowthwasprimarilyduetotherapeuticandreclassificationofgenericcompetitors.




Theresultsforimmunologyweredrivenbystrongdouble-digitmarketgrowthcomplementedbyincreasedmarketshareforStelaraandsomecombinedSimponi,SimponiAria.

GrowthwaspartiallyoffsetbylowerRemicadesalestoourdistributors,reflectingtheweakeningoftheEuroandthelossofexclusivityinEuropeaswellasareductionininventorylevels.

I'llnowreviewthemedicaldevicessegmentresults.Worldwidemedicaldevicessegmentsalesof$6.4billiondecreased4.7%.USsalesdeclined5.8%whilesalesoutsidetheUSdeclined3.9%.

OrthoClinicalDiagnosticswasdivestedmid-year2014.Excludingthenetimpactofacquisitionsanddivestitures,underlyingoperationalgrowthwas1.4%worldwide,withtheUSup1.6%andgrowthof1.4%outsidetheUS.Growthwasdrivenbyspecialtysurgery,cardiovascularcareandorthopedics.

Specialtysurgerygrowthwasdrivenbybiosurgerygrowthofover8%andgrowthofapproximately6%duetomarketgrowth,sharegainsincertainsegmentsandnewproductintroductions.

Cardiovasculargrowthwasdrivenby10%worldwideincreaseinelectrophysiologyduetostrongsalesofthermacoolSmartTouchcatheter.

OrthopaedicsalesgrowthwasdrivenbykneesandhipaswellasOrthoviscand[monovisc]insportsmedicine.Thegrowthwaspartiallyoffsetbylowersalesintraumaandspineduetopricingpressurecoupledwiththetimingoftenderbusinessandcompetitivechallengesinspine.

Kneesworldwideincreased4%withtheUSup5%andsalesoutsidetheUSup2%drivenbystrongsalesof[atune],partiallyoffsetbypricingpressure.

Hipsgrowthof2%worldwidewasdrivenby4%growthintheUS,withstrongvolumegrowthpartiallyoffsetbycontinuedpricingpressure.Primarystemplatformsaleswereamajorcontributortotheresults.

OutsidetheUS,saleswereflatwithstronggrowthinChinaandIndia,offsetbylowersalesintheMiddleEast,duetothetimingoftenderbusiness.

Foryourreference,thereweresomenotabledevelopmentsinthesecondquarterwhichwehavesummarizedonthisslidetoassistyouasyoudevelopyourmodels.

ThatconcludesthesegmenthighlightsforJohnson&Johnson'ssecondquarterof2015.ItisnowmypleasuretoturnthecallovertoAlexGorsky.

Alex?

AlexGorsky(ChairmanoftheBoardofDirectors,CEO):

Thankyou,Louiseandgoodmorningeveryone.

Ireallyappreciateyoutakingthetimetojoinourcalltodayandsincewe'reatthemidpointoftheyearI'mexcitedtosharetheprogresswe'vemadeagainstourneartermpriorities.

I'llalsousethetimetodaytogivesomeperspectiveontheenvironmentthatwe'reoperatinginandsomeofthemacrolevelissueswe'reseeingandalsodiscusswhywebelievewithourinnovationmodelandbreadthaandscaleofourbusinessthatJohnson&Johnsonisstronglypositionedtodrivecontinuedgrowthinshareholdervalue.

SoI'llstartthediscussionthoughwhereIalwaysdo,withourcredo.

OurcredoservesasthemoralcompassforourCompanyandexpressesasetofvaluesthatbondourassociatesworldwidewithasharedcommitmenttomeetandreallyexceedtheexpectationsofthemore




than1billionpeopleadaythatrelyonourproducts.

Aswellastosupportourfellowcolleagues,thecommunitiesinwhichweliveandworkandgeneratesolidreturntoourshareholders.

BackinJanuaryIlaidoutourneartermprioritiesforthebusinessandI'mpleasedwithourprogresstowardsthem.

Acrosstheenterprise,we'reveryfocusedondeliveringourfinancialandqualitycommitments.

First,ourcommitmenttoensuringourproductsmeetthehighestqualitystandardsisofcoursenonnegotiableandastoourfinancialcommitments,thusfarintheyearwegeneratedsalesof$35.2billionreflectingthestrongunderlyingoperationalgrowthacrosstheenterpriseofabout6%,whenweadjustfortheimpactofhepatitisCsalesandacquisitionsanddivestitures.

Andforthefirstsixmonthswedeliveredadjustednetearningsof$9.2billionandadjustedEPSof$3.27.OnanoperationalbasiswedeliveredadjustedEPSof$3.59,growingat5.3%.

Aswe'vehighlightedpreviously,weknewthatouryear-over-yearcomparisonstoourcurrentresultswouldbechallengingbecauseoftremendouscontributionsofO lysiolastyearaswellastheimpactofdivestitureswemadeandalsothesignificantdevaluationofmajorforeigncurrenciesagainsttheUSdollar.

Nowdespitetheseheadwinds,ourbroadbaseofinnovativeofferings,scaleandglobalfootprintaredrivingourstrongcoreperformance.

Inpharmaceuticals,wereportedsalesof$15.7billion,reflectingstrongunderlyingoperationalgrowthwhenexcludingtheimpactofhepatitisCanddivestituresofover11%forthefirsthalfof2015,ledbyournewandcoreproductsincludingInvokana,Imbruvica,StelaraandZytiga.

OurfocusedR&Dstrategyandcommitmenttodrivinglaunchexcellencetoensurebroadaccessandreimbursementhasreallycometogethertomakeadifferenceforpatientsandhasuswellpositionedtocontinuetodriveaboveindustrycompoundannualgrowthoverthenextseveralyears.

Fueledbysevenofourrecentlylaunch.

Edproductsthatweexpectwilleachexceed$1billioninsalesthisyearandthemorethan10newproductsweplantofileby2019thateachhave$1billionpluspotentialoftheirownbasedontheirtransformationalpotentialtotreatsignificantunmetmedicalneedsworldwide.

Andjustlastweekourpartner,announcedthatwehavecompletedtheFDAsubmissionfordaratumumab,apromisingnewbreakthroughtreatmentoptionforpeoplewithmultiplemyeloma.

Collectivelydonegreatworktogeneratestrongclinicalevidenceinthedevelopmentprocesswhichisenablingourreimbursementteamstogaintherightcoveragelevelsinordertocreatebroadaccessanddrivethestrongperformanceofourproductsdespitethepricingpressuresthatexistinthemarketplace.

Now,IalsowanttomakeacommenthereonourpositionregardingbiosimilarcompetitionforRemicadewhichIknowmanyofyouarethinkingabout.

Remember,biosimilarsarenotgenericsandweexpectthebiosimilarmarkettobehavequitedifferentlythanthemarkettypicallyhas.

Also,morethan2.2millionpeoplehavebeentreatedwithRemicadeandabout70%ofthecurrentpatientsarereceivingsustainedandeffectivetreatmentsowebelievetheirdoctorsareveryunlikelyto




switchthemoffwiththatlevelofsuccess.

AndwealsohaveapatentfortheRemicadeantibodythatdoesn'texpireuntilSeptember2018,thatyoucanbesurewe'llcontinuetovigorouslydefend.

Look,weknowcompetitionintheimmunologyspaceisfierceandtoensurewemaintaintheleadershipposition,webuiltanestablishedportfolioofbilliondollarplusmedicinesthatincludeStelaraandSimponi,andhavepotentialbilliondollarplusproductsinourLateStageDevelopmentlike,forrheumatoidarthritisandforpsoriasisthatweexpecttointroduceinthenearterm.

We'realsomakingverysignificantinvestmentsindisruptiveresearchareaslikethemicrobio,whichholdsthepotentialtointerceptthediseaseandpreventitentirelythatwillhaveapplicationsinimmunologyandreallyacrossallourdiseaseareas.

Now,turningtomedicaldevices.

Youknowwe'renumberoneornumbertwointhemajorityofthecategoriesinwhichwecompeteandhave10$1billionplusplatforms.Year-to-date,wereportedglobalmedicaldevicesalesof$12.6billion,whichisanoperationaldeclineof4.6%duetotheimpactofthesaleofOrthoClinicalDiagnosticswhichwecompletedayearagoandwhenweadjustforthatourunderlyingoperationalgrowthinmedicaldevicesisup1.4%.

I'vebeenparticularlypleasedwiththeperformanceinseveralareasofthisbusinesswherenewinnovationsaredrivinggrowthincludingourBiosenseWebsterbusinesswhichhasgrownnearly11%operationallythroughthefirstsixmonthsoftheyear.

Ourendocutterbusinesshasgrown15.5%andourbiosurgerybusinesswithcontinuedstronggrowthof7.5%.

Indiabetes,ourproductsandstronginmarketexecutionarehelpingtorevitalizethatbusinesswhileourvisioncarebusinessisontracktoreturntogrowthlaterintheyearwhenwe'llanniversarytheimpactofthe2014pricereset.

Inorthopedics,thebusinessgrew1.5%operationallythisyearwithgoodgrowthinthereconstructionandsportsmedicinesegment,particularlyinthesecondquarterhereintheUS,wheredespitethepricingdynamicsinthemarketwesawover5%growthinkneesandapproximately4%inhips.

Ourspineandtraumabusinesses,however,havelaggedmarketgrowthtodateandweareabsolutelycommittedtoturningthemaroundandwehavenewproductslaunchingthisyearthatwillhelpusdojustthat.

Aswelookatthismarket,theongoingconsolidationamonghealthsystemsandwithintheinsuranceindustryiscontinuingtocreatepressureonpricing.

We'vebeenencouraged,though,bydatashowingthathealthcareutilizationtrendsintheUShavecontinuedtoimproveforthefourthconsecutivequarterwithgrowthinbothhospitaladmissionsandhospitalsurgicalproceduresandweremainoptimisticaboutincreasedglobalhealthcareutilizationaswell.

Soweareabsolutelycommittedtoacceleratingourgrowthinmedicaldevicesthroughinnovationandthroughourresearchanddevelopmentwhichhasbeenproductiveastheteamshavealreadysubmittedmorethanhalfofthe30majorfilingswepreviouslyannouncedweplantofilebytheendof2016.

Andtheworkwe'redoingwithGoogleillustrateshowwe'reaimingtopioneertheoperatingroomofthe




futurewithroboticsurgerytoolsthatwillincreasethesurgeon'sprecisionandminimizetraumafortheirpatientswhilealsoreducingcostsforthesystems.

We'realsotransformingourgo-to-marketmodelsofullyleveragethebreadthandscaleofourcapabilitiesandwe'vetakensignificantmeasurestostrengthenourcorebusinessesandeffectivelypositionourselvestoleadoverthelongterm.

WejustrecentlyintegratedourglobalorthopedicsandglobalsurgerybusinessesundertheleadershipofGary,whichwillenableustohaveamuchmoreholisticapproachtothewaywedobusiness.

Andthegoalhereisverystraightforward.

Let'senhanceourpartnershipswiththehospitalsystemsandidentifywaystoimproveoutcomesbyleveragingourcomprehensiveportfolio.

Wealreadyhavenumerousexamplesofco-promotions,broadcontractingagreements,andserviceandsolutionofferingsinplacethatwecanlooktoexpandandbybetterworkinginthisnewalignmentmodelwewillbebetterpositionedtocreatemoreofthemtodrivefuturegrowth.

GarywillbeonthethirdquartercallinOctobertotellyoumoreaboutthisapproach.

Andnowontheconsumerbusiness.

SandyPetersonandherteamwireincludesournewseasonedleaderwho'sbeenwithussincetheendoflastyeararedoingtremendousworkinbuildingandexecutingastrategythathaseffectivelyaddressedthepastchallengesinour.

We'repositionedtoexpandourmarketleadershipinkeysegmentsmovingforward.

Year-to-date,wegenerated$6.9billioninsalesandreportedoperationalgrowthofnearly4%,excludingacquisitionsanddivestitures,drivenbyourmarketleadingOTCandoralcarebusinesses.

Andourstrategytofocustheportfolioaroundthekeyconsumerneedstatesandbrandsthatarebackedwithstrongclinicalscienceanprofessionalendorsementsishavingastrongimpact.

TheUnitedStatesOTCmedicinesaresharplyup13%fortheyear,ledbythestrongcampaignswe'releadinginsupportandtherelaunchofkeybrandslikeTylenol,Motrinand.

Andourmomentumherecouldnothavebeenachievedwithouttheeffortsofourcolleaguestocompletethecomplexworkrequiredaroundtheconsentdecree.

Globally,weseestrongoperationalgrowthinemergingmarkets,particularlyinArgentina,Brazil,India,Russia,andVenezuela.

Weare,however,experiencingmarketpressuresinChinawhereourvolumeshaveslowedduetolowerdemandthatisbeingcompoundedbyshiftsinconsumerbehaviorsandtheemergenceofnewretailchannelsinthecountry.

Inafewminutes,Sandywilltakeyouthroughthestrategyandapproachforhowourconsumerfacingbusinessesareleveragingouruniqueconsumerinsightsandintegratingscienceanddifferentformsoftechnologytobettermeettheneedsofconsumersanddrivegrowth.

Beforewedothat,Iwanttoreiteratehowwe'renavigatingtheenvironmentalchangesbeforeusandhowwe'vestronglypositionedJohnson&Johnsontodelivercontinuedgrowth.

Asyouwellknow,everythingstartswithinnovationandaddJohnson&Johnsonwe'redoingthaton




multiplefrontsandwe'recommittedtoworkingwithresearchersaroundtheworldtoensurewecontinuetooperatetheleadingedgeofscience,medicineandtechnology.

ThatapproachdrivesourenterpriseR&Dandthesignificantinvestmentswearemakingtobenefitpatientsandstakeholders.

Wehaveagoodbalanceofinternalandexternallysourcedinnovationsandacquisitionversusaccountedforjustunderhalfofoursalesgrowth.

We'realwaysactivelylookingfornewvaluecreatingacquisitionsanddealstocontinuethatsuccess.

Wealsoinvestedabout11.5%ofournettradesalesor$8.5billioninR&Dlastyearacrosstheenterprisetodiscover,inlicenseanddevelopinnovativenewproductsandyoucanseetheimpactreflectedinourportfolioandrobustdevelopmentpipelinewhichincludes25activeLateStageDevelopmentprograms,160plusearlystageprograms,andover70ventureinvestments.

Andinjusttwoyearsthere'salready90startupsworkinginourJlabswhichcreatestremendousaccesstonewideasandpotentialdownstreampartnershipsforthefuture.

Now,whenitcomestomakingsignificantR&Dinvestments,wemustalsofocusonmanagingthroughtheinherentcomplexitiesintheglobalregulatoryenvironmentinordertoensureourproductsareultimatelyabletoreachconsumers.

We'reencouragedbythestepsgovernmentsaretakingtoincreaseaccesstoqualityhealthcarefortheirpeopleandtoalsocreateandsupportamoreinnovationfriendlyenvironmentthroughdesignationsthatspeedthereviewandapprovaloftransformationalproducts.

We'vebenefitedfromthatwithImbruvicaandtodaywehavetwoothercandidatesinourpharmapipelinealreadydesignatedasbreakthroughtherapiesbytheFDA.

Atthesametime,wecanallagreethatgovernmentsaroundtheworldmustdomoretoprotectintellectualpropertyandensurefair,transparentandconsistentenforcementofregulationsgoverningthetradeofinnovativeproductsandwe'llcontinuetowatchandengageintheseissuesinthemorethan65countriesinwhichwedobusiness.

Globally,abouthalfourtotalyear-to-datesalescomefromcountriesoutsidetheUnitedStates.

Withstrongnationalandregionalmodelslikethosewe'veinstalledinChinaandSoutheastAsia,we'rebetterabletomaximizethebreadthofourportfolio,interactmoreeffectivelywithgovernmentsanddevelopcontractingstrategiesandgainconsumerinsightsthatareshapingourinternationalportfoliosandinformingR&Dandultimatelydrivinggrowth.

Andbyexecutingwithexcellenceinallthatwedo,we'veintroducedastrongcadenceofnewproductlaunchesoverthepastfiveyearsthattodayaccountforabout25%ofouroverallsalesandwe'retakingstepstoensurewe'reevenmoreeffectiveandefficientacrosstheenterprisebyinvestingingreaterusesoftechnologyandstreamliningourbackofficeprocesseswhichweexpectwillhelptofreeupabout$1billionthatwecaninvestbackintothebusinessby2018.We'realsocontinuingtomakestrategicdecisionsabouttheareaswe'regoingtoparticipateinormoveonfrom.

Aswestatedbefore,ourfocusisonareaswhereweareorwecanbenumberoneornumbertwoinaparticularareaaswellasonthoseproductsorbusinessesthatwillbedirectlycomplementary.

Ifwehaveanassetorabusinessthatdoesn'tmeetthosecriteria,we'vedemonstratedthatwewilldivestitandredirectourresourcestoaccelerateexistingprogramsortoacquirenewonesthatwethinkare




ultimatelygoingtohelpmorepatientsandalsoaddmorevaluetoourenterprise.

Wealsoseethatourbroadbaseacrossthehealthcarespectrumisacompetitiveadvantagewhenthestrategieswecreateconsiderandwhereappropriateincorporateinsightsandinnovationsfromeveryaspectofouroperationstoattackdiseaseandimprovehealthoutcomes.

TheworkwearedoingwithIBMandAppledoesthisbycuttingacrosstheenterpriseandleveragingourscience,technologyandconsumerinsightstoempowerpatientsandcaregiverstohelpspeedthepostsurgicalrecoveryprocess.

Executingourstrategyultimatelycomesdowntopeopleandbyfocusingonthemandemphasizingourcredobasedpurpose,wedevelopedadeepbenchofextraordinarytalentwhoareaccountablefordrivingtheirbusinessesandwhoalsoensurewearetakingleadingroleswithintheindustryandworldmedicalcommunitytocombatglobalpublichealthissueslikeEbolaandHIV.

Now,justtosummarize.

Johnson&JohnsonisaCompanythat'sbuiltaremarkablelegacyandhasaveryexcitingfuture.

Healthcare,though,remainsoneofeverysociety'sgreatestchallengesandnothingaffectspeoplemorepersonallyoraffectscommunitiesandnationsmoredirectly.

Ourbusinessisstrongandyoucanseethatwe'recontinuingtomakeconsiderableinvestmentsininnovationandhavearobustpipelineoftrulytransformativeproductstoultimatelybenefitpatientsandthatwe'retakingactionstostrengthenourleadershippositionsinareasinwhichwecompete.

Withourtransparentandconsistentcapitalallocationstrategyweextendedourtrackrecordofdividendincreasesto53consecutiveyearsinAprilwhenwedeclareda7.1%increasetakingourquarterlypayoutupto$0.75pershareandhavereturnedabout70%ofourfreecashflowoverthepastdecadetoinvestors,outpacingtheS&P500in2014,aswellasoverthelastthree,10and20years.

Withthat,it'snowmydistinctpleasuretoturnthecallovertoSandyPeterson.

SandyjoinedJohnson&Johnsonjustovertwoand-a-halfyearsagoandisleadingasignificanttransformationacrossmajorcomponentsofourenterprise,includingourconsumerfacingbusinesses,enterprisesupplychain,qualityandIT,andshe'sbeenatremendousleaderheresincedayone.

Iwanttothankherandherteamforwhatthey'vealreadyaccomplishedforourbusinessandmoreimportantly,forwhattheywillcontinuetodotohelppatientsandconsumersworldwide.

Withthat,I'mpleasedtoturnthemeetingnowovertoSandy,andwe'llrejoinyouabitlatertotakeyourquestions.

SandyPeterson (GroupWorldwideChairman):

Goodmorning.

I'mhappytohavetheopportunitytotalkaboutourprogressinourconsumerfacingbusinesses,consumerdiabetessolutionsandvisioncare.

I'llalsodiscusstheevolutioninourapproachtotechnologyacrosstheenterprise.

Increasingly,asweleadthroughthedisruptionsandopportunitiesinglobalhealthcare,wearefusingthepoweroftechnologywiththepowerofsciencetodeliverimprovedoutcomesforpatients,consumersandcustomers.




First,ourthreeconsumerfacingbusinesses.AsAlexsaidearlier,thefutureofthesebusinesseslookspromising.

Whiletheyareatdifferentstagesoftransformation,webelievethatthey'reallwellpositionedinattractive,growingglobalmarketsandwearedrivingscaleandgrowthineach.

Letmestartwithconsumer.OuriconicconsumerbrandsareJ&J'sfacetotheworld.They'rehowweareknownbymillionsaroundtheglobe.

Theyarefirstpointofentryintoemergingmarketssotheyreallyareveryimportanttotheoverallenterprise.

TheyareandwillincreasinglybeimportantcontributorstoJ&J'sfinancialperformance.

Demographictrendsandchangesinthewayconsumersmakehealthcaredecisionsarecreatingnewopportunitiesforourconsumerbusiness.

Ourconsumerexpertiseandinsightarehighlyvaluabletopayersandproviderswhichdifferentiatesusfromourcompetitors.

WeviewahealthyconsumerbusinessasagrowthannuityforJ&Jwithlessvolatilitythanothermarkets.

Asmanyofyouknow,welaunchedournewconsumerstrategyin2013.Wefocusedonstabilizingandrevitalizingthebusiness,remediatingqualityissuesinUSOTC,andbeingclearaboutwhereandhowtocompeteandwinaroundtheworld.

Weareexecutingsuccessfullyagainstthatstrategy.We'repleasedtosaythatwehaveremediatedandrelaunchedourUSOTCbusiness.Over80%ofourbrandshavereturnedtothemarket.Tylenolarthritiswilllaunchsoon.

We'vemadesignificantprogressinmeetingconsentdecreerequirements.

TheFDAhascertifiedourmanufacturingfacilitiesinPuertoRicoandLancaster,Pennsylvania.

WerecentlyhadasuccessfulFDAinspectioninfortWashingtonandareawaitingfinalnotification.

OurOTCbrandscontinuetobelovedbyconsumers,andwehaveregainedthetrustofourcustomers.

MostofourOTCproductsareendorsedasnumberoneintheircategoriesbyhealthcareprofessionals.

Tylenolremainsthenumberonedoctorrecommendedbrandforpainreliefandthebrandmostusedbyhospitals.Zyrtec,Children'sTylenolandchildren'sMotrinarealsonumberonerecommendedbrands.

LastyearourOTCportfoliogrewfourtimesthecategoryintheUS.Thatstrengthhascontinuedthisyear,with13%growthinthefirsthalfand16%inthelatestquarter.

Morebroadlyacrosstheconsumerbusiness,we'vemadesignificantprogressincreatingaworldclassbrandbuildingandmarketingorganization.

We'veglobalizedthemanagementof12megabrandsandarefocusedon11consumerneedsstates.

We'veexpandedthesebrandsintoyounewmarketsandareseeingstrongsharegainsinoralcare,beautyandOTCs.

Wearegrowing11%year-to-dateandgainingshareinfeminineprotection.Forexample,inplaceslike




India,Germany,SouthAfrica,andPoland.Andwe'verevitalizedouriconicBand-Aidbrand.

IntheUS,Band-Aidconsumptiongrew6.3%andwegained2sharepointsthankstodecoratedBand-Aidsandcommercialinnovation.

Asweinvestinourglobalbrandsandourtopregionalbrandsandinourprioritymarkets,we'rebuildingnewmarketingcapabilitiessuchasdigital.Wedoubledourdigitalmediainvestmentanddigitalchannelswithemphasisonsocialandmobile.

Today,40%ofourdigitaladspendingisviamobile,andmorethan90%ofourFacebookadsareserveduponeithersmartphonesortablets.Thisglobalcentrallyledmarketingapproachisbringingourbelovedbrandstotheirfullpotential.

YoumayhaveseentheresultsofthenewmodelcometolifeintheJohnson'sBabySoMuchMorecampaign,thefirstglobalcampaignforouriconicbabyequity.ThecampaignlaunchedinsevenleadmarketsinFebruaryandisrolledouttomorethan20markets.

Bythethirdquarterofthisyear,allmajormarketswilllaunch.Earlyresultsshowsequentialconsumptiongrowthandshareimprovement.

IntheUSalone,throughMay,Johnson'shasgrown2.4sharepointssincethelaunch.Ourproductpipelineinconsumerisalsoquiterobust.Wearefocusedondevelopingsciencebased,clinicallyvalidatedproducts,groundedindeepconsumerinsightsandmostimportantlyendorsedbyprofessionals.

Wehave20keyproductlaunchesthisyear.

Forexample,Neutrogenahydroboost,MotrinliquidgelsandthelaunchofthenewListerinewhiteningformulainEurope,theMiddleEast,AfricaandLatinAmerica.

ImprovingoursupplychainhasalsobeenanothercriticalfocusintheconsumerbusinesswithastrongemphasisontheUSOTCconsentdecree.

Acrosstheenterprise,wehavemaderemarkableprogressintransformingoursupplychaintoensurewedeliverquality,customerreliability,andbenchmarkprofitability.

WecontinuetoseethebenefitsofintegratingoursupplychainorganizationtodriveperformanceimprovementsineveryJ&Jsegment.

Aswelookaheadinconsumer,wewillcontinuetorebuildourcompetitiveedge.

Theunderlyingenvironmentaldrivers,demographics,thedevelopingmy.Growingconsumerneedforourproductsandincreasedopportunitytohelpmorepeoplewithhealthier,morevibrantlives.

Acrossthebusiness,wearefocusedondeliveringabovemarketgrowthandbenchmarkprofitability.

ConsumerIBTmarginbeforespecialitemsandintangibleamortizationexpensehasincreasedfrom14.1%in2013to15.4%in2014andwe'llcontinuetoimproveprofitabilityuntilweachievebenchmarklevels.

Ourorganicsalesadjustedforcurrencyandexcludingacquisitionsanddivestituresgrewapproximately4%inthefirsthalf.

Sincemid-2013,wehavegrownorganicsalessteadily.

Lastyearwegrewshareforthefirsttimeinanumberofyearsandwe'recommittedtocontinuingthattrend.




Wemanageourconsumerbrandportfolioactivelywithaneyetowardstargetedexpansionandkeygeographiesinneedstatesthroughfocusacquisitionsandlicensingagreements.

ArecentexampleincludestheacquisitioninIndiaofORSO.

Theintersectionofchangesinthehealthcarelandscape,disruptionsintheretailenvironment,andchangesinconsumerexpectationsandbehaviorscreatesanopportunityJ&J'sconsumerbusinessiswellsuitedtocapitalizeon.Now,letmeturntoourdiabetessolutionsbusiness.

Diabetesisthefourthlargesthealthcarecategoryintheworld.

Globally,thetherapiesanddevicesmarketisgrowingat5%.50%ofpatientswithdiabetesareunfortunatelyundiagnosedornotincontrol,whichcreatesanopportunityforustogrowandanimportantopportunitytoimpactpatients'lives.

Giventhepowerofouronetouchbrand,ahighlyinnovativepipeline,strongcommercialexecution,andoperationalefficiency,wearewellpositionedtodeliverprofitablegrowthindiabetes,despitenegativeindustrypricingdynamics.

Inbloodglucosemonitoringweholdthenumberonevalueandvolumepositionsinourninetopmarkets.

Thisyear'sonetouchplatformlaunchisourmostsuccessfullaunchinthelasttwodecades.

IntheUSalone,volumesharegrew3points.

Wehavestrongpenetrationinemergingmarketswheretype2diabetesisgrowingandwehavesimplifiedourportfoliodramatically.

Reducingthenumberofstripplatformsfromfivetotwo,andmodulemeterofferingsfrom14tothree.

Wehavereducedourfacilityfootprint,slashedthenumberofSKUsbymorethan55%andtakensignificantcostsoutofthebusiness.

Ininsulindelivery,wearegrowingatmarketleadingrates,upoperationally32%year-to-dateworldwide,drivenby.In2015,wetookoverthenumbertwoshareposition.

Inaddition,we'remakingexcellentprogressinpreparingforthelaunchof.Anewproductwhichwillcreateanentirelynewcategory.

Isawearabledisposableinsulindeliverypatchthatmeetstype2patient'sneedfordiscretion,convenienceandcontrol.

Wearebeginningtheclinicaloutcomestudyandanticipateenteringthemarketnextyear.

Lookingforward,wearedevelopinginsightdriven,marketappropriateinnovationsacrosstheBGMandinsulindeliveryplatformsinareassuchasdigitalsolutions,continuousglucosemonitoring,andautomatedinsulindelivery.

Wewillcontinuetoleverageenterprisecapabilitiesandexpandtargetedstrategicpartnerships.

Greatexamplesofthisincludeourcollaborationwithbiomedicalandhospitalsystemsanddeckscomwithcontinuousglucosemonitoringpumps.

Weareparticularlyenthusiasticaboutthepotentialtoimprovetobetterselfmanagewhilecreatingvalueforhealthcareprovidersandhealthcaresystems.Now,letmeturntovisioncare.




Eyehealthremainsoneofthelargest,fastestgrowingandmostunderservedsegmentsinhealthcare.Visioncorrectionrepresentsmorethanhalfofthatmarketwithcontactlensesrepresentinga$7billionsegment.Themarketsareespeciallyunderserved.

Johnson&Johnson'svisioncarehasalonghistoryasaglobalmarketleaderincontactlenses.

Oursuccesswasbuiltoncategoryleadinginnovation,strongrelationshipswiththeeyecareprofessional,andthemostrecognizedbrandequityinthecategory.

It'snosecret,however,thatwefacecapacityandportfolioissuesinvisioncarein2012and2013.Atthesametime,competitionintensifiedandconsumerpreferencesshifted.

Themarketstructurehasevolvedinresponse,drivingincreasedemphasisone-commerceandincreasedpricecompetitionbetweenchannels.

Thesedevelopmentshavereducedengagementforeyecareprofessionalswhoareanimportantingredientinstrongcategoryhealth.

Despitethis,wecontinuetoleadthecategorygloballyby11points.Wecontinuetogrowatdoubledigitsinourleademergingmarkets.

BRICmarketoperationalsalesareupdouble-digit,drivenbycontinuedstrongperformanceofRussia,Brazil,andChina.

Lastyearweinstitutedaone-timepriceresettobringmorevaluetoconsumersinclosepartnershipwitheyecareprofessionalsinthetradeintheUSandJapan.

WewillanniversarythiseventinQ3asAlexsaidearlier,andshouldseerevenuemomentuminthesecondhalf.

ShareisstabilizedintheUSforfiveconsecutivemonths.

Weareoutperformingthemarketinvolumeinourtoptwostrategicbrands,[accueviewowe].Andourequitymeasureswitheyecareprofessionalsimproved.

InQ2alonewegrew15%operationallyinJapandrivenbystrongperformanceby.Andtherecentlaunchofonedaydefineaswellasfavorablecomps.

OurR&Dstrategyleveragesconsumerexpertiseandsciencebasedclinicallysupportedmanufacturingenabledinnovationandwehavebuiltarobustmultigenerationalpipeline.

Wearelaunchingourfirstmajorinnovationsinfiveyearswithonedaydefine,onedaymultifocal,andovernight.

Youwillseeusaccelerateinnovationinhighgrowspecialtysegmentssuchasbeauty,andastigmatism.Wewillsustaininnovationinourlargestcoreplatforms,sphericalreusableandspheredailydisposable.

Weanticipateatleastonemajorproductlaunchineachofthenextthreeyears,includinginnovationswiththepotentialtodisruptthecategory.

Visioncareusedthenewmarketingprocessdevelopedinconsumertorelaunchtheiconicbrand.

Thenewglobalcampaignwhichwentlivelastweekisdesignedtodriveconsumerengagementandcategorygrowthandensurethedifferentiatedpositionwitheyecareprofessionals.

Ourworldclasssupplychainisacompetitiveadvantageinvisioncare.




Ourmanufacturingteamproducedapproximately4billionlensesin2014.Wearecontinuingtoinvestincapacityexpansionwhileoperatingwith99.6%customerservicelevels.

Thoughwearestilltheythethroesofrejuvenatingoureyecarebusiness,wehavemadeconsiderableprogresswhichwillcontinuethisyearandintothenext,aswebringourcorecontactlensbusinessbacktomarketleadinggrowth,wewillalsopursueouraspirationsinthebroadereyehealthmarket.

AlexstartedthismorningbytalkingaboutthepowerofJohnson&Johnson'sbroadbaseinhealthcare.

Ourconsumerfacingbusinessesareacriticalcontributortothatbroadbase.

Whileconsumer,diabetessolutionsandvisioncareareatdifferentstagesintheirtransformationsandrepresentuniqueopportunities,wearedrivingscaleandgrowthinallofthem.

BeforeIturnitovertoDominic,I'dliketosharesomeperspectiveonhowJohnson&Johnsoniscapitalizingonthewaytechnologyisreshapingtheentirehealthcarelandscape.

Theconsumerizationofhealthcare,wearablesandmobileappsaregivingpatientsunprecedentedaccesstohealthinformation.

Physicians,regulatorsandpayersareleveragingbigdata,analyticsandrealworldevidencetopersonalizecare,understandproductsafetyandefficacy,anddriveimprovedoutcomes.

Artificialintelligence,machinelearningandadvancedsensorsarecreatingnewopportunitiestotakeadvantageofthebestclinicalandwellnessexpertise.

Weareatatippingpointwheretechnologyisbecomingthemediumthroughwhichhealthcarecanbecomeamoreeffectiveandefficientsystem.TheopportunitiesthiscreatesforJohnson&Johnsontobecomeahealthcaretechnologyinnovatorareimmense.

Wehaveidentifiedkeytechnologyareasthatwillaccelerategrowthandareactivelypursuingprogramsandpartnershipsinthoseareas.

TherelationshipswithGoogleandwithIBMandApplethatAlexmentionedaregreatexamples.Thereareothersintheworksandmoretocome.WeareworkingwithandtalkingtonearlyeverymajortechnologyCompanyandmanyearlystagecompanies.

WearecollaboratingwithretailerslikeWalgreensandCVSwherecareisincreasinglydelivered.

HealthplanslikeAetnaandKaiserPermanenteandhealthsystemssuchasJeffersonhealthandpremier,toleveragetechnology,digitaltools,andourhealthandwellnessexpertise.

WefindthatJohnson&Johnsonismostoftenthepartnerofchoicefortechnologyproviders.

Wehavethepatientandconsumerinsight,theclinicalandbehaviormodificationexpertise,andtheregulatoryexperiencethatcancombinewithtechnologytotransformthecontinuumofcare.

ThisisparticularlyexcitingwhenyouthinkabouttheworkthatwearedoingwithpayersandproviderasinourworkwithIBMandApple.

WearecreatinganecosystemembeddedinhospitalnetworkswhichgivesustheabilitytointegratetherightpatientdatawiththerightrecordandtherightclinicaloutcomeinthehealthcareITinfrastructure.

I'vebeeninhealthcarelongenoughtohaveheardoverandoveragainthattechnologywasgoingtodisrupttheindustrybeyondrecognition.




Buttoday,maturingtechnology,scientificadvancesandglobalhealthcarereformarecombiningtomakedisruptionareality.

Today,technologyisintrinsictothebusiness.

Astheworld'smostbroadlybasedhealthcareCompany,weareuniquelypositionedtobetheCompanythatconnectsthefragmentedworldofhealthcare.

Nowletmesummarize.Ourconsumerfacingbusinessesareexecutingwellagainstfocusedstrategies.Theyaredemonstratingresults,improvingprofitabilityandgrowing.

Theyhavestrongpresenceintheworld'sfastestgrowingmarketsandarebuildinginsightledinnovationpipelines.

Eachbusinessisstrengtheningitsbrandbuildingcapabilities,activelymanagingitsportfolio,andleveragingtechnologiesinwaysthatincreaseefficiencyandcreatecompetitiveadvantage.

AcrossJ&J,weareusingtechnologytounlockthepoweroftheenterprise,toimprovepatientandfinancialoutcomes,inwaysthatwillcreatevalueforourcustomersandultimatelyforourshareholders.

AndwearebuildingwhatIfirmlybelieveisthebestteamofleadersintheindustry.

Withthat,I'llturnitovertoDominicandIlookforwardtoansweringyourquestions.

DominicCaruso (V.PFinance,CFO):

Thanks,Sandyandgoodmorningeveryone.

Asyou'veheardonthecall,we'recertainlypleasedwiththeprogresswecontinuetomakeintheexecutionagainstourprioritieswhichisreflectedinthesolidunderlyingfinancialresultswehaveachievedthusfarin2015.AndasAlexandSandydiscussed,wearewellpositionedforcontinuedgrowthinthisdynamichealthcareenvironment.

I'lltakethenextfewminutestoreviewourfinancialperformanceinthesecondquarterandwillalsothenprovideguidanceforyoutoconsiderinrefiningyourmodelsforthebalanceoftheyear.

Turningtothenextslide.

Youcanseeourcondensedconsolidatedstatementofearningsforthesecondquarterof2015.Asweexpected,andasmanyofyouonthesellsidealsoreflectedinyourupdatedmodels,directcomparisontossstooursecondquarterof2014arechallengingduetotheexceptionaluptakeofO lysiothatwerecordedlastyearaswellascurrencyheadwindsandtheimpactofnothavingOrthoClinicalDiagnosticsinourresultsfor2015.Oursalesresultsforthesecondquarterof2015wereessentiallyinlinewithanalystestimatesasreflectedinFirstCall.

Onanoperationalbasis,excludingtheimpactofacquisitionsanddivestitures,andexcludingtheimpactofHepCproductssaleswereup5%forthequarter.

Pleasenowdirectyourattentiontotheboxsectionoftheschedulewherewehaveprovidedearningsadjustedtoexcludespecialitemsandintangibleaamortizationexpense.

Adjustednetearningsof$4.8billioninthequarteraredown6%comparedtoQ22014,andadjustedearningspershareof$1.71versus$1.78ayearagoaredownapproximately4%.However,theadjustedEPSresultsexceededthemeanoftheanalystestimatesaspublishedbyFirstCall.




Andexcludingthenetimpactofcurrencytranslation,ouroperationalearningspersharewas$1.90orup6.7%.

Therewerenosignificantnon-GAAPadjustmentsinthe2015secondquarterotherthantheexclusionoftheexpenseforamortizationofintangibleassets.

Nowlet'stakeafewmomentstotalkabouttheotheritemsonthestatementofearnings.

Aswehavesaidbefore,wewoulduseanygainfromdivestituresin2015tooffsetthelowerearningsimpactofnothavingtheOlysiosalesuptakewehadin2014,andtoprovidesomeoffsettocurrencyheadwindswhilealsoallowingcontinuedinvestmentforfuturegrowth.Thisquarter'sresultsreflectjustthat.

Costofgoodssoldwas90basispointslowerthanthesameperiodlastyear,mainlyduetofavorableproductmix,somewhatoffsetbycurrencyimpacts.

Selling,marketingandadministrativeexpenseswere30.3%ofsalesor220basispointshigherascomparedtothesecondquarterof2014.Weareinvestinginaresponsiblemannerandtheaabsolutespendingleveliscomparabletotheprioryear,mainlyduetotheimpactofcurrencyaswecontinueinvestmentspendingbehindourkeybrandsonaglobalbasis.

TheprioryearpercenttosaleslevelwasartificiallylowersincetherewasverylittlespendinginrelationtoOlysiosales.

Ourinvestmentinresearchanddevelopmentasapercentofsaleswas12%,and170basispointshigherthantheprioryearaswecontinuetomakeimportantinvestmentsinourpipelineforfuturegrowth.

Interestexpense,netofinterestincome,wassimilartolastyear.

Otherincomeandexpensewasanetgainof$900millioninthequarter,comparedtoanetchargeof$200millioninthesameperiodlastyear.

Excludingspecialitemsthatarereflectedinthislineitem,otherpincomeandexpensewasanetgainofapproximately$1.1billioncomparedtoanetgainof$300millionintheprioryearperiod.

Thisquarterwerecordedthegainonthepreviouslyannounceddivestitureofthenewproduct.

Excludingspecialitemsandintangibleamortizationexpense,theeffectivetaxrateforthesixmonthperiodwas22.3%,comparedto21.1%inthesameperiodlastyear.

AsInotedduringourcallinApril,theeffectivetaxratethisquarterisagainhigherthanourguidancefortheyearasitdoesnotyetreflectthebenefitoftheR&Dtaxcreditasthatlegislationhasnotyetbeenpassed,althoughweexpectthatitwillbe.Theeffectivetaxrateishigherin2015ascomparedto2014asaresultofthemixofearningsbeinghigherintheUnitedStatesthisyear.

NowI'llprovidesomeguidanceforyoutoconsiderasyourefineyourmodelsfor2015.BeforeIdiscusssalesandearnings,Iwillfirstgivesomeguidanceonitemsweknowaredifficultforyoutoforecast,beginningwithcashandinterestincomeandexpense.

Attheendofthequarterwehadapproximately$15billionofnetcash,whichconsistsofapproximately$34billionofcashandmarketablesecurities,andapproximately$19billionofdebt.

IaampleasedtoreportthatwecompletedoursharerepurchaseprogramtohelpoffsettheongoingimpactoftheOCDdivestiture.




Forpurposesofyourmodels,andassumingnomajoracquisitionsorothermajorusesofcash,I'dsuggestyouconsidermodelingnetinterestexpenseofbetween$450millionand$550million.

Thisisunchangedfromourpriorguidance.

Regardingotherincomeandexpense,asareminder,thisistheaccountwherewerecordroyaltyincomeaswellasgainsandlossesarisingfromsuchitemsaslitigation,investmentsbyourdevelopmentcorporationaswellasdivestitures,assetsalesandwrite-offs.

Wewouldbecomfortablewithyourmodelsfor2015reflectingnetotherincomeandexpenseexcludingspecialitemsaasagain,rangingfromapproximately$2.2billionto$2.3billion.

Thisisslightlyhigherthanourpreviousguidance.

Asareminder,thisincludesthegainfromthedivestitureoftheUSrightstopainmedicineaswellastheanticipatedgainonthependingdivestitureoftheCordisbusinesstoCardinalHealthwhichweexpectwillclosetowardtheendof2015,subjecttoregulatoryclearancesandothercustomaryclosingconditions.

Wehavealsorefinedourestimatesfortheitemsinthisaccountnowthatwearehalfwaythroughtheyear.

AsIalsonotedinApril,theguidanceforotherincomeandexpensewillflowthroughtoincreasedoperationalearningsasweexpecttousethisotherincometocompensateforthedecreasedincomefromOlysioin2015ascomparedto2014,aswellastohelpmitigatesomeoftheimpactofstrongforeigncurrencyheadwindsthisyearwhilewealsocontinuetoinvestinourcorebusinessandopportunitiesforfuturegrowth.

Andnowawordontaxes.

Ourguidancefor2015anticipatesthattheR&DtaxcreditwillberenewedbyCongress,althoughthathasnotyetoccurred.

Wewouldthereforebecomfortablewithyourmodelsreflectinganeffectivetaxratefor2015excludingspecialitemsofapproximately21%to22%,consistentwithourpreviousguidance.

IftheR&Dtaxcreditisnotapproved,thatwouldnegativelyimpactthetaxratebyapproximatelyhalfapercentfor2015.Nowturningtoguidanceonsalesandearnings.

Consistentwithourpreviousguidanceforsales,ourassumptionforProcritisthattherewillnotbebiosimilarcompetitionin2015.WealsodonotanticipategenericcompetitionthisyearforRisperdalConstaorInvegaSustennabutweareexpectingageneric.

AsexpectedwehaveseenadditionalbiosimilarcompetitionforRemicadeinEurope,followingthepatentexpirationinmanycountriesinFebruaryofthisyear.

Aswe'vedoneforseveralyears,ourguidancewillbebasedfirstonaconstantcurrencybasisreflectingourresultsfromoperations.

Thisisthewaywemanageourbusiness,andwebelievethisprovidesagoodunderstandingoftheunderlyingperformanceofourbusiness.

WewillalsoprovideanestimateofoursalesandadjustedEPSresultsfor2015withtheimpactthatcurrentexchangeratescouldhaveonthetranslationofthoseresults.




Consistentwithourpreviousguidance,wewouldbecomfortablewithyourmodelsreflectinganoperationalsalesincreaseonaconstantcurrencybasisofbetween1%and2%fortheyear.

Thiswouldresultinsalesfor2015onaconstantcurrencybasisofapproximately$75billionto$76billion.

Additionally,bywayofcomparisontohowwe'vedescribedoursalesresultsin2014,ouroperationalsalesgrowthfor2015excludingtheimpactofallacquisitionsanddivestitureaswellastheimpactofhepatitisCproductswouldbeapproximately6%,ahigherlevelofgrowththanthecomparable5%for2014.Justtonote,wearemonitoringthesituationinGreeceasthecountryconsidersitspathforwardeconomically.

Wedonotanticipateanysignificantnegativeimpacttooursalesresultsfor2015nortoourearningsfor2015unlessthereisasignificantchangeinthecurrentexpectedresolution.

Asoflastweek,theEurowaslowerbyapproximately17%ascomparedto2014averagelevelsandthedollarhasstrengthenedrecentlyversusvirtuallyallmajorcurrencies.

Andthoughwearenotpredictingtheimpactofcurrencymovementstogiveyoutheideaofpotentialimpactonsalesifcurrencyexchangeratesweretoremainwheretheywereasoflastweekforthebalanceoftheyear,oursalesgrowthratewoulddecreasebynearly7%,reflectingtheweakeningoftheyearrowandothermajor.

Underthisscenario,wewouldexpectreportedsalestoreflectthechangeintherangebetweennegative5andnegative6%fortotalexpectedlevelofreportedsalesofbetweenapproximately$70billionto$71billion.

Thisisconsistentwithourpreviousguidance.

Andnowturningtoearnings.Asignificantfactorimpactingourearningsguidancefor2015istheimpactofcurrencymovementsontransactions.

Andalsotheyarehedged,itisstillsomewhatnegativelyincrementalversustheprioryear.

Weexpecttransactioncurrencyimpactstobenegativetoourgrossprofitbyapproximately60basispointsin2015ascomparedto2014.WewouldbecomfortablewithadjustedEPSguidanceinarangebetween$6.70to$6.80pershareonaconstantcurrencybasis,reflectingoperationalorconstantcurrencygrowthrateof5%to6%.

Thisishigherthanourpreviousguidanceaswehaveincreasedthelowerendoftherangereflectingsomeoperationalimprovementsinthebusinessandourconfidenceatthispointintheyear.

Again,we'renotpredictingtheimpactofcurrencymovementsbuttogiveyouanideaofthepotentialimpactonearningspershare,ifcurrencyexchangeratesforallof2015weretoremainwheretheywereasoflastweek,thenourreportedadjustedEPSwouldbenegativelyimpactedbyapproximately$0.60persharewhichisconsistentwithourpreviousguidance.

Therefore,ourreportedadjustedEPSwouldrangebetween$6.10to$6.20pershare.

Atthisstageintheyear,wewouldbecomfortablewithyourmodelsreflectingthemidpointofthisrangewhichishigherthanourpreviousguidance.

Soinsummary,asyouupdateyourmodelsfortheguidancethatIjustprovided,Iwouldliketomakeafewkeypoints.

Althoughoperationalsalesgrowthisexpectedtorangebetween1%and2%,wearepleasedtonotethatwhenexcludingtheimpactofacquisitionsanddivestituresandhepatitisCproducts,ouroperational




salesgrowthatthemid-pointofourguidanceisasolid6%forthefullyear2015ascomparedto5%for2014.

Withregardtoearnings,onaconstantcurrencybasisourguidanceonoperationalEPSgrowthisstrongandintherangeofbetween5%and6%.Finally,asweexecuteonourgrowthplans,we'recontinuingtomakeportfoliochoicesandinvestmentsinourbusiness,particularlyinresearchanddevelopment,aswecontinuetobuildourpipelinesacrosstheenterprisewhichwillpositionusforsustainedfuturegrowth.

AndnowI'dliketoturnthingsbacktoLouisefortheQ&Aportionofthemeeting.

Louise.


Thankyou,Dominic.

Holly,canyoupleasegivetheinstructionsfortheQ&Asession.

QUESTIONS&ANSWERS

Operator :

(OperatorInstructions).

YourfirstquestioncomesfromGlennNovarrowithRBCCapitalMarkets.

GlennNovarro (Analyst-RBCCapitalMarkets):

Goodmorning.

QuestionforAlex.

Inyourfirstcoupleyears,Alex,you'vepaintspentalotoftimewithdivestitures,divestingcardiodevising.

Consumerbrands.Asyoulookattheenterprisenow,doyouthinkwearefinishedwithdivestitures,questionone.

Andquestiontwo,dowenowenteraperiodwheretheCompany'smorefocusedonacquisitions?

Thankyou.


Goodmorning,Glenn.

Alexhere.Thankyouverymuchforyourquestion.

Threeyearsagowhenwestartedlookingatourstrategiesgoingforward,wetriedtooutlineaveryclearpathaheadthatwouldreallyconsistofmultiplecomponents.

Oneisobviouslycontinuingtoinvestinourorganicbusinesses,bothinsalesandmarketingandresearchanddevelopment,andIthinkwedemonstratedthatinspiteofalotofdifferentputsandtagsthattakesthatwecontinuetodothatinaresponsibleway.

AsDominicoutlinedearlierwhenhewastakingyouthroughtheP&L.

Anareawherewedidhavealotoffocuswasonmakingsurethatourbusinesseswerecompetitiveandof




coursewetriedtobeveryclearinourcriteriatherethat,look,wewanttobenumberoneornumbertwointhemarketplace.

Wewanttohaveaclearinnovationortechnologypathtoreallyhelpingpatientsorconsumers.

Orveryimportantly,wewantedthebusinesstobecomplementarytosomethingelsethatwe'redoinginanotherareaoftheenterpriseandofcoursefundamentallybeastrongbusiness.

Andiftheydidn'tmeetthosecriteriathenofcoursewe'dconsiderotheroptionswheretheymaybebetterservedinsomeoneelse'shands.

Asyou'venotedwe'vedemonstratedthatwe'rewillingtodothataswell.Wethinkthat'sanongoingprocessinthebusiness.

Wewouldexpectinabusinessoursizeinexcessof$70billion,involvedinnumerousplatforms,thatthat'ssomethingthatyou'llseeaspartofournaturalcadenceandflowgoingforward.

Butclearly,we'realwaysalsointerestedingrowthopportunities.

Andwhenweseestronginnovationsthatreallymakeadifferenceforpatientsthatalsowherewefeelitoffersagreatcomplementtooneofourexistingfranchisesorfranklyaplatformforsignificantgrowthintothefuture,we'vegotthebalancesheet.We'vegotthewherewithaltomakethoseinvestments.That'salwaysapriorityforusandwillremainsointothefuture.

GlennNovarro (Analyst-RBCCapitalMarkets):

Justasafollow-uptothat,ifyoulookatthepipelineofM&Apotential,numberone,wouldyoucallthepipelinemeaningful?

Inotherwords,there'salotofrichtargetsoutthere.Andthenasyoulookatthesetargets,whatdoyouseeintermsofthevaluationofthesetargets?

Arethesetargetsgettingstretchedandisthatmaybeoneofthereasonswhyyouhaven'tdoneasmuchM&Ahereinhadthelastfewyears?Thankyou.

Unidentif iedCompanyRepresentative :

No,Glenn.Thankyou.

WedofeelthatthereareseveralsignificantopportunitiesreallyacrosseachoneofoursegmentsthatofferpotentialforgrowthandthatareconsistentwiththestrategicoutlinethatImentionedearlier.

Atthesametime,Ithinkwedemonstratedthatwewanttobethoughtfulanddisciplinedaboutourapproachandweintendtocontinuethatpathgoingforward.


Thankyou.

Nextquestion,please.

Operator :

YournextquestioncomesfromthelineofKristenStewartwithDeutscheBank.

KristenStewart (Analyst-DeutscheBank):




Goodmorning,everybody.

Iwasjustwondering,comeMickifyoucouldwalkusthroughwiththedispositionofCordiskindofwhatyou'reassumingintermsoftimingofthesaleofthebusinessandthenthedilution,howweshouldthinkaboutthatshouldwethinkaboutthatsimilarwiththeOCDbusinesstheytermsoftheuseoftheproceedsperhapswithanotherroundofrepurchasetooffsetdilutionagainorjustkindofhowwe'rethinkingstillaboutcardiovascular.


Sure,Kristen.

Well,weexpectthattheCordisdivestiturewillcloseinthelatterpartoftheyear.

Westillhavesomeregulatoryapprovalsandcustomaryclosingconditions,sowewouldexpectthattowardtheendoftheyearthat'sbeenconsistentwithourpreviousdiscussion.

Nothing'schangedthere.ThedilutionofnothavingCordisaspartofthebusinessisnotthatsignificant,quitefrankly,notasmuchasitwasforOCD.

Asyouknow,thatbusinessafterweexitedthedrug-elutingextentbusiness,arelativelysmallportionofourbusiness,andthenwithrespecttouseofproceeds,aswedotypicallywhenwedodivestitureswewaitafterthetransactionsarecomplete,lookatotheropportunitieswehavefortheuseofcashandthenmakeourdecisionsthenasweprepareourplansforthecomingyear.

Soasofnow,Ireallycan'tcommentonwhatwemightdowithanyoftheproceeds.


Kristen,thisisAlex.

Ijustmightalsoaddthatcardiovascularremainsanareaofstrategicimportanceforus.WehaveaverystrongBiosenseWebsterbusiness.

Ifyoulookatthequarterlyperformanceforthesecondquarter,onceagaindouble-digit.

Ithinkthisreflectsalmostthreeorfouryearsnowofconsecutiveimprovementsinthatperformanceandaverysimilarlevel,agreatflowofnewtechnologiesthat'sreallymakingadifferenceforpatients.

Wealsothinkcardiovascular,look,itstillremainsaglobalhealthcareissuewithalotofinnovations.Soit'sanareawhereweremaininterestedandwestillfeelwehaveverysolidfootingwithourBiosenseWebsterEPbusiness.


GotitandthenjustmaybeifyoucouldgiveusalittlemorecolorjustonRemicade.

Iknowthat'sobviouslybeenakeyconcernofinvestors,justwhatyou'reseeinginthequarterandkindofexpectationsaheadjustwithrespecttobusinessoverinEuropewithbiosimilars.


Sointhequarter,Kristen,wehadintheexportsales,weactuallyhadaninventorychangethatnegativelyimpactedthereportedresultsthereforthepharmaceuticalgroupbyabout2%.Whatwe'reseeinginEuropeisasexpected.




SoforthecountriesthatwentoffpatentinFebruary2015,we'reseeingaboutamarketshareforthebiosimilarsinthemid-singledigits,soasexpected.


Perfect.Thankyou.

Operator :

YournextquestioncomesfromthelineofMikeWeinsteinwithJPMorgan.

MikeWeinstein (Analyst-JPMorgan):

Hi.Goodmorning.

Letmeturntothepharmasideforaminute.IthinktwoproductsthatpeoplearefocusedoninthefirsthalfoftheyearforimpactofcompetitionwereStelaraandInvokana.

Invokanalookslikemomentumhascontinuedandcontinuestolookfantastic.Stelaralookslikeitslowedthisquarter.Socouldyoujustcommentonboth?


Yeah,Mike.Alex.WestillseeStelaragrowthatover15%.

StronggrowthintheUSandparticularlystronggrowthoutsidetheUnitedStatesatalmost27%.

Therewasaslightsequentialdecreaseinsharewe'reprojectingbutoverallifwelookatthecompetitiveprofileoftheproduct,howwe'redoing,combinedfranklywithouroverallfranchisepresencethatweseeinthisarea,weremainreallyconfidentinit.


AndanycommentsonInvokana?


Invokanathesame.Ithink,look,we'vecontinuedtohighlighttheprofile.We'vegotgreatreimbursement,wellinexcessof50%to60%inbothcommercialaswellastheMedicaresideofthebusiness.

We'vecontinuedtoseestrongTRxtrends,bothinprimarycareaswellasendocrinology.

Sooverall,we'reseeingstronguptakeandwethinkit'sabigopportunity,Mike.


Okay.Alex,whileI'vegotyouhere,it'sbeenthreeyearssinceyouguysclosedtheSynthesacquisition.

I'msureasyoucommentedyou'renotthrilledbythefirsthalfperformanceintraumaandinspine.Socanyoujusttalkalittleabouthowyou'refeelingaboutthatdealandwhatitwilltaketogetitbackontrack.Thanks.


Sure,Mike.Thanksforthequestion.




Look,overallweabsolutelybelieveitwastherightmovetobringSynthesinandcreatethelargestandmostdiversifiedorthopedicsCompanyandwhenwereflectback,therehadbeenchangesthathavetakenplaceinthemarket.

Oneisjustthemarketgrowthacrossallthesesegments.Ifyourememberbackin2008,2009,2010,wesawhighsingledigitgrowthreallyforhips,knees,trauma,aswellasspine.

Thathaschangedsignificantly.We'renowseeingthatinthe3%to4%range.Iampleasedwiththeperformanceoverallthatwe'veseenthroughtheintegration.

Wheneveryoubringtwolargeorganizationstogether,there'salwaysalotofmovingpiecesbutIthinkoverthelastthreeyearsifyoutakealookattheoveralldisruptionandthewaythatwe'vebeenabletomanageit,Ithinktheteamhasdoneaverygoodjobandnowwe'rereallyfocusedonwhatdowedotoensurethatwe'rebestpositionedforthefuture.

Andfrankly,we'redoingitatatimewhenalotofourcompetitorsarejustgettingreadytogothroughasignificantamountofintegrationandtransition.

Andthisiswherewe'reexcited.AndIthinkitstartswithinnovation.We'vehadanicecadenceofinnovation.

Infact,we'reinthemidst--wejustlaunchedtheTFNA,thetransfemoralmillintrauma.

Wethinkwillbea--thatpartofthebusiness.

IntheUSwewereencouragedbytheperformancethatwesawinkneesandhipsandgrowthrespectivelyforthequarter.

AndalsogoingforwardIthinkwe'realsoquiteexcitedabouttheopportunitytoworkwithcustomersinnew,uniqueanddifferentwaysacrossthatportfolio.

AndIalsothinkit'sfairtosaythatallthoseareaswe'regoingtocontinuetolookforwaystodrivethatbusinessthroughinnovationbutalsothroughincreasingoureffectivenessandefficienciesacrossallareasaswell.

SoIthinkwe'repleased.

We'renotsatisfied.

There'smoreworkthatweneedtodoandthat'swherewe'refocusedrightnow.


Thanks,Alex.



Operator :

YournextquestioncomesfromthelineofLarryBiegelsenwithWellsFargo.

LarryBiegelsen (Analyst-WellsFargo):

Goodmorning.Thanksfortakingthequestions.




Twoclarifications.Ontheutilizationcommentsaboutthefourthconsecutivequarterofimprovingutilizations,isthatthroughQ1orQ2?

Andthensecond,onRemicadeoutsidetheUS,byourmathwehadtotalinternationalandexportsalesgrowthinQ2downabout18%constantcurrency.

Louise,youtalkedaboutthat2%impactfromtheinventoryreduction.

Wasthattothat18orsopercent?WasthatjustRemicadeoutsidetheUS.Ifyoucouldhelpclarifythosetwopointsthatwouldbegreat.

Ihadonefollow-upforAlexafterthat.


That2%isontotalpharmaceuticalsales.Soitwasalargereductionintheinventories.


Totalworldwidepharma?


Yes,yes.


Okay.Andthenontheutilization,wasthatthroughQ1orQ2?


Larry,Alexhere.

ThatwasthroughQ2.Again,youknowthisdataaswellaswedoandwe'retryingtotriangulatefrommultipledifferentsources.

Butwhatweseeis,forexample,around4%growthinhospitaladmissions,ifyoutake.Probablybetween2.5%and3%.Ifwelookatoveralloutpatientproceduregrowth,probablyaround3%.Soit'sstillpositive.

Insomecasesit'sflat,perhapsaslightdecreaseversuswhatwesawinQ1,butwethinkoverallthetrendsarerelativelyconstant,whatwe'veseenthusfar.


That'shelpful.

AndIappreciateyourcommentsearlieronM&AandtheM&Aenvironment,butdoyouhave$15billioninnetcashwhichisobviouslynotearningmuch?IknowyourfirstpriorityforcashisthedifficultconditioneddividendandthenM&A.

Atwhatpointdoyouconsiderusingyourcashtorepurchaseshares,Alex?Thanksfortakingthequestion.


Sure,Larry.




Look,overall,ultimatelywewanttocreatemorevalueforshareholdersandaswelookatourcapitalallocationstrategy,youjustiterated,wehaveastrongcommitmenttodividends.We'vedonethatforalongtime.Youknowourstatisticsandourtrackrecordthere.

RegardingM&A,it'salsoanotherareaobviouslythatwekeepoureyeon.Imentionedearlierinthediscussionthatwe'realwayslookingfortherightopportunityandwetrytodothatinabalancedapproach.

Ofcoursewewantinnovation.OfcoursewewantcomplementarythingstoaddtoourportfolioandgrowthopportunitiesbutwealsowanttoensurethatwemaintainthedisciplineandtheperspectiveofourapproachIthinkhasserveduswelloveralotofyears.

EvenifyoulookattheinternalversusexternalinvestmentinCompany,Ithinkifyoulookovera20,a10orevenaneartermperiod,about45%ofourgrowthcomesfromwhatI'dcallorganicorganicinvestmentinourresearchanddevelopmentversusslightlyoverhalfthroughM&A.

Andsothatwillcontinuetobeourapproach.


Also,Larry,Iwouldsaythatifyoulookatitoverlongperiodsoftime,Ithinkwe'reveryproudofthefactthatoveradecadewe'vereturnedabout70%ofourfreecashflowtoshareholders.SoIthinkit'simportanttokeepthatinmind.

Althoughwemaybeevaluatingopportunitiesallthetime,we'realwaysmindfulofthefactofappropriatereturntoshareholders,consistentlyoverlongperiodsoftime.


AndIthinkevenrecentlythroughsomeoftheannouncementsthatwe'vemadeaboutsharerepurchases,we'vedemonstratedthatthat'spartofourmixandwillcontinuetobesogoingforward.


Thanksfortakingthequestions.



Operator :

YournextquestioncomesfromthelineofJamiRubinwithGoldmanSachs.

JamiRubin (Analyst-GoldmanSachs):

Goodmorning,everyone.Justacoupleoffollow-upquestionsonsomeofthemajorthemesoftheearningscall.Alex,Iappreciateyourtakingthetimetobeonthecall.

Justifyoulookatthe[mvabusiness,themva]hasunderperformeditspeersforatleastthelastfourtofiveyearsandmaybelonger,I'mnotsure.ButIcan'timagineyouarepleasedwiththatperformance.

AndI'mjustwonderingwhatisyourinterestlevelinmovingupthetechnologycurveoutofwhatyou'rein,whicharemostlycommoditybusinesses.

WhenIlookacrosswherethemajorgrowthopportunitiesareinmedtech,youguysaren'tthere,robotics,




transcatheterheartvalves,etcetera.

IappreciatevaluationsarehighandyouwanttobedisciplinedbutatthesametimeJ&J'sMD&Dbusinesscontinuestounderperform.Ifyoucouldcommentonthat,please.

Secondlytoyou,Dominic,youarebookingabout$2billioninnonoperatingincomein2015,largelyrelatedtodivestitures.

Howdoyourepeatthatperformancein2016withoutcreating,again,averydifficultcomparison?

Thanksverymuch.


Jami,thankyouforthequestion.

Look,firstofall,asIsaidregardingourmedicaldevicebusinesses,wethinkthisisanimportantbusinessandremainsaverysolidgrowthopportunitygoingforward.And,look,asyoulookacrossthatentirebusiness,wehaveanumberofveryexcitingareas,frankly,thataredoingquitewell.

Wehighlightedsomeofthemearlier,whetherit'sBiosenseWebster,whetherit'swhatwe'reseeinginareaslikebiosurgicals,energy,ourendocutterbusiness.

We'restartingtoseetheturnaroundinareassuchasvisioncare.Andwedon'tthinkthosearecommoditybusinesses.Wethinkthosearedrivenbyinnovation,technology,andthey'vebeenasteadystream.

Now,arethereotherareaswherewe'reinterested?Well,youknowthatwemadeaninvestmentintheroboticspace.We'veannouncedanexcitingopportunitywithGoogle.It'sstillearlydays.Werecognizethat.

Butwethinkthatthere'salotofopportunitythere,givenourexpertiseandgeneralsurgeryoverallandcombiningitwithsomeoftheexpertisethatthosenewtechnologypartnerscanadd.

We'realsointerestedinotherareasbeyondthat,andwe'vedemonstratedtheabilityinthepastthatwhenweseethem,wewillparticipateandacquirethem.

AndIthinkwe'vealsodemonstratedoverthepastfewyearsthatinareaswherewedon'tseethatpathforward,thatwe'llbeactiveonthedivestiturefrontaswell.

Sowethinkthatthereisroomforimprovement.Weknowthatwe'vegotbusinesseslikediabetescareforexamplethathadasignificantimpactfrompricingafewyearsago.

Visioncare,that'sstillinthemidstofaturnaround.Butwethinkthatwe'vegotthestrategies,theinnovationinplacetoturnthosearoundandthesecanbeverysolidandstrongpermperformersgoingforward.


Withrespecttotheotherincomeandexpenses,$2billionroughlythatyouquoted,Ithinkwewereveryclearearlyintheyearthatweweregoingtousethosedivestituregainstooffsetsomeprettysignificantheadwindsandinparticularthemajorheadwindofcurrencythisyear.

Goingforward,Idon'tbelievewe'llhavethesamelevelofdivestitureincomebutwewillstillhavesome.

AsAlexmentionedearlier,we'recontinuouslyreviewingourportfolioandmakingdecisionsofwherewe




wanttoparticipateandwherewethinktheassetswouldbebetteroffinsomeoneelse'shands,wherewecouldgetvalueforourshareholdersbysellingtheassets.

SoIthinkfor2016,wewouldstillseesomelevelofdivestitureincomebutagain,in2016versus2015,wewon'thave--wedon'tbelievewe'llhavethesignificantheadwindsofcurrencyyouthatwejustexperiencedin2015,norwillwehavethetoughcomparisonsofnothavingOlysio.

SoIthinkyou'llcontinuetoseeitaspartofourstrategytore-evaluateourportfolioanddeploythosegainsagainsthighergrowthopportunities.


Thankyou.


AndIjustwanttoclarifysomethingontheinventoryforthepharmaceutical.The2%negativeimpactincludesalsosomeinventoryreductionsforO lysio,soifyoujustlookedattheRemicadeexporttotalUSimpactwouldbeabout1%,abouthalfofthat.

Okay.Thankyou.Nextquestion,please?

Operator :

YournextquestionwillcomefromthelineofJoshJenningswithCowen&Company.

JoshJennings (Analyst-CowenandCompany):

Goodmorning.Thankssomuchfortakingthequestion.

FirstoneforDominic,aswelookinto2016andbeyondofO lysioandotherheadwindsexperiencedin2015,howshouldwebethinkingaboutleveragingtheP&LdrivingahigherlevelofEPSgrowthrelativetorevenuegrowth?ShouldwebeanticipatingconsistentconstantcurrencyEPSgrowth100,200basispointrange?

Orcouldthatspreadimproveasyouexperienceoperatingimprovementsinconsumeranddevicefranchisesandcontinuedstrengthinthepharmaunit?


Thank,Josh.

Aswe'vesaidmanytimes,wealwaysplanourbusinesstogrowourtoplineataratefasterthanthecompetitivesetandthentogrowthebottomlineatarateofgrowththat'sslightlyfasterthanthetoplinegrowth.

Thatdependseachyearonwhatinvestmentswewanttomaketocontinuethegrowthtrajectoryofthebusiness.

SoIcan'tgiveyouaformulatothinkaboutbutIthinkyouhaveseenusbeveryconsistentinourabilitytocontinuetogrowearningsataratethat'sappropriatelyatalevelfasterthansales.

Again,dependingonwhatthemarket'sdoingandthendependingonwhatparticularinvestmentswehave.

Wedoseeincreasedprofitabilityintheconsumerbusiness,becauseyoumentioneditinyourcomments




andSandyhadreferredtoitearliernowthatwe'rethroughmanyoftheissuesintheconsentdecree.

Wesawtheincreaseintheprofitabilitylastyearandweexpectthatbusinesswillcontinuetocontributemoreprofitabilityinthefuture.

JoshJennings (Analyst-CowenandCompany):

Thanks.Andjustafollow-uponthepharmaproductspecificquestion,there'ssomerecent[AandDA]filersfor[Itega].

CanyoutalkaboutanyinherentriskofagenericcomingtotheU.S.marketpriorto2016,andjustanupdateonyourpatentpositioningforthatasset.Thanksalot.


SojusttorepeatwhatIsaidinthepreparedremarks,thecompositionofmatterpatentexpiresinDecember2016.Andthemethodoftreating[popping]expiresinAugustof2027.Wewouldnotspeculateonanyapprovaltimingoroutcomeofanylitigation.

However,ifwedecidetofilealawsuit,the30monthstaywouldbeginApril2016attheearliest,andthelengthofwhichwouldbeofcoursesubjecttoanyoutcomeofanylitigation.

Thankyou.

Andnextquestion?

Operator :

YournextquestionwillcomeinthelineofVamilDivanwithCreditSuisse.

VamilDivan (Analyst-CreditSuisse):

Hi,goodmorning,everyone.Thankssomuchfortakingthequestions.JusttwohereifIcould.

One,youtalkedalittleaboutInvokanaearlier.IknowMikeaskedaboutthisaswell.JustabouthalfwaythroughthequarterwedidhavetheFDAcommentaround[qsdoses].

Andjustcurious,obviouslyperformanceseemsfinethisquarter,onaqualitativebasisifyou'resensingsortofquestionsorchangesinprescribinghabitsasaresultofwhattheFDAhasstatedatthispoint.

Andthensecond,appreciateyourcommentsonGreece.IwasjustcuriousalsoregardingPuertoRico,justsomeofthekindofmacroissuesthataregoingonthere,Iknowyouguyshavesomemanufacturingdownthere.

Doyousenseanysortofriskorconcernstheredependinghowthatsortofplaysoutoverthenextfewweeksormonthshere?


I'lltakefirstthequestiononthe[DKA].It'searlyonbutourPhaseIIItrialsactuallyincludedabout10,000patientsandwesawveryfewcasesofit.


AndwithrespecttoPuertoRico,you'reright,wehaveasignificantmanufacturingpresencethereandsignificantemploymentontheislandofcourseasaresult.




ButIdon'tseethatasamajorfactorinourabilitytocontinueprogressingwithourplans.

Soit'snotonourradarscreenasamajorissuetocontendwith.

VamilDivan (Analyst-CreditSuisse):

Okay.



Operator :

YournextquestioncomesfromthelineofJaysonBedfordwithRaymondJames.

JaysonBedford (Analyst-RaymondJames):

Goodmorningandthanksfortakingthequestions.

IthinkIheardAlexmention$1billionincostsavingsby2018.Ijustwantedalittleclarity.IsthatanewprogramoristhattheprogramthatIthoughtyouintroducedacoupleofyearsago.


ThisisDominic,Jayson.

It'stheprogramthatweintroducedacoupleyearsago.We'reacoupleofyearsintoitnow,andsowe'realreadyseeingsomeofthosecostbenefits.AndAlexisdescribingthesameprogramwherewelookedatby2018ifyoucomparedittoabaseyearof2013,theoverallcostreductionwouldbeintheaggregate$1billion.


Howfaralongareyou?Areyou50,60%?


Wekickeditoffin2013.Wedidalotofplanningofcoursein2014.Sowe'rejuststartingtorampitupthisyearintothenextcoupleyears.


Okay.

AndthenmaybeaquestionforSandyontheconsumerside.You'veaddedinvestmentoverthelastfewyearstosupporttherelaunchoftheOTCproducts,butmarginsseemtohaveimprovednicelyoverthelastfewquarters.Doestheaddedinvestmentwinddowntogeneratebettermarginsordoesthegrowthpickuptoimprovemargins?


Thanksforthequestion.

Thewayinwhichwe'relookingatthisisaswe'resunsettingtheconsentdecreeitenablesustoimprovetheproductivityofourmanufacturingfootprint.




SoalargepartofwhereyouwillseecontinuedimprovementintheprofitabilityofthebusinessisbyimprovingourCOGSandourgrossmarginsforthebusiness.Sothat'soneaspectofit.

Theotheraspectofitisweare--wehaveundertakenoverthelastcoupleyearsanapproachtoglobalizeourbrandsandglobalizehowwemanagethem,whichdrivesincreasedefficiencyineverysinglemarketingdollar.

Soourperspectiveonthisisweneedtocontinuetoinvestbehindthesebrands,boththeUSOTCportfolioaswellastheglobalportfolio.

Soyou'llnotseeusreduceourinvestmentsbehindourbrandbuildingofallofourcorebrandsbutwhatyouwillseeisimprovedleverageinourmanufacturingfootprintandactuallyhowwe'respendingthosedollarstodriveimprovedprofitabilityacrossthesector.


Jayson,thisisAlex.

IfIcouldjustaddIreallywanttocommendSandyand[Jorge]andtheirteamsonthejobthey'redoingontheserelaunches.Ithinkwhenwewerehavingthesecallsseveralyearsago,therewasprobablyafairamountofskepticismonourabilitytorelaunchagainstprivatelabel,makingsurethatwecouldworkourwaythroughtheconsentdecreerequirements.

Andifyoulookattheprogressthat'sbeenmadeoverthepastfewyears,obviouslyitstartswithgreatproducts.Ithinknowwehaveover80%ofourbrandsreturntotheshelf,alotofnewrecentlaunches,particularlyalongtheTylenolline.

Ifyoucombinethatwiththewayweachievedalltheconsentdegreerequirements,Ithinkweworkcloselywiththeagency.We'vedonethat.Infact,Ithinkwe'llbe--ifnotthe,oneoftheonlylargeover-the-countercompaniestoeverbeabletodothatsuccessfully.

Andthereallygoodnewsisthatwhenyoulookaswerelaunchthesebrandstheshareuptakeisstrong.Ithinkwe'rebackupto60%ofthesharethatweachievedinareaslikepain.

Sowe'rebuildingourwaybackup.Andwhenyoucombinethatwithsomeofthenewinnovationthat'swehave,wedefinitelyseeanicegrowthopportunityinthatpartofthebusiness.


Sowithrespecttoeveryone'stimewe'lltaketwomorequestions.


Operator :

YournextquestioncomesfromthelineofDavidLewiswithMorganStanley.

DavidLewis (Analyst-MorganStanley):

Goodmorning.Thanks,Louise,forsqueezingmein.

MaybejustaquestionforAlexandSandyandaquickfollow-upforDominic.

Theconsumerbusinessisclearlyrecovering.That'sthebigmessage,Ithink,ofthiscall,andIthinkthecommentaryIthinkyou'vemadepubliclytheselastfewmonthsseemstobeforM&Aconsumerit'sgoingtocentermoreonbrandsandnotescompanies.




YouseemmorewillinginconsumeratleastfourestimationtoruleoutlargeM&A.AmIreadingthatright?Andwhyisthatthecase?


Soour--thewayinwhichwe'rethinkingboutsacquisitionsinconsumersisacombinationofthings.

We'regoingtoclearlystayfocusedonourpriorityconsumerneedstatesandgeographies.

Sothewaywelookatitisacombination,aretherebrandsthatareappropriatetotuckintoourinfrastructuretodrivegrowthincertainparmarketsorincertainareasoftheconsumerneedstate,butwealsowilllookattechnologiesthatwecanlicenseinlikewe'vedoneinotherpartsofJ&Jandlastly,wedolookatcompaniestoacquire,whetherthey'remid-sizedcompaniesorwhetherthey'relargercompanies.Andwearehighlydisciplinedaboutlookingatthoseandunderstandingthebenefitofdoingthosekindoflargeracquisitionsversusmid-sizeorsmalleracquisitions.

Sowehaven'truledoutanyparticularpartofthemarketplace.

We'relookingatavarietyofdifferentopportunitiesgiventhatthebusinessisnowstabledandgrowingagain,webelievewe'resortofinapositionwherewecanlookatthesethingsalittlebitmoreonanongoingbasis.


David,IwouldjustaddontothatthattheconsumerarearemainsoneofstrongstrategicimportanceforJohnson&Johnson.

Whenyouthinkabouttheroleofconsumersandhealthcareutilizationgoingforward,whenyouthinkaboutthewaythatyou'reabletodriveinnovation,andfranklywhenyouthinkaboutthereachthatitgivesyou,particularlyintheemergingmarketsandthefastgrowingmarkets,andbytheway,forJohnson&Johnsonitnotonlyoperatesthatwaytodrivegrowthinconsumerbutitactsalsoasawaytoincreaseouruptakeinourotherbusinesses,particularlyinthosegrowthmarkets.

Wethinkthere'salotofopportunities.AndIthinkmissiononeoverthepastfewyearshasbeengettingitontherighttrack.Asyoumentionedyourself,wethinkwemadealotofprogressthere.

We'refeelingmuch,muchbetter.Andnowwe'reobviouslylookingforways,howdoweexpandthat,howdowetakeittothenextlevel.


Okay.Veryhelpful.Thankyouforthatcolor.

Dominic,justaquickquestion,thinkingaboutinternationalgrowth,thisquarterwasalittleslower.Iwasjustwonderingifyoucouldgiveusanupdateonwhatyou'reseeingmacroin,mergingmarkets,maybespecificallyChina,justgiventheeventsofthelastmonth.Haveyouseenanyacuteslowdownorisitrelativelystable?Thankyou.


WehaveseeninChinasomeslowdown.Iwouldn'tcallitacute.There'ssomedynamicsofcourseofgenericcompetitioninChinaandoverallslowergrowthineconomicgrowth.Soweareseeingthat.

ButIthinkwe'rewellpositioned.We'vebeeninChinaformany,manyyears.Wehaveagoodfootprintthere.




Weobviouslymanufacturethereaswell.Andourbrandscontinuetogetgooduptickthereandofcoursewe'renotinthegenericpartofthepharmaceuticalbusinessinChinabecausewe'refocusedmoreoninnovationinthatmarket.

SoIwouldn'tcallitacutePresidentIwouldsaywe'veseensomeslowdownintheoverallmarketgrowthinChina.


Thankyouverymuch.


Lastquestion,please.

Operator :

Andyournextquestionwillcomefromthelineof[RickWise]withStifel.

Unidentif iedPart icipant :

Thankssomuchfortakingthequestions.Goodmorning,everybody.

Alex,maybejustaquestionforyouandthenoneforSandy.Youtalkedagain,youhighlightedyourfocusontheORofthefutureandtalkingabouttheGoogleJVandrobotics.

Couldyoumaybegiveusalittlemoreconcretecolor?Isthereagrandplan?Doesitrequireacquisitions?Arewegoingtoseesometangibleproductsorlaunchesthataregoingimpactsalesandearningsoverthenextsix,12months?Howdoyouwantustothinkaboutit?


[Rick],wewantyoutothinkaboutthisasarealstrategicinvestmentinthefutureforroboticsurgery.

Asweseethesurgicalsuitecontinuetodevelop,intoday'senvironmentIwouldsaythere'saprettyclearlineofdemarcationbetweenwhatyouwouldsayisstandardsurgeryandroboticsurgery.

Andwethinkastechnologydevelopsinthefuture,whetherit'sreal-timedatacollection,whetherit'svisualization,whetherit'sincorporatingsomeofthenewtechnologiesinareassuchasenergyandmemowstats,combiningtheseinnewanduniqueapproacheswethinkoffersarealsignificantopportunitytoimprovepatientoutcomesandultimatelytogrowthebusiness.

Wealsothinkthere'ssomeinherentlimitationstotoday'sroughroboticsurgeryenvironment.

Existinginnovationandifyoulookatwhat'shappenedwithothertechnologyplatformsastheyhavebecomesmaller,moreflexible,moremobileandfranklyhaveabetterabilitytointegratevariousactivitiesaroundtheOR,that'swherewethinkwecanreallymakeadifference.

Werealize,ofcourse,thatwebringcertaincapabilitiestothetablebutwealsothinkworkingwithpartnerslikeGoogleandothersitexpandsourcapabilitiessignificantlyandsolook,weseethisasreallynotsomethingtohaveanimpactI'dsayoverthenextsixto12months.

Thisislikelymoreoveratwotothreeyearplustimeframebutthisissomethingthatwearequitecommittedto,thatourpartnersarecommittedtoandthatweseeasarealopportunitytofundamentallychangethewaywethinkaboutsurgeryandroboticsinthefuture.





Ireallyappreciatethat.

Justlastquickly,Sandy,seemsclearthatisofftoastrongstart.IthinkyoulauncheditintheUSlatelastyear.

Maybejusttalkifyoucouldgiveusalittlemorecolorontherollout,whereareyou,areyoufullyrolledout?AreyouconvertingyourownpatientstoVibeorareyougainingnewaccounts?

Andmaybewhat'snextbeyondVibe.Thankssomuch.


Thanks.

Asyou--ininsulindeliveryintotalwhatwehavedoneis,asyouknow,wehadlaunchedtheproductinEuropeandalsoinCanadaoverthelastcoupleofyearsandbothinEuropeandinCanadaitalsohasapediatricindicationwhichclearlygivesitsomeuniquedifferentiationinthemarketplace.

WeeffectivelylauncheditintheUnitedStatesreallyatthebeginningofthisyear,sowe'veseensignificantpositivegrowthanduptakeoftheproductintheUS,whichisacombinationofexistingpatientsupgradingtothenewproductaswellasgainingnew--basicallynewtotherapyinsulinpumperaswellaswe'veseenalotofconversionfromotherpumpplatformstoourplatform.

WeinthesecondquarteralsofiledforthepediatricindicationfortheUSproductandsoobviouslytheFDAwillgothroughitsreviewprocess,butwe'rehopefulthatbeforetheendofthisyearweshouldhaveapediatricendpindicationwhichwillbeafurtheruptickinthebusinessintheUSandbeveryhelpfultousintheUS.AsIalsomentionedearlier,there'stwootherthingsininsulindeliverythatwe'reveryfocusedon.Actuallythree.

Buttwoofthemareworkinginpartnershipwith[deckscn]onanextgenerationpumpthatreallybringsthebestofwhatwe'velearnedofhowtomakethismuchmoreuserfriendlyandeffectivewithapatient,aswellasensuringthatwe'vegottherightalgorithminthepumpforinsulindelivery.

Combiningthatwiththenextgenerationofsensor,wecurrently--ourcurrentpumphasthatwith[deckscom].

Andthenwe'realsoandhavedonealotofworknotjustintheinsulinsidebutalsointhe[BJM]sideofreallycreatingamuchbetterecosystemforthepatienttohaveinformationanddatathathelpsthemmanagetheirconditionmuchmoreeffectively.

Sowe'reusinginformationtechnologyinasmarterwaygoingforwardandwe'reseeingverypositiveimpactofthat,notjustintheinsulindeliverysidebutinourcoreBGMbusiness.

Sothat'sanotherplacethatwe'llseeanumberofdifferentthingsthatwe'regoingtobedoinginthisbusiness.

Lastbutnotleast,Imentionedthatthepatchpumpisanothergreatgrowthplatformwebelieveforusbecauseit'sreallyauniquetothemarketplacewaytohelptype2diebetdiabeticswhoare.Therearealotofthingsintheworks.There'salotofthingsinourpipelineininsulindelivery.


Appreciateit.





Thanks.


We'llhavesomeclosingremarksbyAlex.


Thankyoueveryone.Inclosing,Iwanttoagainextendourappreciationtoallofyouforjoiningtoday'smeeting.

We'repleasedwiththesolidresultswereportedthismorning,andwhichaswediscussedtodayreallydoreflectthestrongunderlyinggrowthwe'reseeingacrosstheenterprise.

Whenyoucombinethiswiththeactionswe'vetakentoevenfurtherstrengthenourcorebusinessesandadvanceourpipelines,Johnson&Johnsoniswellpositionedtocontinuetodrivegrowthoverthelongterm.

Iwisheveryoneagreatday.Andthankyouverymuch.

Operator :

Thankyou.

Thisconcludestoday'sJohnson&Johnsonsecondquarter2015earningsconferencecall.

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