Good morning, and welcome to the Johnson & Johnson Second Quarter 2014 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 conference call over to Johnson & Johnson. You may begin.

Good morning and welcome. I’m Louise Mehrotra, Vice President of Investor Relations for Johnson & Johnson and it is my pleasure this morning to review our business results for the second quarter of 2014. Joining me on the call today are Alex Gorsky, Chairman of The Board of Directors and Chief Executive Officer; Joaquin Duato, Worldwide Chairman, Pharmaceuticals; Paul Stoffels, Chief Scientific Officer, Johnson & Johnson and Worldwide Chairman, Pharmaceuticals; and Dominic Caruso, Vice President, Finance and Chief Financial Officer. A few logistics before we get into the details. This review is being made available via webcast accessible through the Investor Relations section of the Johnson & Johnson Web site. I’ll begin by briefly reviewing second quarter results for the corporation and for our three business segments. Following my remarks, Alex will provide some additional commentary on the business and an update on our near term priorities. Next, Joaquin and Paul will provide an update on our pharmaceutical business, and lastly Dominic will review the income statement and provide guidance for 2014. We will then open the call to your questions. 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 Web site as is the press release. Please note we will be using presentation to complement today’s commentary. The presentation is also available on our Web site. Before we begin, let me remind you that some of the statements made during this review are or may be considered forward-looking statements. The 10-K for the fiscal year 2013 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…

Well, thank you very much, Louise and thanks to all of you who are participating in today’s call, welcome. It’s a very dynamic time in the healthcare industry led most importantly by significant advancements in the care of patients and consumers. Treatment options have never been greater. Today hepatitis C and certain cancer treatments are more promising than ever and while diabetes and heart disease which we are unfortunately still seeing rates increased, they are much more manageable for the patient with oral medication that are increasingly convenient to take. That being said, all of us in healthcare realized that there is still so much more work to do to improve the lives of patients around the world. It is encouraging to see that healthcare reform initiatives are taking hold around the world which will enable more people to see a doctor or to have procedures they needed, it may not have had the means to do so in the past. Over the past several years, we have been discussing with you how Johnson & Johnson has been taking a consistent series of steps to ensure we are best positioned to serve the needs of patients and consumers in this dynamic and rapidly evolving environment. I would like to begin our discussion today by reviewing some of these issues. Much as we had anticipated the medical devices landscape is evolving as innovations, scale and breadth become more important to meeting the needs of the customer. At that time we noted that due to market dynamics in segments like orthopedics, the industry would likely need to consolidate, which was one factor that led to our acquisition of Synthes. In the larger device space, what the industry is now realizing is the companies like Johnson & Johnson with larger portfolios are better…

Thank you, Alex, and good morning everyone. Paul and I are delighted to speak to you today about our continued success at our pharmaceutical group. When we look at the pharmaceuticals market, we’re very optimistic about the future with an estimated 4.5% growth anticipated through 2017. While we recognized we’ll continue to experience headwinds, we also see numerous positive drivers, including changing demographics and substantial unmet medical needs. As a result, there is significant opportunity to improve the lives of patients by bringing transformational medical innovations to the market. As Louise mentioned, we’re reporting 21.1% operational growth in the second quarter of 2014. This is our 17th consecutive quarter of growth including the six consecutive quarters in double-digits. Without our hepatitis C products, our growth in the last quarter was 10.5%. I am often asked, Joaquin, is this just a lucky run or is there something more to it. After facing significant challenges in the early 2000, we made a number of strategic changes to our business including building key development manufacturing market access and commercial competencies and focusing our innovation to produce a consistent stream of differentiated new products. These changes are directly responsible for the success we’re seeing now and we believe position us to continue to succeed in the future. Specifically with our focus on the five strategic priorities that you see on this slide, I will speak to you about the first two of these priorities and then hand off to Paul to cover the remaining three. When we look at our commercial performance, the first thing to note is that our success is global. We are the fastest growing top 10 global pharmaceutical company in the U.S., Europe, and Japan by a significant margin. Key to the success has been both the sales of our…

Thank you Joaquin and good morning everyone. It is my pleasure today to discuss with you our pharmaceutical R&D strategy which is focused on delivering transformational medical innovation and create the cycle of success that positions us for continued growth in the future. Our vision to enter R&D strategy has not changed. As a leading healthcare company, we believe that by focusing on transformational innovation, medical need and differentiation, we can make a significant difference in the world and build a sustainable growing business. We have some of the world’s leading scientific and medical experts who bring deep insights to select and prioritize the best science, internal or external, to tackle those diseases. We have established unparalleled global development capabilities and have set industry benchmark for timelines for filing submissions and productivity and also for speed to market. We launched 14 new products in the past five years in major markets around the world, including three new molecular entities or NMEs that we launched since our pharmaceutical’s update in May last year; OLYSIO, IMBRUVICA and SYLVANT, that strategy is delivering. In the last update at a Pharmaceutical Analyst Day last May, we told you that we anticipated to filing more than 10 potential NMEs and more than 25 significant line extensions between 2013 and 2017. We are on track to deliver. Since last May, in addition to launching three new products, we have received 20 additional approvals for line extensions in major markets. The significant line extensions approved are SIMPONI for ulcerative colitis, SIMPONI ARIA for rheumatoid arthritis in the U.S., IMBRUVICA for previously treated CLL, VELCADE for multiple myeloma retreatment combination therapy and transplant, OLYSIO for treatment of experienced patients, STELARA for psoriatic arthritis and VOKANAME fixed dose combination with metformin immediately release formulation for type 2 diabetes in…

Thank you, Paul and Joaquin. I hope you can see why we’re also proud of the Pharmaceutical segment and very optimistic about our future growth in this area. So, I would now like to turn it over to Dominic Caruso for more detailed review of our financial performance.

Thanks, Alex, and good morning everyone. As you’ve heard on the call, we’re very pleased with our progress and strong results thus far in 2014 and we’re well positioned for continued growth in this dynamic health care environment. I’ll take the next few minutes to review our financial performance in the second quarter as well as the recently completed OCD divestiture. I will then provide guidance for you to consider in refining your models for the balance of the year. Turning to the next slide, you can see our condensed consolidated statement of earnings for the second quarter of 2014. Please direct your attention to the box section of the schedule where we have provided earnings adjusted to exclude special items. We are pleased to report adjusted net earnings of $4.8 billion in the quarter which was up 11.3% over the second quarter of 2013. And adjusted earnings per share of $1.66 versus $1.48 a year ago, up 12.2%, which exceeded the mean of the analyst estimates as published by First Call. These results were driven by strong operational sales growth of 9%, primarily from our recently launched pharmaceutical products including hepatitis C treatment OLYSIO or SOVRIAD which is the brand name in Japan. The net impact of our hepatitis C products including OLYSIO, SOVRIAD and INCIVO contributed approximately 4% to the worldwide operational sales growth. As referenced in the table of non-GAAP measures, the 2014 second quarter net earnings were adjusted to exclude certain charges for the following special items. Cost associated with the continued integration of Synthes and additional reserves for litigation expenses. Now let’s take a few moments to talk about the other items on the statement of earnings. I am pleased to point out that we saw a very good operating performance this quarter. Overall, our…

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

(Operator Instructions) Your first question comes from Matthew Dodds with Citigroup.

Good morning. Quickly for Alex and then also for Joaquin or Paul. Alex I’m going straight from M&A for you, but for big picture I just might kind of your view on GDP growth in developed markets. It sounds like in Medtech we’re seeing a bit of a disconnect maybe in consumer as well, it is a growing to your GDP, we’ll be improving. What's your view in the near-term and long-term that the correlation may improve or get better as you look at your forecast?

Yes. Matt, this is Alex. Thanks a lot for the question. As you know trying to predict these things out of the future is always a bit of a challenge. But as we’re experiencing right now and as we discussed earlier in the discussion, we’re seeing hospital utilization rates specifically admission, surgical procedures, lab procedures and even primary care physician visits, they remained somewhat subdued. And we’ve seen this trend for several quarters now. Long-term of course we see the offset to that in demographics, increasing middle class increasing access to care under the Affordable Care Act as drivers for us. So we remained optimistic because we don’t think that there is a fundamental reason for the underlying demand or disease rights to change, but that's not something that we’re certainly watching. If we look across to Europe, we continue to see some challenge in areas. But overall, we would say that the impact in Europe has moderated somewhat and we continue to see good solid growth in the developing markets. I mean overall we had about 10% growth on an annual basis so far in BRIC and we expect that to continue into the future as well. So, I mean I think that's the way we’re thinking about it right now. But it’s certainly something that we’re going to continue to watch closely.

Thanks Alex. And a quick one for Paul or Joaquin, you gave us a lot of data on the pharma, the pipeline in the near-term, can you just say broadly on the R&D because you’re still spending a lot of money as a percent of sales even though the overall pharma growth has accelerated. Can you say of the five therapeutic areas is oncology and immunology getting the lion’s share of that in the current run rate?

Yes absolutely. Especially oncology is getting the lion share of that, we have several new director oncology therapeutics; Daratumumab, ARN-509, ibrutinib with all of the line extensions, as well as now immuno-oncology where we have several collaborations and a lot of internal research ongoing, as well as efforts in biomarkers in establishing diagnostic biomarkers approach to get to a much better patient outcome. So that is definitely the largest. As well as immunology where we still continue to focus on several new products; Guselkumab and we have also there a number of new oral therapies in development. So, those two continue to be the focus of the organization with significant resources.

Thanks Paul.

Next question please?

Your next question comes from Michael Weinstein with JP Morgan.

Dominic, I just want to start with the quarter and with the guidance revision I think one of the questions people have is why didn’t J&J raise guidance by more than they do at this point. So I wonder maybe we could spend a minute on that, but the quarter itself was $0.11 above this rate consensus you raised by $0.05 in the low-end, $0.02 in the high-end and you’re observing $0.05 of dilution from OCD, it looks like each of them, the other income gain assumed for the year by the $0.04, anything else that I am missing there and maybe just want to comment on the decision to raise guidance which you did?

Yes, sure Mike, thanks. Just a couple of points, I mean we did of course exceed street estimates for the quarter by $0.11. As you know, we don’t provide quarterly guidance, we provide annual guidance, and when we spoke to the investment community last quarter we were confident that our strong operating results would help absorb the OCD dilution in the back half of the year within the range we have previously provided. So let me just walk down the items that you’ve mentioned. We did exceed analyst estimates by about $0.11. Almost half of that will be used of course to offset the OCD lower earnings in the back half of the year. As you pointed out, other income and expense gains will be lower than we expected this year. That’s another $0.03 or $ 0.04. Currency was a minor adjustment. If you look at our overall guidance, we therefore after absorbing this $0.11 that we just described, we do think that overall guidance is up about four pennies. If we think about the midpoint of our guidance, last time it was about 585 the mid-point now it is about 589. So we feel good that despite this reconciliation that you just walked through, the business will continue to perform well and therefore we are comfortable raising the guidance for the balance of the year.

Okay, and let me ask one product question if I can and the reason, during the quarter there was a new patent issue for ZYTIGA, that I was hoping you could just comment on your current expectations where generic competition for ZYTIGA industry historically assume that would come in late 2016. Can you update us or your thoughts on that topic?

Thank you. This is Joaquin. You are correct. Our expectation is that ZYTIGA patent will go until December 16, that is the composition of matter with a five-year data exclusivity under Hatch-Waxman extension.

And Joaquin the notice of allowance on the three-four patent; does that seem like taking it all in terms of timing?

Not at this point. We are now working and understanding what the impact of this notice of allowance is. As a matter of patent use, so at this point we remain -- we have our position that I described before.

Thanks Joaquin.

Thank you, next question please.

Your next question comes from Derrick Sung with Sanford Bernstein.

Just first, just starting the quarter, Dominic, I was wondering if you could call out, or help us think through a little bit about the margin contribution of OLYSIO and impact of the Japanese Yen, so we can get a better sense for kind of what the underlying operating margin of the business might being moving forward excluding kind of those items.

Sure, Derrick. Well, overall, including the negative impact of the Japanese Yen to gross margins which was said was about 60 basis points for the year. Obviously, we saw most of that in the second quarter. The overall pre-tax operating margin improved about 230 basis points despite that headwind. And I would say about two thirds of that improvement is attributable to OLYSIO. That’s how we frame it.

Okay, and that’s something that -- when we think about sort of next year moving forward, how much of that should we think about perhaps not being sustainable?

Well, I would say, it’s a little -- as I mentioned earlier, Derrick, it’s a little too early to predict. I mean, we know that new competition is coming, but at this point it’s premature to speculate on it. Obviously, when we speak to you in January about our guidance for ’15, we’ll make that much clear then.

Okay, thanks. And then a specific pharma product question. I was wondering if you could comment on the impact of biosimilar competition to REMICADE. So next year in the European markets, the major European market, should start seeing some biosimilar competition. What are your expectations there? Maybe you could talk a little bit about what you were seeing in these few markets where you are already seeing that biosimilar entrant? And then in the U.S., one of the competitors has talked about filing for a biosimilar REMICADE before the end of this year with potential FDA approval for next year. And I was wondering if you could kind of talk about how secure you feel about your IP position in the U.S. for REMICADE?

Thanks for the question. And the biosimilars area is something that we watch very closely. As you know, biosimilars are not identical to their innate or medicines and therefore the contingency in which they will prescribe will be different than the situation we have in a small molecule. At the same time, developing and manufacturing and commercializing biosimilars has different costs. I mean they need to prepare a full clinical dossier and manufacturing biologics is an expensive and complex process. And commercializing them will have also additional cost. So we expect biosimilars to behave as lower cost brands. And from that perspective, biosimilars wouldn’t have the type of impacting erosion that you see with generic and small molecules. A good example of that is what happened with Epoetin Alfa in Europe. We lost the patent years ago and we remained a leading Epoetin Alfa product in Europe despite of the biosimilar that had been launched, now what is our part in landscape today, you refer to the U.S. in our two key markets in the U.S., our patent would expire in September 18 and in our key European as present 80% of European sales in February 15. Our strategy regarding biosimilar remained the same. We are going to clearly work with the regulatory authorities to ensure patient safety in this area as far as the conditions in which these products have to be developed and have to be prescribed that include naming, which we think it’s important, that includes to what extent indications should not be extrapolated and that includes also obviously interchangeability, so that’s the first point that we’re working globally in order to ensure patient safety. The second point is that we have an extensive safety real-world evidence database with regards to REMICADE, it’s been used already prescribing 2 million patients, it was launched in 1998 and we believe that is a factor that this is we consider when they prescribe. And the third one is that we continue to invest in immunology as Paul described, we think there is a still unmet medical needs there and we’re going to work in different mechanic or fractions such anti-IL-6 or anti-IL-23 in order to try to address these unmet medical needs. So that’s our strategy and now impact so far of biosimilars in the countries that have been launched like Korea or some European countries in which we are not patent protected. The impact has been very-very limited and the price erosion has also been limited. The discount in which these products have been launched averaged about 25% to the branded price, so that’s the situation today as far as the biosimilar to REMICADE. With regard to your question of the U.S. and the patent of REMICADE in the U.S., we feel very strong about the strength of patents and we continue confirm that our patent as we see today will expire in September 18.

Thank you. Next question please.

Your next question comes from Larry Biegelsen with Wells Fargo.

Two for Alex, so Alex, this is one of the best quarters you posted in many-many years I think. I doubt 10% organic growth and 12% EPS growth is the sustainable long term, so what are your financial goals for J&J long term? And how should investors think about kind of what’s realistic for J&J over the next few years? And I did have one follow-up for you Alex.

Sure, Larry. Thanks a lot for the question. As we articulated back in January, we see that longer term the overall healthcare market growing somewhere in the rate of 3% to 5% and we definitely try to manage for the long-term, and so while quarter-to-quarter, year-to-year we may see some fluctuations. We think generally speaking as we put in all the ups and downs going forward that’s probably a pretty reasonable estimate in consistent with what a lot of surveys would show. Our goal is that we want to always exceed the market growth i.e., we want to be bringing new innovations to market, we want to be competitive in the way we gain share. So we always aspire and shoot to exceed what the market growth is, and we said in terms of our overall profitability and bottom line performance that a company of our size and our of our scale should consistently strive to grow our bottom line at or slightly faster than our top. So that’s really our long term strategy, but as you’ve acknowledged at the beginning of the question, we’re very proud the performance that we’re posting as of now. And certainly it’s led by our pharmaceutical group that really by any measure has done exceedingly well starting by bringing a lot of great new therapies that were helping patients, but also driving our business. But I also think if you look across the balance of business, our consumer as we noted while up 3.5 operationally, if we netted out for divestitures growing at almost 6%, and if you look at the strength of some of underlying brands skin care, baby care, North America OTCs, all very solid high single digits taking share across the boards that we’re pleased with that. And even in our MD&D while clearly we a few areas that had been challenged such as the pricing in the diabetes market, the OCD divestiture, and some investments we’re making in other areas we think if we net out for divestitures in some of those extremes, we’re probably up at about 2% with clearly a path to growth faster going forward. So that’s the way we see it over all Larry.

That’s very helpful and into good segway into my follow-up, so you’ve talked about consolidation, the need for consolidation in the med-tech industry earlier in your remarks, so can you talk about the implications of the Medtronic-Covidien merger for the industry J&J and how do you use the J&J MD&D business evolving over the next few years? Thanks.

Sure, and thank you. Larry, as you think back to about three years ago when we announced the Synthes acquisition I think 2.5 to 3 years, part of the strategy rationale that we made at that time was that we, we definitely saw consolidation in the future simply because of the number of different participants you had in the market. The pressures that we expected going forward and as a result of that we believe proactively sought out and conducted the Synthes acquisition, which we’re pleased with the way that it’s going, and we have achieved our sales as well as our margin, goals that we have set for ourselves along the way and in fact I think, after the last couple of years of going through disruption which you would anticipate in a merger of that size, I think now we’re really poised for solid growth going forward. And so, what I would say is at that time we had predicted to that in fact it would happen, I think the other aspect, of course, we looked at areas like our cardiovascular business and drug alluding stands. And we saw a lot of market pressure ahead both in terms of volume and pricing. We therefore made a difficult decision to access that market, but nonetheless we think that that was the right decision to make base upon the overall dynamics. So, if we look at ourselves today, we think we’re clearly the broadest medical device company. We think we’re well positioned, particularly when you consider areas like general surgery, like orthopedics we have not only brought, but also deep offerings that gives us solid market positions across the number of different platforms. We realized that in cardiovascular we’re subscale, we have a very strong EP business that’s growing at 14% we also estimate innovations but by continuing frankly to monitor and watch that market as we see what happens in some of those segments. We don’t think it’s a bad place to be. And certainly we’ll continue to evaluate our options going forward.

Our next question comes from line Matt Miksic, Piper Jaffray.

Good morning. One for you Alex, just on your conversation around emerging markets; I appreciate all the additional color and the update. I was curious given the traditional strategies for penetrating this market and I’d say over the last several years are you still evolving whether it’s promotion and penetration with diagnostic for commercializing prior generation or lower costs. Therapeutic that might fit better to these markets. The local innovation approach or what sales team like comes if (ph) -- like a customization approach as you look at some of these emerging middle markets, I’d love to understand a little bit more about how that’s going and maybe when we’ll start to see some of the fruit of those efforts? And then I have one follow-up.

Sure. Matt, look as you know what I think that there been several phases to growth in emerging markets and I think historically we have taken a lot of our technology from the developed markets and we’ve basically appealed to the higher segments in the emerging markets. And obviously try to adapt those products based upon the commercial model, the distribution system that exists in that particular area. But more and more we’ve realized that our approach is and sometimes actually the unmet medical need is different and so developing the underlying capability or product acquisition, developments and commercialization unique to that entity is something that we’re focusing on. So that’s a major driver behind our innovation center that we focused in Shanghai. We do have R&D centers in both Shanghai and Beijing. I think we’re still in the earlier phases of some of the projects that we have coming out of those, but clearly it’s our goal to develop a much more customized approach for those particular markets. That being said, we still think that there is good opportunity in some of the premium segments across all three of our sectors. So we’ll continue to work those very hard as well.

Great, and then as it may be a little off script here but either its Louise or Dominic, I'd love to understand one of the comments you mentioned on your orthopedic market and your knee business, pricing pressure I think you mentioned in the market softness. Given that you had introduced the rotating platform version of Atune this spring and it seemed like that’s the business that should be firing on at least most cylinders. Can you give us any more colors as to why it came up flat and what we can expect going forward?

Yes, Matt, this is Alex again. Let me take a shot at that first and then Louise can certainly add any colors necessary. But as you know we’re one of the first companies to report in this space. So it’s always a challenge to predict exactly how everyone is going to come in, but as we look at our business we think that we’re maintaining share or slightly growing, what we’ve seen is somewhat of a more cyclical trend towards particular knee procedures, we think shifting more to the back end of the year. And if you think about last year and a very robust growth that we saw in Q4 about some of the ways now the patients have a greater responsibility providing their co-payments upfront with the procedures, but that does result in more of a second half of the year affect than early in the year. Again, let me put the caveat in but we can’t say that was certainly, because we’re coming out early on the reporting, we’re going to watch it closely but from what we’re hearing from our people in the field. We don’t think that there is significant share shifts taking place. We continue to get really good feedback on the Atune as it continues to be rolled out. And as you can see from the performance of our hips up 5%, trauma up 7%, you know the core of our business and our teams, we believe are performing well. So that’s our position at this point in time.

I think you covered it very well. Next question please.

Our next question comes from Josh Jennings with Cowen & Co. Josh Jennings - Cowen & Co.: Hi, good morning and thanks for taking the questions. Just first for Dominic, you commented two thirds of the 230 basis points of margin expansion a quarter was contributed by OLYSIO, it means about 75 basis points to 80 basis points from the rest of the business. But can you just comment on relative contributions from the pharma medical device unit and consumer units was each a contributor? And then how should we think about our operating margins for the device unit excluding Ortho-Clinical, how much improvement can we expect post divesture going forward?

Yes, sure Josh. Well obviously the pharmaceutical business that drove most of our growth this quarter is our best performing business in margin, so obviously they are major contributor. The other two businesses also contributed, I mentioned the lower cost in the MD&D business in particular. I think going forward, it’s difficult to predict for each business because as we develop our plans, we will balance off investment opportunities for each business with appropriate, whether the R&D programs or product launches et cetera. So I can’t give you a specific as to what to expect from each for the business going forward. But for MD&D, the margins ex-OCD should definitely improve, because that was a business that had margins lower than our overall MD&D business. Josh Jennings - Cowen & Co.: Great, thanks. And Louise, sorry if I missed this, but did you comp the growth of the spine unit and then can you download us on pricing mix for spine in the quarter?

Okay, so the spine unit in the U.S. this is operational growth. In the U.S., it is down 2%, O-U.S. it is up 4% for a worldwide growth up 1% for the total. And in terms of pricing in spine, spine in terms of price in the U.S. only, I don’t have it for the worldwide. The U.S. is down 5% in price with a positive mix of about 1.44% and net for about 3.5% down. Okay, next question please. Josh Jennings - Cowen & Co.: Thanks a lot.

Our next question comes from Rick Wise with Stifel.

From a point of optimization, you obviously have made a lot of moves here with acquisitions since you took over acquisitions and divestitures. And I assume you’re going to continue to optimize and refine the portfolio but is there a lot more to come, are you down to a near term, how should we be thinking about it?

Hey, Rick thanks a lot for the question. Rick, we’re going to continue to stay very active, particularly where we see great areas of unmet medical need where we think we can contribute and really bring value to the marketplace. I think there are opportunities across all of our segments. We’ve been active as Paul noted earlier in some of the partnerships, in development programs that we’ve been able to bring together in our pharmaceutical group. And we think if there, our agnostic approach of internal versus external sourcing is actually really have been a driver. At the end of the day, we went at that science and I think clearly we are seeing the results of that approach with the success that we’re experiencing. But we are certainly not slowing down, we continue to be very active particularly in the five therapeutic areas where we are targeting. I think if you look across MD&D, there too, we continue to see opportunities. As I mentioned earlier, given our decision several years ago in cardiovascular, we’re going to continue to watch that area very close to augment potentially onto our EEP business, which has done very well. And we continue to look for other ways in orthopedics as well as in global surgery. Again, where we see great technology that’s either a complimentary fit, has platform potential or may give us an opportunity for vertical integration. And in our consumer segment, another area that we’re very committed to, here too, we see opportunities. We think that we’ve done a very nice job over the past several years of focusing on really what are the key growth opportunities that we have in that segment, and as a result, we’ve done several smaller divestures. We think that’s allowed us to be more focused, more effective, more efficient. But here too, we certainly see opportunities to gain additional scale across different areas of that portfolio. So we’ll remain active, but I think in a strategic level, that’s the way that we are currently thinking about it.

Thank you for that. Just a follow-up question on diabetes. Diabetes particularly in U.S. remains challenged, but it was a little less challenged this quarter expected. Are we close to a turning point, when do you think that we get back to even if you will on that and maybe can you follow-up with a little discussion about the vibe rollout, when will we see the full O-U.S. launch and where are you in the U.S. with filings and launch? Thank you very much.

Yes, a couple of things. One is, we remain committed to the diabetes space and I think as you know, the significant I think it was 72% price reduction took place in the United States occurred in the first half of the year, so we do expect to be lapping that. If we look at the underlying dynamics of the market, I’d like to commend our team because we continue to see very good performance in SMDG both in the U.S. as well as outside. Also with our insulin pump business, Animas, we’ve seen proving performance. We do have Viario under review by the FDA, I don’t believe we’re projecting an approval time at this point, but we certainly think that that's going to offer a nice addition for patients as well as for physicians. And the other important dynamic, Rick is that our diabetes business has also been involved in launch of INVOKANA. And when you consider the strong relationships that we’ve had for a number of years with the endocrinologists, part of our early success with INVOKANA has been because of the way we’ve been able to bring a broader more comprehensive offering to those specialists and frankly that's better for patients that's better for the physicians and better for our business.

Next question please?

Our next question comes from Glenn Novarro with RBC Capital Markets.

Two questions; one, how should we be thinking about OLYSIO trends in 2015, it looks like OLYSIO probably this year is going to sum around $2 billion. Should we think next year closer to $1 billion, I know you’re talking about a decline I’m just trying to get a sense of how we should model the decline for 2015 that's my first question. And then second, SG&A came in as a ratio well below our expectations, I’m sorry, way better than our expectations. We’re thinking SG&A ratio somewhere in the 29% to 30% in the quarter it came in at 28%. I don’t think that's a realistic run rate, so maybe help us think about SG&A spend for the rest of the year? Thanks.

Yes, Glenn. Let me comment a little bit on OLYSIO then ask Joaquin to comment as well. Obviously you saw an uptick in OLYSIO sales in the second quarter compared to the first quarter. We had $800 million in the second quarter. And we noted that we expect competition coming soon at the latter part of the year. So obviously for the second half of the year, we will have competition for OLYSIO that we did not have in the first two quarters. So in terms of modeling, we do expect that the current run rate is not really a sustainable run rate going forward. Joaquin anything else to add to that?

Not really to what you mentioned was big competition coming in and different fee regiments coming into the market in the later part of this year. So it sounds like that the current run rate is going to continue. That said we see OLYSIO a very relevant player in hepatitis C moving forward too. And we continue to invest in different clinical trials and clinical data to prove additional flexibility for patients and physicians. Paul described before that the study that we are doing in Phase III with 12 and 8 weeks in cirrhotic and non-cirrhotic patients in combination with sofosbuvir and we plan to continue to do different studies with different treatment regiments to add additional flexibility. Paul?

The focus on shortening therapy, as well as increasing Q rates for patients by using multiple different combinations and we are investing significantly in next stage studies.

Hey Glenn, just to follow-up on your question about SG&A, we don’t give line specific guidance, but it is true that this particular quarter we saw 200 basis point improvement in SG&A compared to last year. And most of the 230 basis point improvement in pre-tax operating margin was a result of that. And I mentioned earlier that that was also two-thirds driven by OLYSIO. So I think this quarter is a relative low SG&A quarter relatively speaking, but it is an area that we constantly strive to keep an eye on because quite frankly we’d rather invest more in R&D. So if we can spend more in R&D and get more productive R&D investment, we would look to offset that with some lower SG&A spend going forward.

Thank you. Next question please.

Okay. Thank you.

Next question please?

Our next question comes from Bruce Nudell with Credit Suisse.

Thanks for taking my question. I have some pharma-directed questions taking advantage of Paul and Joaquin’s presence. I know you guys talk about your commercial execution and I know you spend a lot of money modeling complex markets like the prostate market. Could you just comment briefly with regards to any particular hurdles you anticipate with Aragon 509 as it may be difficult to show mortality benefit in a short trial? And secondly how bigger that market be if you the combined prostate market when you are able to penetrate in the prostate, the pre-metastatic, but high risk category? That's my first question. Thanks.

So let me start with the size of the market and may be a good example is how ZYTIGA is doing today. About 60% of the ZYTIGA sales today are already in the pre-chemotherapy setting. Now how big the non-metastatic setting is going to be because as you know we started the trial with ARN-509 in patients with high rising PSAs and noted metastatic is going to be bigger and mostly likely we’ll have a longer duration of treatment. It’s difficult for me to give you an exact dimension of that market, but it will be certainly bigger in terms of the number of patients and the duration of therapy than the metastatic market in each marketing where there is a significant unmet medical need and we are pleased to see that we have been the first in starting a Phase III trial in that legal setting.

And my follow-on question has to do with INVOKANA, just schematically how big an accelerator do you think it will be to have the combination of metformin in INVOKANA a single administration?

That’s a great question. We are very mainly pleased with the launch of INVOKANA. As Alex mentioned, it’s been the most successful launch in type 2 diabetes since JANUVIA. And we’re now the leading oral anti-diabetic in type 2 among U.S. endocrinologists. The combination of metformin is a very relevant one. The most relevant combination we have that combination approved in Europe with the name of VOKANAMET and we’re expecting a response from the FDA with the PDUFA date in August. So we think it’s going to be an important element for physicians and we’ll have a significant impact in our business moving forward.

Next question please?

Your next question comes from David Lewis of Morgan Stanley.

So, two good questions. First, Alex, I wanted to give you an opportunity maybe to break a tie (ph) here. At the Analyst Day, we heard two messages in MD&D, at least we did. In the morning we heard from a lot of your non-orthopedic segments that there was not significant benefit to scale, and in the afternoon we heard a totally different message from Michelle which is that scale really does matter and do you think scale is going to be a driver of share, can you talk a little bit about your breadth and depth in MD&D? And I wondered if you just help us out your view on scale driving share in medical devices, what is that view and why you think we heard different messages from some of your senior business leaders in the morning sessions versus the afternoon sessions just surely focused on orthopedics?

Well, David, I am not sure that the messages were that inconsistent overall. And the way that I would answer that is we do believe scale and size and depth and breadth is going to be important across MD&D. And that has to do with evolving customers right now. I mean when you think about the healthcare landscape going forward whether it’s hospital systems in the United States whether it’s governments in Europe or in the developing markets, we see the opportunity for broader partnerships to be something that customers are both wanting and something that we can definitely provide. Now I think there is not just one flavor, I think it depends on the system, it depends on the specific customer as to what kind of partnership they may want to have, and I think there could be certain opportunities where a customer might look, might desire to look just across the orthopedics portfolio or perhaps the general surgery area to doing a different kind of partnership or other systems who might be a bit more mature might look for something broader across the entire portfolio. So I think that’s likely the difference in messaging that you’ve heard between some of our global surgery and orthopedics, but overall we do think that we see that as a long-term dynamic and something that will be important and frankly one where we’re positioned very well.

Okay, thank you, Alex, and maybe just a follow-up for Dominic. Dominic just given the strength you’ve seen in the first half of the year specifically OLYSIO. I guess, we’re a little surprised that there hasn’t been sort of more aggressive reinvestment of that upside, is that, what we’re probably going to see here in the back half of 2014, as you think about next year as we head into this year many investors are focused that if there was going to be in OCD related dilution you would offset that with probably more aggressive buyback activity. As we head into ’15 is it likely we see a more aggressive buyback activity to offset some of the OLYSIO headwind? Thank you.

So couple of comments on the impact of OCD, for this year the OLYSIO benefit does in fact help us absorb the lack of OCD earnings in the back half of the year plus we’re investing in the back half of the year. So our margins overall will not be as significant as you saw in the second quarter because we do intend to invest in the back half of the year for future growth while still overall providing higher earnings that we previously estimated. The share buyback that we talked about regarding the proceeds of the OCD, divestiture we will do that but that – we’ll see that impact in ’15 of course because the ability to have an impact of a share buyback this late in the year in ’14 is very small but that will help us offset the dilution in ’15, David.

Thank you. We’ll take two more questions with respect to everybody’s time. Next question please.

Your next question comes from Kristen Stewart with Deutsche Bank.

Thanks for taking the question. One for Alex and a follow-up for Dominic. Just wanted to be clear on what you’re seeing with cardiovascular, I know you’ve said that you have great asset and certainly this quarter shows it was Biosense Webster, are you still very much committed to cardiovascular in more a waiting and watching mode to make the right move or are you more in a decision of trying to figure out whether you are committed to cardiovascular?

Kristen, thanks a lot for your question, and let me first of all compliment our EP business and the cardiovascular group for the performance this past year. I believe now we’ve got over 10 consecutive quarters of double-digit growth and when you think of the new technologies like Cardo and others, it’s resulted in great, frankly advancements for patients as well as great growth opportunities for our business. And I would answer your question saying yes, we remain committed to cardiovascular. That being said, we know that we have to be very thoughtful about where we are going to compete and how we might expand our position in that particular market. So as you said, we are doing a watchful waiting. At this point, we continue to watch the other segments, new technologies as they come in seeing what kind of opportunity they may present and we think we will be well positioned going forward based upon how those dynamics evolve.

Perfect. And for Dominic, I was wondering could you just talk a little bit about the pricing and Louise has mentioned surgery. Can you just talk specifically about overall orthopedic pricing if that’s intensifying? And then I think for the first time I’ve seen you mention competitive pricing dynamics was envisioned, can you maybe just expand upon there or any other pricing trends within surgery business as well.

Yes, sure. I’ll let Louise give specifics on orthopedics pricing, but we did see a continual trend by the way, it’s not really new, a continual trend of negative pricing across the medical device space in orthopedics in surgery. We’ve also seen various competitive pricing dynamics even in the vision care business and we’re comparing this now to last year. So we do see increased competitive pricing dynamics and the market is looking for a lower pricing of products. And in orthopedics in particular this quarter we saw it, and Louise if you have in particular the impact for orthopedics.

So in terms of hips in the U.S., we are seeing a very similar trend of price mix change. So the price is down about 4% but there is a positive mix. So it brings it down to about 3.5%. And in terms of knees, we have in terms of in the U.S., the price down about 2.6% but there is a nice positive impact of mix of about 1.5%, so for a net about 1.1%.

And trauma?

Trauma is a net price. So net price and mix together positive about 2.2 and that’s a small negative in the price about 1% and a positive in the mix of about 3%.

Okay, thank you.

Okay. Final question please.

Our final question comes from James Rubin of Goldman Sachs.

Hi, Dominic. Congrats on the quarter and thanks for the taking the questions. Couple of quick ones. The first with regard to the Synthes tender and trauma. Can you just help us understand the dynamics behind winning these large tenders and specifically, can they be replicated in other regions? And then how do you prevent these large tenders from being driven by price.

Yes, thanks Jay. Again building on the earlier question, we do think this is an opportunity where our breadth and scale is helpful particularly when customers are prepared to deal with a broader offering and this case we are able to provide it. We have definitely benefitted from that and we expect that to continue and other areas of the market continue to transform. And I think regarding how do you keep that from becoming just a pricing issue, I think it has to do with one of the level of innovation that you are bringing forward; two, what’s the overall partnership and solution that you are building with that particular customer that we think would be instrumental in helping us keep good solid growth going forward.

Thank you very much. And some closing remarks from Alex.

So thank you very much everybody and I hope you all agree and as you can see that the diversified business and strategy that we define in our strategic framework that we discussed with you earlier are in fact delivering very strong financial strategic and operational performance and will continue to be the basis to fuel our growth going forward. I couldn’t be prouder the people of Johnson & Johnson and a big difference they make in living up to the mission of our credo, it’s on behalf of the billions of patients and consumers we serve around the world each day. We are very proud to have the honor and privilege of doing that. So I want to thank you all for joining us this morning and I wish you all a great rest of the day.

Thank you. This concludes today’s Johnson & Johnson’s second quarter 2014 earnings conference call. You may now disconnect.