Good morning, and welcome to the Johnson & Johnson third quarter 2013 earnings conference call. All participants will be able to listen-only until the question-and-answer session of the conference. This call is being recorded. If anyone has any objections you may disconnect at this time. (Operator Instructions). I would now like to turn the call over to Johnson & Johnson, you may begin.

Good morning, and welcome. I am Louise Mehrotra, Vice President of Investor Relations for Johnson & Johnson and it is my pleasure this morning to review our business results for the third quarter of 2013. Joining me on the call today are Dominic Caruso, Vice President, Finance and Chief Financial Officer and Michel Orsinger, Worldwide Chairman of DePuy Synthes Companies. A few logistics before we get into the details. This review is being made available to a broader audience via webcast accessible through the Investor Relations section of the Johnson & Johnson website. I will begin by briefly reviewing highlights of the third quarter for the corporation and highlights for our three business segments. Following my remarks, Michel will provide an update on our DePuy Synthes business and the progress made on our near-term priorities in successfully integrating Synthes. Please note the presentations that accompanies Michel's remarks is available on our website. Next Dominic will provide some additional commentary on the financial results and guidance for 2013. We will then open the call to your questions. We expect the call to last approximately 90 minutes. Included with the press release that was issued earlier this morning is a schedule of sales for key products and/or businesses to facilitate updating your models. These schedules are available on the Johnson & Johnson website as is the press release. Before I get into the results, let me remind you that some of the statements made during this review may be considered forward-looking statements. The 10-K for the fiscal year 2012 identifies certain factors that could cause the company's actual results to differ materially from those projected in any forward-looking statements made today. The company does not undertake to update any forward-looking statements as a result of new information or future events or developments.…

Thank you, Louise, and good morning, everyone. I look forward to providing you with an update on the integration of the DePuy and Synthes, the value we are seeing in the combination of these two companies and our strategy for leading and shaping the industry. Having now worked with Johnson & Johnson prior to the Synthes acquisition, and now as a J&J leader, I have had ample opportunity to get to know the enterprise and discover its richness, breadth, resources and capabilities. I am very impressed by the values expressed in our credo and the ability of a large global organization to nourish and live by such values in an increasingly complex world. I now have a lot of respect for the people in Johnson & Johnson. Before I start my presentation, I would like to give my perspective on the DePuy Synthes third quarter results that Louise presented. While I am not entirely satisfied with our results, we have had some important wins. Joint reconstruction, especially in the U.S., is performing very well and we believe we grew market share in hips. Furthermore we generated double-digit growth in emerging markets with the best results coming from China, Russia and Brazil. Our performance in trauma and U.S. spine was lower than expected. Trauma results were due mostly to a biannual tender that did not repeat this year and pressure from lower price competition which we are managing by leveraging sales force coverage, segmenting the market and introducing new product configurations. U.S. spine results were due to integration disruptions which we are addressing. Overall, we are pleased to maintain our strong market leadership positions. I am very confident about the future. DePuy and Synthes, two of the most successful and respected companies in orthopedics and neuro, joined together at the right…

Thank you, Michel, and good morning everyone. I must say, we are very fortunate to have Michel leading our DePuy Synthes business with his level of energy, strong leadership and clear vision for the world's largest orthopedics business and I very much enjoy working with Michel as a member of our management committee. Now, I would like to turn to our third quarter results, review some achievements during the quarter and provide an update on our guidance for 2013. I will begin with a brief comment about what we are seeing in the overall healthcare market. At this time, we are still seeing utilization rates that are essentially flat year-over-year supporting a continued stable environment which is similar to what we saw in the second quarter. At Johnson & Johnson, the level of consistently solid and sustainable performance we deliver is due to the breadth of our business and the extraordinary achievements and dedication of our people around the world. Our third quarter results reflect the progress we are making in achieving our near-term priorities of delivering strong business results, returning a reliable supply of OTC products for the marketplace, successfully integrating Synthes and building on a strong momentum in the pharmaceutical segment. Our innovative products are clearly making a meaningful difference in the treatment of patients. We have also continued to make advancements in the implementation of our longer-term strategic growth drivers of creating value for innovation as evidence by the productivity of our pipeline and success for our nearly launched products, focusing on excellence and execution, leading with purpose and by increasing our global reach with greater local focus, which is reflected by our double-digit operational growth this year in the BRIC countries. Let's now review some of the highlights of the Q3 results. We are pleased to…

Thank you, Dominic. Felicia, could you please give the instructions for the Q&A session?

(Operator Instructions) Your first question comes from the line of Matthew Dodds with Citicorp.

Dominic, first for you. If you look at the geographic results, Europe has grown a lot faster than the U.S. I assume pharma is a big part of it, but do you think you are also gaining share in Europe and MD&D? Then broadly for Europe, what do you think about the environment for Europe in Q3 versus Q2? That's for you Dominic. Then Michel for you, in U.S. spine, I thought the integration started in the fourth quarter of last quarter. So why is the hit seem like again it's getting worse as we are moving through 2013 and when do you think that all sorts out?

Right. Hi, Matt. Good morning. Well, you are right. We do see strong growth in Europe. It is primarily driven by the pharmaceutical business, as obviously we have launched some exciting new products in the pharma business. In MD&D, we continue to see government austerity pressures and, quite frankly, a reduction of overall volumes in those businesses. However we seem to making pretty good progress in the Ethicon Surgical Care business and even in our diabetics and the DePuy legacy business in Europe as well.

Good morning, Matt. Indeed related to our U.S. spine performance, we have and continue to go through some disruptions, while we are very excited about our international business growing at plus 9%. Now related to the U.S. changes, as you can imagine, combining two sales forces from two different companies is a major task. We are combining different selling models, distributor base versus a direct setting model. Two sales people are calling on the same accounts on the same hospitals requiring realignment of territories. The sales force having to deal short-term with the complexity of two different systems, processes, it all takes time. Just as one example, sales consulting, as consultants ordering products need to do this from two different legacy ordering systems which need to be harmonized through IT and that obviously can lead to some frustrations by the sales force. But having said so, we are taking clear measures, ongoing measures, at very different levels, related primarily to ensure we can provide better support to the sales force, make their job easier but at the same time also provide enhanced and harmonized compensation and benefit packages. We are in the final stage of realigning our territories and I think people, customers but also our sales people do recognize that we, having the opportunity to combine two product bags, have one of the most attractive product offering, specially leveraging the strength of legacy Synthes in the cervical area, leveraging the strength of legacy DePuy in the lumber area. So time will help to stabilize the sales force and to create the stronger spine company also in the U.S.

Thanks Michel. Thanks, Dominic

Next question, please.

Your next question comes from the line of Mike Weinstein of JPMorgan.

Hi, thank you for that. Thanks for taking the questions this morning. Since we have Michel, Michel, with this one comment you made, the step that you made, you talked about lower price competition in trauma and it wasn't clear if you were talking in the U.S., if you were talking emerging market. So could you explain on that? Thanks.

The lower price competition we have been observing is primarily located in the U.S. We have seen some smaller companies trying to offer very specific product segments in specific institutions. So we are clearly taking corrective measures by working on major initiatives related to segmentation, customer segmentation, channel segmentation and products. We are going to counteract by also cross selling and certainly elevating our agenda with our customers leveraging our breadth and size of our portfolio through contracts and also establishing more strategic relationships. We see our sales clearly as a total solution provider which includes products and services primarily supported and provided by our well educated salesforce.

Okay. Thank you, Michel.

Then maybe if I could just follow up with maybe one item here. Dominic, if I look at the breadth of J&J, everybody looks at it right now and says the pharma business looks fantastic. You have got some product launches that are driving very strong growth and you are lapping up more that are coming shortly, so I think everybody is very comfortable with performance of pharma business and the outlook of the next, say, let's call it two or three years at a minimum. The challenges on the other side of the business within MD&D consumers, let me spend just a minute on consumer. If we stripped out and looked at the rest of the portfolio, the rest of the portfolio is growing 0% to 1% for last several quarters, but it doesn't seems like it has really picked up even as the economy has got in little bit better, so can you just talk a little bit about the strategy for the balance of the consumer business and is there any potential for growth to be accelerated for the broader portfolio?

Sure, Mike. Well, let say the consumer business has had as you know some challenges related to the overall economic slowdown, and yes you did comment and we do see some pickup in overall economic activity, but certainly not to the level that we all hope it would be at, so there are still some carryover elements of trading down, if you will, store brands and the like and what's incumbent upon our business then is to create the innovations that consumers will want and purchase and remain loyal to. You see that in certain pockets of our business more than others quite frankly. For example in skin care, AVEENO products are doing extremely well. You see new advertising campaigns et cetera and AVEENO alone is up 16% year-over-year. In other elements of the business, we have proved our portfolio quite frankly, we have had the impact of divestitures that have shown - made the difficulty in comparing the progress year-over-year, but we are poised to continue to capture market share through innovation which has been our stronghold in the consumer business in addition obviously to focusing on the return of OTC business. Just to mention one other thing about consumer, our emerging markets in the consumer business continue to do well despite some slowdown in some of these emerging markets we were confident that that consumer business will continue to do well and show growth as those consumers begin to purchase more personal care products in the future, so we are happy with the progress to-date. I think, we still have little bit ways to go with some innovation, but we have been very fortunate with the level of innovation we have been able to deliver thus far and I am confident we will see more coming in the near-term.

Next question please?

Your next question comes from the line of Kristen Stewart with Deutsche Bank.

Thanks for taking my question. Dominic, I know you had mentioned with the completion of the ASR program that you are going to be resuming your normal share repurchases to offset the employee stock issuance. I was just wondering if you could take a step back and maybe give us some of your broader thoughts on just capital allocation at this point. I guess why not doing more significant stock purchases given your net cash balance?

Kristen thanks for the question. Well, we have consistently addressed this question in a way that I think investors have come to understand our approach to capital allocation which is first and foremost we are going to generate strong cash flows. After that, we are very proud of having a 51-year history of increasing our dividend and so we have a priority towards allocating capital to our dividend which has proven to be the most enduring return to capital that we have looked at over long periods of time compared to other companies in the industry. Then we would like to continue to increase our presence in the global healthcare market by doing smart acquisitions at the right time with the right value for shareholders, which in the end continues to give us the ability to generate even stronger cash flows for the long-term. Then finally in order of priority, we look at share repurchases primarily as an offset to any dilution we might incur. For example, in the Synthes transaction, we completely offset that dilution of the employee stock purchases. We also obviously continue to offset that dilution, so that's the order in which we think of capital allocation to the extent we are opportunistic at times to buy back stock. We will always entertain that possibility, but that's been our approach and we think it has served us well and will continue to serve us well and our shareholder for the long-term.

Okay, and then just thinking about Synthes and some of the assumptions that you guys had at the time of acquisition. I know the growth forecast is a little bit softer now relative to back then. I think trauma and spine were expected to grow somewhere between 5% and 7%. I think today on the slides you guys have showed now globally orthopedic, closer to 2% to 4%. How do you guys just think about, I guess some of the cost synergies that you had originally targeted? How are those tracking? And are there greater opportunities on the cost side to maybe offset maybe at little bit lower sales growth contribution from the acquisition?

Right. Thanks, Kris. Let me just address that and then ask Michel if he would like to add anything. You are absolutely right. The major difference between the time of the acquisition and now is the growth rate primarily in trauma. Trauma as you know, was growing at that point 6%, 7% and you saw from Michel's discussion what we expect the growth rate to be going forward. So that's a major change in assumptions. We think that in order to answer that challenge we will have to do two things. Michel talked about the first being making sure that we have a comprehensive offering with the breadth of our portfolio et cetera. Secondly we will have to look at cost. However, you will remember that the major purpose of this acquisition was not to drive our cost synergies. It was to, as Michel mentioned, number one, preserve and then enhance the experience with our customers. But given the realities of the marketplace, we will look at, in fact, at what's an appropriate level of cost structure should be lower level of market growth remain for extended periods of time. But Michel, anything else you would add to that?

Indeed, Dominic. The emphasis we have is on growth but considering the new market environment over the last two years, it's a relative growth to the market which our people feel accountable to. Related to cost synergies we see nevertheless attractive opportunities to further realize and within our integration efforts, I must say, that at least the internally defined growth and cost synergies are on target.

Thank you. Next question, please?

Your next question comes from the line of Larry Biegelsen with Wells Fargo.

Good morning.

Good morning. Thanks for taking the question. One for Dominic and one for Michel. Starting with Dominic, you gave some color on the call on your BRIC market growth, but I don't think you gave for overall J&J. I think it was 19% in the second quarter. Can you give us that number for the third quarter and just the near-term outlook, Dominic there, given the issues in China? And if you could just talk about any impact in China across the three segments from the recent years? Thanks.

Right. Well, we did see an overall slower level of market growth in China most recently but let me just give you an idea of year-to-date through the nine months if you exclude Synthes from the numbers because obviously they impact the comparison for last year. We have double-digit growth across the BRIC markets, over 10%. Somewhere near 11%, 12% combined in the BRIC markets. So I think that's pretty healthy growth considering the relative slowdown that we have most recently are seen. We still believe the BRIC markets will be a major contributor of our growth going forward across all three of our major segments, MD&D, consumer and pharma as well.

Thanks for that. And then Michel, I am sure people would love to hear you your reaction to the Stryker-MAKO deal? And just lastly, it seems like the large joint market improved in the third quarter based on the two companies as reported so far in the U.S. Would you agree with that? If so why? Thanks.

Thank you for the question. First of all related to robotics. I think it's important to put it the question in to context of enabling technologies. There are many ways to improve the surgical processes and such enables our computer data territory, patient specific instrumentation, sensors and enabling technology in today's environment, in my opinion, must consider in a balanced way outcomes, efficiency and costs. So robotics, in its current stage, based on my information has not yet been proven that it is the best solution to address all of these criteria in a holistic way. It has theoretical incremental improvement in surgical accuracy but with increased significant surgical time and capital cost. Longer-term, robotic technology could have a role in facilitating less invasive patient customized implants and to proceeded solutions, so we continue to monitor this technology with great interest. Our focus is currently on procedure and episode of care efficiency. For example through our TruMatch and Care4Today where we think there are much more fundamental advantages to be gained. Related to your second question, I can confirm your statement. We also believe that joint in the third quarter has at least maintained momentum if not picked up. We see an overall very attractive performance from DePuy Synthes recon with plus 7%. I am confident although we still have to wait until other major players report their quarterly results, I am confident that that DePuy Synthes has gained share in the third quarter and that would mean that we have done so in its fifth consecutive quarter.

Next question please?

Your next question comes from the line of Tony Butler with Barclays Capital.

Good morning, Louise, and thank you very much for your time. Two questions, Dominic, the first or may be both of you. One is around free cash flow or cash flow from operations, however you wish to address it. Correct me if am wrong, I believe in the second quarter as you mentioned that the second half of this year, cash flow from operations would be greater. If am incorrect, I apologize for that, but the most important question is, regardless of how you view it. Do you have a view at which point cash flow growth can actually be something similar to the net income growth that you have actually been demonstrating quarter-in quarter-out just based upon at least pharma and to some degree the turnaround in consumer? The second, more product-specific question, is around abiraterone, and clearly very strong sequential growth is all that growth coming from the pre-chemo market or can you comment, or are you able to providing the split about whether the growth is ex or pre-chemo and why is it post-chemo? Thanks very much.

Sure, Tony. Well, let's see. Let's talk about free cash flow and just for purposes of definition that's cash flow from operation less capital expenditures. That's the way we look at free cash flow and that has consistently been very strong at Johnson & Johnson and this year is no exception to that. Last year, we reported free cash flow in excess of $12 billion. We expect that this year's free cash flow will be greater than that. With respect to the relationship of free cash flow, the earnings, many of the special charges that we have talked about are in fact non-cash special charges right now. If you look at our earnings in comparison to free cash flow, what you will find is that generally speaking Johnson & Johnson has always delivered free cash flow in the aggregate that's somewhere in the neighborhood of 95% to 105% or just about equal to the net earnings that the company generates on an annual basis, so that has to do with our ability to manage receivables, inventory and appropriately invest in capital, so a very strong cash flow indeed and that's a credit to all the men and women that operate and run our businesses throughout the world where they do pay attention for the level of free cash flow that's generated, because that of course is the fuel for us to invest further in our business. With respect to abiraterone or ZYTIGA pre-chemo versus chemo, Louise was able to look that up for us, so let me just turn it over to Louise for that answer.

Okay. Tony, the split of sales in the U.S. is roughly 55% naive and 45% refractory in the quarter. If you look at the market growth, the market growth in the quarter was 24.5% for that total market, refractory grew about 26.5% and naive about 23.5%. We actually grew share also in a total market going to 33% up from 30.6% and the refractory market you see a slight dip at that 55% from 55.4%, because of the new competition but you see nice growth in the naive market 24.6%, up from 21%.

Thank you, Louise.

Next question, please?

Your next question comes from the line of Bruce Nudell with Credit Suisse.

Good morning. Thanks for taking my question. I have a couple of questions for Dominic. First, Dominic, one of the areas that J&J is not currently participating in is structural heart. There is a lot of interest in it. Just broadly speaking, do you guys feel that expectations are overhyped that they are assets to be had that are of interest or what's the general level of interest on the part of J&J in that space?

Well, Tony, the structural heart ware or cardiovascular devices in general are of interest to Johnson & Johnson with the exception of the stent market which, Bruce, we have exited. So we do view structural heart as an attractive market. It is true, however, that whenever we look at acquisitions we look to acquire assets at a price that we believe will generate value for our shareholders. So to the extent that valuations are a bit inflated, we would rather wait and approach that market when valuations come, in our view, better in line, Bruce. So that's the way we look at it. So of interest to us but we will watch valuations carefully before acting.

And my follow-on is about XARELTO. What's your view of the prospects for maintaining leadership in that category in the U.S.? Secondly how do you scale the ACS opportunity within the overall opportunity in the U.S.? Thanks so much.

Well, Bruce, the main strategy with XARELTO has been and continues to work well for us and that is that the breadth of clinical indications and support for the product is really unparalleled in the marketplace, in addition to the convenience of the once-daily dosage. So we have see steady growth in XARELTO, new to brand share in particular with cardiologist and even with primary care physicians, primarily because of the breadth of the clinical data despite the fact that there has been much competition entering the marketplace but that competition just doesn't have the breadth of clinical data that we have with XARELTO. So that's been our strategy. I credit our cardiovascular therapeutic area team for developing that strategy and it's working really well. So I expect we will continue to be leaders in this marketplace. ACS just adds to the total package of clinical data which our experience is that that gives physicians, cardiologists, et cetera just more confidence in the utilization of that compound given the fact that it's been extensively studied. We look forward to see what the FDA responses with respect to our new submission for ACS. But we think that will add to the breadth of good clinical data which has been, I think, the main driver of the growth of the product.

Thank you.

Next question please.

Your next question comes from the line of Jami Rubin with Goldman Sachs.

Good morning, Jami.

Thank you. Good morning. Just two questions for you, Dominic. The first is in Simeprevir. I know that goes before a panel, I believe next week. I am just wondering how we should think it will be used? Do you expect it to be used as part of an all oral regimen beginning in 2014 with Gilead's Sofo or do you expect it's use to be limited to peg riba? My second question is more of a strategy question and, I think, dovetails with some of the earlier questions on this call and that is, clearly pharma has been the key driver of growth for the past couple of years now. I am just wondering what your plans are to unleashed that value which, clearly I think, has been hidden by the continued under performance of MD&D and consumer. Clearly the market is paying up for independent asset showing the type of growth that we are seeing in your pharma business. I am just wondering how you are thinking about that now. I know we have discussed this repeatedly in the past but I think this continues to be the case? Thanks.

Sure, Jami. Well, with simeprevir, it would be premature to comment too much before the panel meeting because obviously the utilization of the compound will be somewhat dependent on the label that eventually is granted by the FDA. We do think it's a very potent protease inhibitor and as you know, we have studied the compound in addition to the single indication that we are now in waiting for FDA approval on. We have studied it in combination with other compounds including Gilead's compound and others, both NS5As and nukes. Our strategy has been to develop the most potent protease inhibitor and combine it with other compounds in the marketplace and now I am please to remind you that we have just acquired our own NS5A with our acquisition of the compound from GlaxoSmithKline, so obviously we will now develop a combination of our own, but to comment any further about the actual utilization would be premature for the label and the outcome. With respect to unlocking value, you are right. We have talked about this many times. You have also heard us describe our approach to healthcare as a comprehensive approach having a broad base in healthcare. We believe that that is the best strategy for the long-term to deliver both, innovation and breadth of business and solutions for the healthcare marketplace. We believe we are best positioned by having a combined set of businesses that we currently have and we think that investors and others that follow us very closely understand the composition of our business and can certainly do a very fair some of the parts analysis by looking at the combination of each of the businesses and the appropriate growth rates and above market quite frankly multiples that we think businesses like our Pharma business deserve, so it's all readily available and easily done and we think the long-term strategy is one that's sound and we continue to subscribe to having a broad base of healthcare businesses to be most competitive in the marketplace for the long-term.

Next question please?

Your next question comes from the line of Rick Wise with Stifel.

Good morning, everybody. Dominic just a few gross margins, you know we are almost back of the 70% gross margin what we saw throughout much of changes last decade and I assume that the third quarter gross margin performance was driven by the excellent pharma results, which seemed pretty sustainable. Knowing how focused you are personally on driving efficiencies throughout the organization broadly, Dominic can we assume that that kind of gross margin performances we saw that for closer to that 70%, level of sustainable basis that's closer hand that maybe we would appreciate it and maybe you could expand on your comments on the positive mixed cost improvement in the third quarter specifically?

Sure. Well, the comparison to last year's third quarter just to be clear, last year's third quarter included the step up in inventory values from the acquisition of Synthes, so you see it 2.5 or 250 basis points improvement year-over-year and about 100 basis points is due to the non-repeat of the step-up in inventory values as that's now flushed out of the system, but the rest of it a 150 basis points is primarily due to the mix of the business, with pharma driving most of the growth. Pharma is in fact the highest gross margin business for us, but in addition to that we have seen good cost containment and cost efficiencies in our MD&D business. Of course as we continue to remediate under consent decree, we will obviously over time show improvements in gross margin from current levels to future in our consumer business. Now having said that, our supply chain strategy is a long term strategy. We have been added now for a couple of years and it includes reciting and redistributing where the products are manufactured. That takes time, Rick, to implement, but we are obviously off to a good start and we expect we will continue to generate cost efficiencies within the supply chain over an appropriate level of time given the regulatory requirement et cetera for reciting products, so we are off to a good start. We are very proud of it and thanks for pointing it out.

Great. Just a thought, but quick one for you and Michel. I was at (Inaudible) last week and several CEOs suggested that maybe they were seeing some stronger procedure growth in the second half as folks do more procedures ahead of 2014 January 01 that's what we said and constantly changing insurance coverage. Do you think you are seeing any benefits, Michel? Dominic, feel free to chime in and maybe talk a little bit, Michel, about the ATTUNE impact. I assume, as a result of these kinds of launches, it takes off gradually. Are you where you hope to be? Just where are we in the ATTUNE launch?

Okay, first of all related to spine. My takeaway from that was, in general, stakeholders are expecting more and more evidence. We might see some uplift in the fourth quarter from a market point of view, people who have been delaying and may use that co-payment earlier year might finally decide to go for surgeries. ATTUNE. We are on track related to ATTUNE. Very important to us. All the clinical outcomes, which are very good. Surgeon's acceptance to try the product are also very good. So we are in the midst of launching not only now in the U.S., but expanding into Europe and eventually Asia-Pacific. The key question, in my opinion, will be how much of our volume goes into current customers versus how much we give to new customers to convert and this is a balance our sales force needs to tackle. But so far, we are very confident that ATTUNE will have a good impact worldwide within the next two to three years.

Thank you.

Next question, please.

Your next question comes from line of Derrick Sung with Sanford Bernstein.

Good morning.

Good morning. Thanks for taking my question. One for Michel and then one for Dominic. First, Michel. One of the longer term concerns that investors have had about the ortho market has been the potential for a generic or value segment offering to really penetrate and destroy pricing in the marketplace. The kind of the comments that you made on trauma are the first that I think we have really heard that. Maybe this is having some sort of a near term impact now and I just wanted to get your comments on your view of whether or not you can, the value segment offering is something that's here to stay in the U.S. and if there is potential that it might spread from trauma to hips to knees to spine and what the impact of that might be on the markets long-term?

Thank you. Certainly the healthcare landscape is changing big time. And as mentioned before, all stakeholders are looking forward continuing to improve patient outcome but also to increase patient satisfaction and do that at reduced cost. While the landscape is changing, we see emerging decision makers like the providers, either CEOs of the hospital of groups and having had the opportunity to meet many of them over the last few months, there is a demand for value creation, there is a demand for transforming the healthcare delivery system and there is a demand to collaborate with larger companies. Scale, in the sense of DePuy Synthes, but also leveraging other opportunities within MD&D and within even other Johnson & Johnson portfolios will give us the opportunity to work at a much higher strategic level with providers and, yes, provide more cost effective procedures, products but also services to ensure that this more total oriented solution and not just focused on products, will provide a relevant add on solution to every single stakeholder. So we are confident that, now, being part of J&J but combining those two companies, we can leverage breadth of the portfolio, scale and this is what matters more than ever before to the healthcare providers and payers, by the way.

But do you, Michel, feel that the value segment in the U.S. is here to stay in ortho and continue to grow from here?

It depends how you define value segment. We define it as providing healthcare in a more effective way and this is not just focused on the product. This is not just focused on the price. You have to look at the whole continuum. The patient goes through a process. We are developing new programs and services to educate the patient, working with providers and clinicians to have protocols with standardized procedures but eventually also a company there the patients and the families in the rehab post operatively. And this is what we see as a better value offering, a more relevant offering and not just focused on pricing and discounting. The discussions will continue obviously to deal on pricing, but we have now being part of a larger company DePuy Synthes and J&J, the unique opportunity to again leverage size and scale and create beyond product innovation service and program innovation which will create value, so in that sense the Value segment is becoming more holistic, more complex, but representing a great opportunity for us.

Okay. Thank you, Michel, understood. Dominic, just quickly, I was wondering if you could comment on the progress of the Ortho Clinical Diagnostics divestiture and where you are there in and I appreciate that you may not be able to give us direct answer on the actual status, but more importantly when you think about the proceeds that might be generated from that transaction in the future, do those come back to shareholders, do they get reinvested? Can you give us a sense for what you might do there? Thank you.

Sure, Derrick. Well, with respect to the strategic the evaluation of strategic options for Ortho-Clinical Diagnostics, we said it would take a 12-month to 24-month period. We announced that in January. We are progressing well, it's on track. We are moving through the process. Things are moving along well, so we are progressing as planned. It's premature to give you any more insight in to that. Then obviously, whenever we do finally complete the analysis and make a decision, but I think it would be premature to comment, part of that what we do with the proceeds, but when we are talk about obviously we will update investors at that time.

Okay. Thank you. Next question please?

Your next question comes from the line of Danielle Antalffy with Leerink Swann.

Good morning, everybody. Thanks so much for taking the question. Dominic, I wanted to ask about understanding that you can't provide specific 2014 guidance, but over the last few quarters pharma has been a big driver of the top line and I suspect bottom line outperformance. You know, as we come up on anniversarying that strong performance, potential competition for our recent new product launches our ramping competition there, how do we think about where the next leg of growth is going to come for J&J overall in the near to medium-term?

Sure. Well. Each of the businesses have a substantial innovations that they are launching plans for 2014 and beyond to launch substantial innovations across every one of our businesses. Pharma, you are right, has experienced substantial growth as a result of new product launches, but those product launches are just beginning. They have taken hold now and we think they will continue to do well. Then new products, as you have seen us develop our strategy of continuing to in-license new products and launching those into the marketplace successfully, I think you will continue to see us do that, so I think each one of our businesses has a set of innovation that we plan to launch and each of the businesses should contribute to the growth going forward.

Okay. Great. Thanks. Then within the Medical Devices business in particular, one of your competitors has recently talked more about sort of viewing the device business more holistically providing full solutions to the hospital. Do you have any perspectives on that and how you think the healthcare environment will change as it relates to that and where J&J stands with that any perspective there would be helpful? Thanks so much.

Sure, Danielle. Well, Michel talked a great length about that with respect to the orthopedics business and I would like to ask Michel to comment further, because he's involved across the broad spectrum of Johnson & Johnson's Medical Devices businesses as well, but we see it as an important characteristic in the marketplace and one in which scale and breadth and the power of Johnson & Johnson should serve us well. Certainly, there is very few companies that can match our scale and breadth in dealing with the comprehensive offering to the hospitals. Michel has been there on the frontlines with hospital CEOs and talking about the breadth and scale of Johnson & Johnson even beyond orthopedic, so I am sure Michel you could add a few comments as well.

Yes. Indeed, the key goal in our discussions with key partners is, how we could provide value in form of more holistic solutions. So far the industry has been very much focused on surgeons and patients, obviously, delivering good clinical outcomes. Now the healthcare delivery system needs to find new ways to do so in a more cost effective way. Hence we are driving now not only a strong R&D pipeline but a pipeline of new programs and services, collaborating together with the partners. We don't have all the answers today. But we understand more and more of their needs. So elevating our relationship to more a strategic partnership with the providers in providing more holistic solutions. And maybe one more word, a key advantage we have, beside our already really relevant critical size within DePuy and Synthes, talking about MD&D, more and more we find new ways to collaborate, for example, with Global Surgery, who offer complementary products for one and the same procedure. So a procedure based approach give us as also opportunity to combine co-solutions from different pockets of the industry.

We will take two more questions.

Your next question comes from the line of Glenn Novarro with RBC Capital Markets.

Hi. Good morning. Two questions. First, Dominic, the number of selling days. Any changes in the number of selling days this quarter? Then I wanted to just follow up quickly on a pricing question.

Glenn, good morning. I don't think the number of selling days is very significant this quarter versus last. I wouldn't attribute any of the change to selling days.

Okay, and then second on pricing. You called out pricing several times on the device side particularly knees and hips as well as spine. So one, can you tell me has pricing got worse or is it just the same type of pressure? Then Louise, some times you give us pricing in knees, hips and spines. I wondered if you can do that for us?

So let me just give you overall. We expected at the beginning of the year that pricing would be a headwind for us this year of about 50 basis points in operating margin. We still think that's the case now that we are nine months through the year. Pricing is in fact an overall headwind for the business in total. And Louise, specifically for these orthopedics.

So this is U.S. only. So price in hips is down about 3% in the quarter. We have a positive mix about 1.5%. So a net of negative 1.5% price mix for the hips in U.S. And as far as knees, price is down about 1.5%, mix up about 1%.

And do you have that for spine as well?

I do. So price for spine down about 4% in the quarter with a negative mix of about 0.5%. So close to about 4.5% negative in terms of price mix for spine, U.S. U.S. only, again.

Okay. Thank you, Louise.

Last question.

And your last question comes from the line of Bob Hopkins with Bank of America.

Hi, Bob.

Hi, good morning. Thanks for squeezing me in. Just two quick questions. One, Dominic, I just wanted to confirm something I heard earlier. I think you said in Q2 that BRIC growth for J&J was 19% and I think you said in Q3 it was 11%, 12%. Is that correct?

Well, no, Bob. I didn't say that. I think the person asking the question was stating comments about the growth in the second quarter. I commented on year-to-date through nine months, the BRIC growth excluding Synthes, because that's very important to exclude Synthes in the analysis, is 11% to 12% overall for Johnson & Johnson in the BRIC markets excluding Synthes.

Okay, and then so it sounds like things are a little slower in Q3 which is, I guess, not surprising. Was there any one division where that was more pronounced than another?

Well a little slower overall but I don't know that I would point any one particular division versus another. I mean there's dynamics in the China marketplace each and every quarter. So I would just say on an overall basis greater than 10% growth is, we are pretty happy with that growth and I think it will do. It will continue to be a major driver of growth for us but what we are seeing is double-digit growth in the BRIC marketplaces but a little lower than what everyone else has previously commented on as an expectation for BRIC growth of maybe mid-teens. We see it's a little bit slower than that now.

Okay, and then lastly, for Michel. Any of the comments on the hip market, in your comments do you feel like you are taking share and have been taking share over the last couple of quarters. I was just wondering is that a general comment, because especially around Q3, because you don't see the rest of the market growing at the same rate as you are, or was there something specific about a specific competitor that you are referring to in terms of your commentary around Q3 market share?

I attribute our Q3 performance primarily to good portfolio mix in the U.S. primarily driven by Corail/TRI-LOCK and Pinnacle Acetabular Cup System. I attribute it to a very focused strategy, by the way well executed by the sales force and last but not least by a solid leadership. No major changes in my opinion related to competition. Good execution by DePuy Synthes.

Thank you. We will have some final comments from Dominic.

Okay. Thanks Michel for joining us today and thanks Louise. Well, we are very pleased with our quarterly results and our progress this year in advancing our near-term priorities of returning to a reliable supply of OTC products to the market, successfully integrating Synthes and building on the momentum of our newly launched pharmaceutical products. We are doing all of this while continuing to deliver strong financial results and developing longer term strategies to drive growth in this dynamic global healthcare market, where we are focused on addressing the critical unmet healthcare needs of patients and consumers. I would like to, again, thank the people of Johnson & Johnson for their dedication and commitment, and I look forward to updating you on our full year results, our outlook for 2014 and our strategic priorities along with our CEO, Alex Gorsky, when we meet in January. Thanks again for your time this morning and have a great day, everyone.

Thank you. This concludes today's Johnson & Johnson third quarter 2013 earnings conference call. You may now disconnect.