Johnson & Johnson (JNJ) Q2 2015 Earnings Report, Transcript and Summary

Good morning and welcome to Johnson & Johnson’s Second Quarter 2015 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 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 second quarter of 2015. Joining me on the call today are Alex Gorsky, Chairman of the Board of Directors and Chief Executive Officer, Sandi Peterson, Group Worldwide Chairman, 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 website at investor.jnj.com. I will begin by briefly reviewing second quarter for the corporation and for our three business segments. Alex will provide additional commentary on the business and our progress with regards to our near-term priorities. Next, Sandi will provide an update on our consumer and consumer medical device businesses. Lastly, Dominic will review the income statement and discuss guidance for 2015. 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 the 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. Please note we will be using a presentation to complement today’s commentary. The presentation is also available on our website. 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 2014 and the company’s subsequent filings identify certain factors that could cause the company’s actual results to differ materially from those projected in any forward-looking statement made today. The company does not undertake to update any forward-looking statements as a result of new information or future events or developments. Our SEC filings, including the 10-K, are available through the company and on our website. During the review, non-GAAP financial measures are used to provide information pertinent to ongoing business performance. These non-GAAP financial measures should not be considered replacements for and should be read together with GAAP results. Tables reconciling these measures to the most comparable GAAP measures are available in the schedules accompanying the press release and on the Investor Relations section of the Johnson & Johnson website. Now, I would like to review results for the second quarter of 2015. Worldwide sales to customers were $17.8 billion for the second quarter of 2015, down 8.8% versus second quarter 2014. On an operational basis, sales were down 0.9% and currency had a negative impact of 7.9%. In the U.S., sales were down 2.4%. In regions outside the U.S., our operational growth was 0.5%, while the effective currency exchange rates negatively impacted our reported results by 14.8%. On an operational basis, the Asia Pacific Africa region grew by 2.2%, while Europe grew 1% and the Western Hemisphere, excluding the U.S., declined 4%. Growth in the U.S. and Japan was negatively impacted by hepatitis C competition. Growth in all regions was impacted by divestitures, the most significant one being Ortho-Clinical Diagnostics. Excluding the net impact of acquisitions and divestitures, underlying operational growth was 1.7% worldwide, 0.6% in the U.S., and 2.7% outside the U.S. Additionally, excluding hepatitis C sales underlying operational growth was 5%. Turning now to earnings, net earnings were $4.5 billion and earnings per share were $1.61 versus $1.51 a year ago. As referenced in the table reconciling non-GAAP measures, 2015 second quarter net earnings were adjusted to exclude after-tax amortization expense of $230 million and a charge of $66 million for after-tax special items. 2014 second quarter net earnings were adjusted to exclude a charge of $807 million. Dominic will discuss special items in his remarks. Excluding amortization expense and special items for both periods, adjusted net earnings for the current quarter were $4.8 billion and adjusted diluted earnings per share were $1.71, representing decreases of 6.3% and 3.9% respectively as compared to the same period in 2014. Currency translation significantly impacted net earnings. On an operational basis, adjusted diluted earnings per share grew 6.7%. Turning now to business segment highlights, please note percentages quoted represent operational sales change in comparison to the second quarter of 2014 unless otherwise stated and therefore exclude the impact of currency translation. I will begin with the consumer segment. Worldwide consumer segment sales of $3.5 billion increased 2.3%, with U.S. sales up 2.7%, while outside the U.S. sales grew 2.1%. Excluding the net impact of acquisitions and divestitures, underlying operational growth was 3.1% worldwide, 2.9% in the U.S., and 3.2% outside the U.S. Growth was driven by OTC worldwide, Women’s Health outside the U.S. and Oral Care. OTC sales growth was driven by worldwide analgesics, ZYRTEC in the U.S. and other upper respiratory products outside the U.S. Upper respiratory, including ZYRTEC sales, included a seasonal inventory build. In the U.S., adult analgesic market share was approximately 12%, up from approximately 11% a year ago, while U.S. pediatric share was nearly 44%, up from 39% a year ago. New product launches and successful marketing campaigns drove the results for LISTERINE in Oral Care and Women’s Health products outside the U.S. Moving now to our Pharmaceutical segment, worldwide sales of $7.9 billion increased 1% with U.S. sales down 1.5% and sales outside the U.S. up 3.8%. New competitors in hepatitis C significantly impacted sales results. Excluding sales of our hepatitis C products, OLYSIO and INCIVO, as well as the impact of acquisitions and divestitures, underlying growth worldwide U.S. and outside the U.S. was approximately 9.7%, 16.5% and 2.5% respectively. U.S. results included a positive adjustment to sales reserves for managed Medicaid rebates reflecting final data received. U.S. comparisons to second quarter 2014 were positively impacted by approximately 2% and worldwide by approximately 1%. The most significant impact from the managed Medicaid adjustment was through hormonal contraceptives. Significant contributors to growth were INVOKANA/INVOKAMET, IMBRUVICA, XARELTO, ZYTIGA, INVEGA SUSTENNA or XEPLION, CONCERTA and immunology products, STELARA and SIMPONI. Strong momentum in market share increases drove results for INVOKANA/INVOKAMET. In the U.S., INVOKANA/INVOKAMET achieved 5.9% TRx within the defined market of type 2 diabetes, excluding insulin and metformin, up from 5.1% in the first quarter of 2015. TRx with endocrinologists grew to 13.2% for the quarter and 5.2% in primary care, up 1.2% and 0.8% respectively on a sequential basis. INVOKANA/INVOKAMET remains the category leader in new to brand share with endocrinologists and has greater than 80% preferred access across commercial and Part D plans. Strong patient uptake with new indications, approvals and demonstrated efficacy drove results for IMBRUVICA in the U.S. IMBRUVICA is the leader in both new and total patient regimen share in the second line CLL and MCL. Outside the U.S., results were driven primarily by Europe with strong patient uptake, particularly in Germany, France, and the UK. XARELTO sales were up nearly 31% and total prescription share, or TRx, for the quarter in the U.S. anticoagulant market grew to 15.4%, up over 2 points from a year ago. TRx in primary care reached 12.4% and in cardiology, 23.7%. XARELTO is broadly reimbursed with over 90% of commercial and Medicare Part D patients covered at the lowest branded product co-pay. Strong growth of the combined metastatic castrate-resistant prostate cancer market, at nearly 12.5%, drove the results for ZYTIGA in the U.S. ZYTIGA’s share was approximately 28.6% of that market, down approximately 1.7 points on a sequential basis due to increased competition. As an update, during the quarter, we received several Paragraph IV notifications from generic manufacturers advising that they filed Abbreviated New Drug Applications with the FDA seeking approval to market a generic version of ZYTIGA in the U.S. before the expiration of the relevant patents listed in the orange book. The composition of matter patent is owned by our partner, BTG, and expires in December 2016 and the method of treatment patent is owned by Janssen Oncology Inc. and expires in August 2027. We are currently evaluating the notices. Outside the U.S., ZYTIGA achieved very strong growth in Asia and Latin America, which was partly offset by lower sales in Europe due to increased competition. INVEGA SUSTENNA or XEPLION achieved strong results due primarily to increased market share while CONCERTA growth was primarily due to therapeutic equivalence reclassification of generic competitors. The results for immunology were driven by strong double digit market growth complemented by increased market share for STELARA and combined SIMPONI, SIMPONI ARIA. Growth was partially offset by lower REMICADE sales to our distributors reflecting the weakening of the euro and the loss of exclusivity in Europe as well as the reduction in inventory levels. I will now review the Medical Devices segment results. Worldwide Medical Devices segment sales of $6.4 billion decreased 4.7%. U.S. sales declined 5.8% while sales outside the U.S. declined 3.9%. Ortho-Clinical Diagnostics was divested mid-year 2014. Excluding the net impact of acquisitions and divestitures, underlying operational growth was 1.4% worldwide with the U.S. up 1.6% and growth of 1.4% outside the U.S. Growth was driven by Specialty Surgery, Cardiovascular Care and Orthopaedics. Specialty Surgery growth was driven by bio-surgery growth of over 8% and energy growth of approximately 6% due to market growth, share gains in certain segments and new product introductions. Cardiovascular growth was driven by 10% worldwide increase in electrophysiology due to strong sales of ThermoCool SmartTouch Catheter. Orthopaedics sales growth was driven by knees and hips as well as ORTHOVISC and MONOVISC in sports medicine. The growth was partially offset by lower sales in trauma and spine due to pricing pressure coupled with the timing of tender business and competitive challenges in spine. Knees worldwide increased 4% with the U.S. up 5% and sales outside the U.S. up 2%, driven by strong sales of ATTUNE, partially offset by pricing pressure. Hips growth of 2% worldwide was driven by 4% growth in the U.S. with strong volume growth, partially offset by continued pricing pressure. Primary stem platform sales were a major contributor to the results. Outside the U.S., sales were flat with strong growth in China and India, offset by lower sales in the Middle East due to the timing of tender business. For your reference, there were some notable developments in the second quarter, which we have summarized on this slide to assist you as you develop your models. That concludes the segment highlights for Johnson & Johnson’s second quarter of 2015. It is now my pleasure to turn the call over to Alex Gorsky. Alex?

Thank you, Louise and good morning everyone. I really appreciate you taking the time to join our call today. And since we are at the midpoint of the year, I am excited to share the progress we have made against our near-term priorities. I will also use the time today to give some perspective on the environment that we are operating in and some of the macro level issues we are seeing and also discuss why we believe with our innovation model and breadth and scale of our business, the Johnson & Johnson is strongly positioned to drive continued growth and shareholder value. So I will start the discussion though where I always do with Our Credo. Our Credo serves as the moral compass for our company and expresses a set of values that bond our associates worldwide with a shared commitment to meet and really exceed the expectations of the more than 1 billion people a day that rely on our products as well as to support our fellow colleagues, the communities in which we live and work and generate solid return to our shareholders. Now back in January, I laid out our near-term priorities for the business and I am pleased with our progress towards them. Across the enterprise, we are very focused on delivering our financial and quality commitments. First, our commitment to ensuring our products meet the highest quality standards is of course non-negotiable. And as to our financial commitments thus far in the year, we generated sales of $35.2 billion, reflecting the strong underlying operational growth across the enterprise of about 6% when we adjust for the impact of Hepatitis C sales and acquisitions and divestitures. And for the first six months, we delivered adjusted net earnings of $9.2 billion and adjusted EPS of $3.27. On an operational basis, we delivered adjusted EPS of $3.59 growing at 5.3%. As we have highlighted previously, we knew there are year-over-year comparisons to our current results would be challenging because of the tremendous contributions of OLYSIO last year as well as the impact of divestitures we made and also the significant devaluation of major foreign currencies against the U.S. dollar. Now despite these headwinds our broad base of innovative offerings, scale and global footprint are driving our strong core performance. In pharmaceuticals, we reported sales of $15.7 billion, reflecting strong underlying operational growth when excluding the impact of Hepatitis C and divestitures of over 11% for the first half of 2015, led by our new and core products including INVOKANA, IMBRUVICA, XARELTO and STELARA and ZYTIGA. Our focused R&D strategy and commitment to driving launch excellence to ensure broad access and reimbursement has really come together to make a difference for patients and have this well-positioned to continue to drive above industry compound annual growth rate over the next several years. Fueled by seven of our recently launched products that we expect will each exceed $1 billion in sales this year and the more than 10 new products we plan to file by 2019 that each have $1 billion plus potential of their own based on their transformational potential to treat significant unmet medical needs worldwide. And just last week, our partner Genmab announced that we have completed the FDA submission for daratumumab, a promising new breakthrough treatment option for people with multiple myeloma. This organization has collectively done great work to generate strong clinical evidence in the development process, which is enabling our reimbursement teams to gain the right coverage levels in order to create broad access and drive the strong performance of our products despite the pricing pressure that exist in the marketplace. Now I also want to make a comment here on our position regarding biosimilar competition for REMICADE, which I know many of you are thinking about. Remember, biosimilars are not generics and we expect the biosimilar market to behave quite differently than the market typically has toward the introduction of a generic. Also more than 2.2 million people have been treated with REMICADE and about 70% of the current patients are receiving sustained and effective treatment so we believe their doctors are very unlikely to switch them off with that level of success. And we also have a patent for the REMICADE antibody that doesn’t expire until September 2018 that you can be sure we will continue to vigorously defend. Look, we know competition in the immunology space is fierce and to ensure we maintain the leadership position, we built an established portfolio of $1 billion plus medicines that include STELARA and SIMPONI and have potential $1 billion plus products in our late stage development like sirukumab for rheumatoid arthritis and guselkumab for psoriasis that we expect to introduce in the near-term. And we are also making very significant investments in disruptive research areas like the microbiome, which holds the potential to intercept the disease and prevent it entirely that will have applications in immunology and really across all our disease areas. Now turning to Medical Devices, you know we are number one or number two in the majority of the categories in which we compete and have ten $1 billion plus platforms. Year-to-date, we reported global medical device sales of $12.6 billion, which is an operational decline of 4.6% due to the impact of the sale of Ortho-Clinical Diagnostics, which we completed a year ago. When we adjust for that, our underlying operational growth in medical devices is up 1.4%. I have been particularly pleased with the performance in several areas of this business where new innovations are driving growth, including our Biosense Webster business, which has grown nearly 11% operationally for the first six months of the year. Our Endocutter business has grown 15.5% and our Biosurgery business with continued strong growth of 7.5%. In diabetes, our products and strong in-market execution are helping to revitalize that business while our Vision Care business is on track to return to growth later in the year when we will anniversary the impact of the 2014 price reset. In Orthopaedics, the business grew 1.5% operationally this year with good growth in the reconstruction and sports medicine segment. Particularly in the second quarter here in the U.S. where despite the pricing dynamics in the market, we saw over 5% growth in knees and approximately 4% in hips. Our spine and trauma businesses however, have lagged market growth today and we are absolutely committed to turning them around. And we have new products launching this year that will help us do just that. Now as we look at this market, the ongoing consolidation among health systems and within the insurance industry is continuing to create pressure on pricing. We have been encouraged though by data showing that healthcare utilization trends in the U.S. have continued to improve for the fourth consecutive quarter with growth in both hospital admissions and hospital surgical procedures. And we remain optimistic about increased global healthcare utilization as well. So, we are absolutely committed to accelerating our growth in medical devices through innovation and through our research and development, which has been productive as the teams have already submitted more than half of the 30 major filings we previously announced we plan to file by the end of 2016. And the work we are doing with Google illustrates how we are aiming to pioneer the operating room of the future with robotic surgery tools that will increase the surgeon’s precision and minimize trauma for their patients, while also reducing cost for the systems. We are also transforming our go-to-market models to fully leverage the breadth and scale of our capabilities, but we have taken significant measures to strengthen our core businesses and effectively position ourselves to lead over the long-term. We just recently integrated our Global Orthopaedics and Global Surgery businesses under the leadership of Gary Pruden, which will enable us to have a much more holistic approach to the way we do business. And the goal here is very straightforward. Let’s enhance our partnerships with the hospital systems and identify ways to improve outcomes by leveraging our comprehensive portfolio. We already have numerous examples of co-promotions, broad contracting agreements and service and solution offerings in place that we can look to expand and by better working in this new alignment model, we will be better positioned to great more of them to drive future growth. Gary will be on the third quarter call in October to tell you more about this approach. And now in the Consumer business, Sandi Peterson and her team, which includes our new Worldwide Chairman for the consumer companies, Jorge Mesquita, a seasoned leader who has been with us since the end of last year, are doing tremendous work in building and executing a strategy that has effectively addressed the past challenges in our supply chain and reprioritized our approach in the category. And we are positioned to expand our market leadership in key segments moving forward. Year-to-date, we generated $6.9 billion in sales and reported operational growth of nearly 4%, excluding acquisitions and divestitures, driven by our market leading OTC and Oral Care businesses. And our strategy to focus the portfolio around the key consumer need states in brands that are backed with strong clinical science and professional endorsements is having a strong impact. The United States OTC medicines are sharply up 13% for the year led by the strong campaigns who are leading in support and the re-launch of key brands like TYLENOL, MOTRIN and ZYRTEC. And our momentum here could not have been achieved without the efforts of our colleagues to complete the complex work required around the consent decree. Globally, we see strong operational growth in emerging markets, particularly in Argentina, Brazil, India, Russia and Venezuela. We are however experiencing market pressures in China, where our volumes have slowed due to lower demand that is being compounded by shifts in consumer behaviors and the emergence of new retail channels in the country. In a few minutes, Sandi will take you through the strategy and approach for how our consumer-facing businesses are leveraging our unique consumer insights and integrating science and different forms of technology to better meet the needs of consumers and drive growth. But before we do that, I want to reiterate how we are navigating the environmental changes before us and how we strongly positioned Johnson & Johnson to deliver continued growth. As you well know, everything starts with innovation. And at Johnson & Johnson, we are doing that on multiple fronts and we are committed to working with researchers around the world to ensure we continue to operate the leading edge of science, medicine and technology. And that approach drives our enterprise R&D and the significant investments we are making to benefit patients and stakeholders. We have a good balance of internal and externally sourced innovations and acquisitions have accounted for just under half of our sales growth over the last decade and we are always actively looking for new value-creating acquisitions and deals to continue that success. We also invested about 11.5% of our net trade sales or $8.5 billion in R&D last year across the enterprise to discover in-license and develop innovative new products, and you can see the impact reflected in our portfolio and robust development pipeline, which includes 25 active late-stage development programs, 160-plus early-stage programs in over 70 venture investments. And in just two years, there is already 90 start-ups working in our J-Labs, which creates tremendous access to new ideas and potential downstream partnerships for the future. Now, when it comes to making significant R&D investments, we must also focus on managing through the inherent complexities in the global regulatory environment in order to ensure our products are ultimately able to reach consumers. We are encouraged by the steps governments are taking to increase access to quality healthcare for their people and to also create and support a more innovation-friendly environment through designations and speed to review and approval of transformational products. We benefited from that with IMBRUVICA, and today, we have two other candidates in our pharma pipeline already designated as breakthrough therapies by the FDA. At the same time, we can all agree that governments around the world must do more to protect intellectual property and ensure fair, transparent and consistent enforcement of regulations governing the trade of innovative products and we will continue to watch and engage in these issues into more than 65 countries in which we do business. Globally, about half our total year-to-date sales come from countries outside the United States with strong national and regional models like those we have installed in China and Southeast Asia, we are better able to maximize the breadth of our portfolio, interact more effectively with governments and develop contracting strategies and gain consumer insights that are shaping our international portfolios and informing R&D and ultimately driving growth. And by executing with excellence in all that we do, we have introduced a strong cadence of new product launches over the past five years that today account for about 25% of our overall sales and we are taking steps to ensure we are even more effective and efficient across the enterprise by investing in greater uses of technology and streamlining our back office processes, which we expect will help to free up about $1 billion that we can invest back into the business by 2018. We are also continuing to make strategic decisions about the areas we are going to participate in or move on from. As we stated before, our focus is on areas where we are or we can be number one or number two in a particular area as well as on those products or businesses that will be directly complementary. And if we have an asset or a business that doesn’t meet those criteria, we have demonstrated that we will divest it and redirect our resources to accelerate existing programs or to acquire new ones that we think are ultimately going to help more patients and also add more value to our enterprise. We also see that our broad base across the healthcare spectrum is a competitive advantage when the strategies we create consider and where appropriate incorporate insights and innovations from every aspect of our operations to attack disease and improve health outcomes. The work we are doing with IBM and Apple does this by cutting across the enterprise and leveraging our science, technology and consumer insights to empower patients and caregivers to help speed the post-surgical recovery process. Executing our strategy ultimately comes down to people and by focusing on them and emphasizing our Credo-based purpose, we developed a deep bench of extraordinary talent, we are accountable for driving their businesses and we will also ensure we are taking leading roles within the industry and world medical community to combat global public health issues like Ebola and HIV. Now, just to summarize, Johnson & Johnson is a company that’s built a remarkable legacy and has a very exciting future. Healthcare though remains one of every society’s greatest challenges and nothing affects people more personally or affects communities and nations more directly. Our business is strong and you can see that we are continuing to make considerable investments in innovation and have a robust pipeline of truly transformative products to ultimately benefit patients and that we are taking actions to strengthen our leadership positions in areas in which we compete. With our transparent and consistent capital allocation strategy, we extended our track record of dividend increases to 53 consecutive years in April when we declared a 7.1% increase, taking our quarterly payout up to $0.75 per share and have returned about 70% of our free cash flow over the past decade to investors outpacing the S&P 500 in 2014 as well as over the last 3, 10 and 20 years. With that, it’s now my distinct pleasure to turn the call over to Sandi Peterson. Sandi joined Johnson & Johnson just over 2.5 years ago and is leading a significant transformation across major components of our enterprise, including our consumer-facing businesses, enterprise supply chain, quality and IT and she has been a tremendous leader here since day 1. I want to thank her and her team for what they have already accomplished for our business and more importantly for what they will continue to do to help patients and consumers worldwide. With that, I am pleased to turn the meeting now over to Sandi and we will rejoin you a bit later to take your questions.

Good morning. I am happy to have the opportunity to talk about our progress in our consumer-facing businesses, consumer diabetes solutions and vision care. I will also discuss the evolution in our approach to technology across the enterprise. Increasingly, as we lead through the disruptions and opportunities in global healthcare, we are fusing the power of technology with the power of science to deliver improved outcomes for patients, consumers and customers. First, our three consumer-facing businesses, as Alex said earlier, the future of these businesses looks promising. While they are at different stages of transformation, we believe that they are all well-positioned in attractive, growing global markets, and we are driving scale and growth in each. Let me start with consumer. Our iconic consumer brands are J&J’s face to the world. They are how we are known by millions around the globe. They are a first point of entry into emerging markets, so they really are very important to the overall enterprise. They are and will increasingly be important contributors to J&J’s financial performance. Demographic trends and changes in the way consumers make healthcare decisions are creating new opportunities for our consumer business. Our consumer expertise and insight are highly valuable to payers and providers, which differentiates us from our competitors. We view a healthy consumer business as a growth annuity for J&J with less volatility than other markets. As many of you know, we launched our new consumer strategy in 2013. We focused on stabilizing and revitalizing the business, re-mediating quality issues in U.S. OTC and being clear about where and how to compete and win around the world. We are executing successfully against that strategy. We are pleased to say that we have re-mediated and re-launched our U.S. OTC business. Over 80% of our brands have returned to the market. TYLENOL Arthritis will launch soon. We have made significant progress in meeting consent decree requirements. The FDA has certified our manufacturing facilities in Las Piedras, Puerto Rico and Lancaster, Pennsylvania. We recently had a successful FDA inspection in Fort Washington and are awaiting final notification. Our OTC brands continue to be loved by consumers and we have regained the trust of our customers. Most of our OTC products are endorsed as number one in their categories by healthcare professionals. TYLENOL remains the number one doctor recommended brand for pain relief and the brand most used by hospitals. ZYRTEC, Children’s TYLENOL and Children’s MOTRIN are also number one recommended brands. Last year, our OTC portfolio grew four times the category in the U.S. That strength has continued this year with 13% growth in the first half and 16% in the latest quarter. More broadly, across the consumer business, we have made significant progress in creating a world class brand building and marketing organization. We have globalized the management of 12 mega brands and are focused on 11 consumer need states. We have expanded these brands into new markets and are seeing strong share gains in Oral Care, Beauty and OTC. We are growing 11% year-to-date and gaining share in feminine protection, for example, in places like India, Germany, South Africa and Poland. And we have revitalized our iconic BAND-AID Brand. In the U.S., Band-Aid consumption grew 6.3% and we gained 2 share points. Thanks to decorated BAND-AID and commercial innovation. As we invest in our global brands and our top regional brands and in our priority markets, we are building new marketing capabilities such as digital. We doubled our digital media investments and digital channels with emphasis on social and mobile. Today, 40% of our digital ad spending is via mobile and more than 90% of our Facebook ads are served up on either smartphones or tablets. This global centralized marketing approach is bringing our beloved brands to their full potential. You may have seen the results of the new model, Come to Life in the Johnson’s Baby So Much More campaign, the first global campaign for our iconic baby equity. The campaign launched in 7 lead markets in February and is rolled out to more than 20 markets. By the third quarter of this year, all major markets will launch. Early results show sequential consumption growth and share improvement. In the U.S. alone, through May, Johnson’s has grown 2.4 share points since the launch. Our product pipeline in consumer is also quite robust. We are focused on developing science-based, clinically validated products grounded in deep consumer insights and most importantly endorsed by professionals. We have 20 key product launches this year, for example, NEUTROGENA Hydro Boost, MOTRIN Liquid Gels and the launch of the new LISTERINE whitening formula in Europe, the Middle East, Africa and Latin America. Improving our supply chain has also been another critical focus in the consumer business with a strong emphasis on the U.S. OTC consent decree. Across the enterprise, we have made remarkable progress in transforming our supply chain to ensure we deliver quality, customer reliability and benchmark profitability. We continue to see the benefits of reintegrating our supply chain organization to drive performance improvements in every J&J segment. As we look ahead in consumer, we will continue to rebuild our competitive edge. The underlying environmental drivers, demographics, the developing middle-class in emerging markets and lifestyle shifts suggest growing consumer need for our products and increased opportunity to help more people live healthier, more vibrant lives. Across the business, we are focused on delivering above-market growth and benchmark profitability. Consumer IBT margin before special items and intangible amortization expense has increased from 14.1% in 2013 to 15.4% in 2014 and we will continue to improve profitability until we achieve benchmark levels. Our organic sales, adjusted for currency and excluding acquisitions and divestitures, grew approximately 4% in the first half. Since mid 2013, we have grown organic sales steadily. Last year, we grew share for the first time in a number of years and we are committed to continuing that trend. We manage our consumer brand portfolio actively with an eye towards targeted expansion in key geographies and need states through focused acquisitions and licensing agreements. A recent example includes the acquisition in India of ORSL. The intersection of changes in the healthcare landscape, disruptions in the retail environment and changes in consumer expectations and behaviors creates an opportunity J&J’s consumer business is well-suited to capitalize on. Now, let me turn to our Diabetes Solutions business. Diabetes is the fourth largest healthcare category in the world. Globally, the therapies and devices market is growing at 5%. 50% of patients with diabetes are, unfortunately, undiagnosed or not controlled, which creates an opportunity for us to grow and an important opportunity to impact patient’s lives. Given the power of our OneTouch brand, a highly innovative pipeline, strong commercial execution and operational efficiency, we are well-positioned to deliver profitable growth in diabetes despite negative industry pricing dynamics. In blood glucose monitoring, we hold the number one value and volume position in our 9 top markets. This year’s OneTouch Verio platform launch is our most successful launch in the last two decades. In the U.S. alone, volume share grew 3 points. We have strong penetration in emerging markets, where type 2 diabetes is growing and we have simplified our portfolio dramatically, reducing the number of strip platforms from 5 to 2 and module mere offerings from 14 to 3. We have reduced our facility footprint, slashed the number of SKUs by more than 55% and taken significant cost out of the business. In insulin delivery, we are growing at market-leading rates, up operationally 32% year-to-date worldwide, driven by Animas Vibe. In 2015, we took over the number two share position. In addition, we are making excellent progress in preparing for the launch of Calibra, a new product which will create an entirely new category. Calibra is a wearable, disposable insulin delivery patch that meets type 2 patients’ needs for discretion, convenience and control. We are beginning the clinical outcome study and anticipate entering the market next year. Looking forward, we are developing insight-driven, market-appropriate innovations across the BGM and insulin delivery platforms in areas such as digital solutions, continuous glucose monitoring and automated insulin delivery. We will continue to leverage enterprise capabilities and expand targeted strategic partnerships. Great examples of this include our collaboration with Nova Biomedical and Hospital Systems and Dexcom with continuous glucose monitoring pumps. We are particularly enthusiastic about the potential to improve engagement and health outcomes with digital solutions that motivate patients to better self manage while creating value for healthcare providers and healthcare systems. Now, let me turn to Vision Care. Eye health remains one of the largest, fastest growing and most underserved segments in healthcare. Vision correction represents more than half of that market with contact lenses representing a $7 billion segment, the presbyopia and astigmatism markets are especially underserved. Johnson & Johnson’s Vision Care has a long history as the global market leader in contact lenses. Our success was built on category leading innovation, strong relationships with the eye care professional and the most recognized brand equity in the category. It’s no secret, however that we faced capacity and portfolio issues in Vision Care in 2012 and 2013. At the same time, competition intensified and consumer preferences shifted. The market structure has evolved in response, driving increased emphasis on e-commerce and increased price competition between channels. These developments have reduced engagement for eye care professionals, who are an important ingredient in strong category health. Despite this, we continued to lead the category globally by 11 points. We continue to grow at double-digits in our lead emerging markets. BRIC market operational sales are up double digits, driven by continued strong performance of Russia, Brazil and China. Last year, we instituted a one-time price reset to bring more value to consumers in close partnership with eye care professionals in the trade in the U.S. and Japan. We will anniversary this event in Q3, as Alex said earlier and should see revenue momentum in the second half. Share has stabilized in the U.S. for five consecutive months. We are outperforming the market in volume in our top two strategic brands, ACUVUE OASYS and 1-Day ACUVUE MOIST and our equity measures with eye care professionals have improved. In Q2 alone, we grew 15% operationally in Japan, driven by strong performance of our leading 1-DAY ACUVUE TruEye and the recent launch of 1-Day ACUVUE DEFINE as well as favorable comps. Our R&D strategy leverages consumer expertise and science based, clinically supported manufacturing enabled innovation and we have built a robust multi-generational pipeline. We are launching our first major innovations in 5 years, with 1-Day ACUVUE DEFINE, 1-Day ACUVUE Multifocal and ACUVUE OASYS overnight. You will see us accelerate innovation in high growth specialty segments such as beauty, presbyopia and astigmatism. We will sustain innovation in our largest core platforms spherical reusable and sphere daily disposable. We anticipate at least one major product launch in each of the next 3 years, including innovations with the potential to disrupt the category. Vision Care used the new marketing process developed in consumer to re-launch the iconic ACUVUE brand. The new global ACUVUE campaign which went live last week is designed to drive consumer engagement and category growth and ensure the differentiated position with eye care professionals. Our world class supply chain is a competitive advantage in Vision Care. Our manufacturing team produced approximately 4 billion lenses in 2014. We are continuing to invest in capacity expansion while operating with 99.6% customer service levels. Though we are still in the throes of rejuvenating our eye care business, we have made considerable progress, which will continue this year and into the next. As we bring our core contact lens business back to market leading growth, we will also pursue our aspirations in the broader eye health market. Alex started this morning by talking about the power of Johnson & Johnson’s broad base in healthcare. Our consumer facing businesses are a critical contributor to that broad base. While Consumer, Diabetes Solutions and Vision Care are different stages in their transformations and represent unique opportunities, we are driving scale and growth in all of them. Before I turn it over to Dominic, I would like to share some perspective on how Johnson & Johnson is capitalizing on the way technology is reshaping the entire healthcare landscape. The consumerization of healthcare, wearables and mobile apps are giving patients unprecedented access to health information. Physicians, regulators and payers are leveraging big data, analytics and real world evidence to personalized care, understand product safety and efficacy and drive improved outcome. Artificial intelligence, machine learning and advanced centers are creating new opportunities to take advantage of the best clinical and wellness expertise. We are at the tipping point, where technology is becoming the medium through which healthcare can become a more effective and efficient system. The opportunities this creates for Johnson & Johnson to become a healthcare technology innovator are immense. We have identified key technology areas that will accelerate growth and are actively pursuing programs and partnerships in those areas. The relationships with Google and with IBM and Apple that Alex mentioned are great examples. There are others in the works and more to come. We are working with and talking to nearly every major technology company and many early stage companies. We are collaborating with retailers like Walgreens and CVS, where care is increasingly delivered, health plans like Aetna and Kaiser Permanente and health systems such as Jefferson Health and Premier to leverage technology digital tools and our health and wellness expertise. We find that Johnson & Johnson is most often the partner of choice for technology providers. We have the patient and consumer insights, the clinical and behavior modification expertise and the regulatory experience that can combine with technology to transform the continuum of care. This is particularly exciting when you think about the work that we are doing with payers and providers as in our work with IBM and Apple. We are creating an ecosystem embedded in hospital networks, which gives us the ability to integrate the right patient data with the right record and the right clinical outcome in the healthcare IT infrastructure. I have been in healthcare long enough to have heard over and over again that technology was going to disrupt the industry beyond recognition. But today, maturing technology, scientific advances and global healthcare reform are combining to make disruption a reality. Today, technology is intrinsic to the business. As the world’s most broadly based healthcare company, we are uniquely positioned to be the company that connects the fragmented world of healthcare. Now let me summarize. Our consumer facing businesses are executing well against focused strategies. They are demonstrating results, improving profitability and growing. They have strong presence in the world’s fastest growing markets and are building insight-led innovation pipelines. Each business is strengthening its brand building capabilities, actively managing its portfolio and leveraging technologies in ways that increase efficiency and create competitive advantage. Across J&J, we are using technology to unlock the power of the enterprise, to improve patient and financial outcomes in ways that will create value for our customers and ultimately for our shareholders. And we are building what I firmly believe is the best team of leaders in the industry. With that, I will turn it over to Dominic and I look forward to answering your questions.

Thanks Sandi and good morning everyone. As you have heard on the call, we are certainly pleased with the progress we continue to make in the execution against our priorities, which is reflected in the solid underlying financial results we have achieved thus far in 2015. And as Alex and Sandi discussed, we are well-positioned for continued growth in this dynamic healthcare environment. I will take the next few minutes to review our financial performance in the second quarter and we will also 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 2015. As we expected and as many of you on the sell side also reflected in your updated models, direct comparisons to our second quarter of 2014 are challenging due to the exceptional uptake of OLYSIO that we recorded last year as well as currency headwinds and the impact of not having Ortho-Clinical Diagnostics in our results for 2015. Our sales results for the second quarter 2015 were essentially in line with analyst estimates as reflected in First Call. On an operational basis, excluding the impact of acquisitions and divestitures and excluding the impact of hep C products, sales were up 5% for the quarter. Please now direct your attention to the boxed section of the schedule, where we have provided earnings adjusted to exclude special items and intangible amortization expense. Adjusted net earnings of $4.8 billion in the quarter are down 6% compared to Q2 2014 and adjusted earnings per share of $1.71 versus $1.78 a year ago are down approximately 4%. However, the adjusted EPS results exceeded the mean of the analyst estimates as published by First Call. And excluding the net impact of currency translation, our operational earnings per share was $1.90 or up 6.7%. There were no significant non-GAAP adjustments in the 2015 second quarter other than the exclusion of the expense for amortization of intangible assets. Now, let’s take a few moments to talk about the other items on the statement of earnings. As we have said before, we would use any gain from divestitures in 2015 to offset the lower earnings impact of not having the OLYSIO sales uptake we had in 2014 and to provide some offset to currency headwinds, while also allowing continued investment for future growth. This quarter’s results reflect just that. Cost of goods sold was 90 basis points lower than the same period last year mainly due to favorable product mix somewhat offset by currency impacts. Selling, marketing and administrative expenses were 30.3% of sales or 220 basis points higher as compared to the second quarter of 2014. We are investing in a responsible manner and the absolute spending level is comparable to the prior year mainly due to the impact of currency as we continue investment spending behind our key brands on a global basis. The prior year percent to sales level was artificially lower since there was very little spending in relation to OLYSIO sales. Our investment in research and development as a percent of sales was 12% and 170 basis points higher than the prior year as we continue to make important investments in our pipeline for future growth. Interest expense, net of interest income, was similar to last year. Other income and expense was a net gain of $900 million in the quarter compared to a net charge of $200 million in the same period last year. Excluding special items that are reflected in this line item, other income and expense was a net gain of approximately $1.1 billion compared to a net gain of $300 million in the prior year period. This quarter we recorded the gain on the previously announced divestiture of the NUCYNTA product. Excluding special items and intangible amortization expense, the effective tax rate for the 6-month period was 22.3% compared to 21.1% in the same period last year. As I noted during our call in April, the effective tax rate this quarter is again higher than our guidance for the year as it does not yet reflect the benefit of the R&D tax credit as that legislation has not yet been passed although we expect that it will be. The effective tax rate is higher in 2015 as compared to 2014 as a result of the mix of earnings being higher in the United States this year. Now, I will provide some guidance for you to consider as you refine your models for 2015. Before I discuss sales and earnings, I will first give some guidance on items we know are difficult for you to forecast beginning with cash and interest income and expense. At the end of the quarter, we had approximately $15 billion of net cash, which consist of approximately $34 billion of cash and marketable securities and approximately $19 billion of debt. I am pleased to report that we completed our share repurchase program to help offset the ongoing impact of the OCD divestiture. For purposes of your models and assuming no major acquisitions or other major uses of cash, I suggest you consider modeling net interest expense of between $450 million and $550 million. This is unchanged from our prior guidance. Regarding other income and expense, as a reminder, this is the account where we record royalty income as well as gains and losses arising from such items as litigation, investments by our development corporation as well as divestitures, asset sales and write-offs. We would be comfortable with your models for 2015 reflecting net other income and expense, excluding special items, as a gain ranging from approximately $2.2 billion to $2.3 billion. This is slightly higher than our previous guidance. As a reminder, this includes the gain from the divestiture of the U.S. rights to NUCYNTA pain medicine as well as the anticipated gain on the pending divestiture of the Cordis business to Cardinal Health, which we expect will close towards the end of 2015, subject to regulatory clearances and other customary closing conditions. We have also refined our estimates for the items in this account now that we are halfway through the year. As I also noted in April, the guidance for other income and expense will flow through to increase operational earnings as we expect to use this other income to compensate for the decreased income from OLYSIO in 2015 as compared to 2014 as well as to help mitigate some of the impact of strong foreign currency headwinds this year, while we also continue to invest in our core business and opportunities for future growth. And now, a word on taxes, our guidance for 2015 anticipates that the R&D tax credit will be renewed by Congress although that has not yet occurred. We would, therefore, be comfortable with your models reflecting an effective tax rate for 2015, excluding special items, of approximately 21% to 22% consistent with our previous guidance. If the R&D tax credit is not approved that would negatively impact the tax rate by approximately 0.5% for 2015. Now, turning to guidance on sales and earnings, consistent with our previous guidance for sales, our assumption for PROCRIT is that there will not be biosimilar competition in 2015. We also do not anticipate generic competition this year for RISPERDAL CONSTA or INVEGA SUSTENNA, but we are expecting a generic entrant for INVEGA in 2015. As expected, we have seen additional biosimilar competition for REMICADE in Europe, following the patent expiration in many countries in February of this year. As we have done for several years, our guidance will be based first on a constant currency basis, reflecting our results from operations. It’s the way we manage our business and we believe this provides a good understanding of the underlying performance of our business. We will also provide an estimate of our sales and adjusted EPS results for 2015 with the impact that current exchange rates could have on the translation of those results. Consistent with our previous guidance, we would be comfortable with your models reflecting an operational sales increase on a constant currency basis of between 1% and 2% for the year. This would result in sales for 2015 on a constant currency basis of approximately $75 billion to $76 billion. Additionally, by way of comparison to how we described our sales results in 2014, our operational sales growth for 2015, excluding the impact of all acquisitions and divestitures as well as the impact of hepatitis C products, would be approximately 6%, a higher level of growth than the comparable 5% for 2014. And just to note, we are monitoring the situation in Greece as the country considers its path forward economically. We do not anticipate any significant negative impact to our sales results for 2015, nor to our earnings for 2015, unless there is a significant change in the current expected resolution. As of last week, the euro was lower by approximately 17% as compared to 2014 average levels and the dollar has strengthened recently versus virtually all major currencies. And though we are not predicting the impact of currency movements, to give you an idea of the potential impact on sales if currency exchange rates were to remain where they were as of last week for the balance of the year, our sales growth rate would decrease by nearly 7%, reflecting the weakening of the euro and other major currencies against the U.S. dollar. Thus, under this scenario, we would expect reported sales to reflect a change in the range between negative 5% and negative 6% for a total expected level of reported sales of between approximately $70 billion to $71 billion. This is consistent with our previous guidance. And now turning to earnings, a significant factor impacting our earnings guidance for 2015 is the impact of currency movements on transactions. And although they are hedged, it is still somewhat negatively incremental versus the prior year. We expect transaction currency impacts to be negative to our gross profit by approximately 60 basis points in 2015 as compared to 2014. We would be comfortable with adjusted EPS guidance in the range between $6.70 to $6.80 per share on a constant currency basis, reflecting an operational or constant currency growth rate of 5% to 6%. This is higher than our previous guidance as we have increased the lower end of the range, reflecting some operational improvements in the business and our confidence at this point in the year. Again, we are not predicting the impact of currency movements, but to give you an idea of the potential impact on earnings per share if currency exchange rates for all of 2015 were to remain where they were as of last week, then our reported adjusted EPS would be negatively impacted by approximately $0.60 per share, which is consistent with our previous guidance. Therefore, our reported adjusted EPS would range between $6.10 to $6.20 per share. At this stage in the year, we would be comfortable with your models reflecting the midpoint of this range, which is higher than our previous guidance. So, in summary, as you update your models for the guidance that I just provided, I would like to make a few key points. Although operational sales growth is expected to range between 1% and 2%, we are pleased to note that when excluding the impact of acquisitions and divestitures and hepatitis C products, our operational sales growth at the midpoint of our guidance is a solid 6% for the full year 2015 as compared to 5% for 2014. And with regard to earnings, on a constant currency basis, our guidance on operational EPS growth is strong and in the range of between 5% and 6%. And finally, as we execute on our growth plans, we are continuing to make portfolio choices and investments in our business, particularly in research and development as we continue to build our pipelines across the enterprise, which will position us for sustained future growth. And now, I would like to turn things back to Louise for the Q&A portion of the meeting. Louise?

Thank you, Dominic. And Holly, can you please give the instructions for the Q&A session?

[Operator Instructions] Your first question comes from Glenn Novarro with RBC Capital Markets.

Good morning, Glenn.

Good morning. Question for Alex, in your first couple of years, Alex, you’ve spent a lot of time with divestitures divesting cardio devices, diagnostics, pharmaceuticals and consumer brands. As you look at the enterprise now, do you think we are finished with the divestitures? Question one. And question two do we now enter a period where the company is more focused on acquisitions? Thank you.

Hey, good morning Glenn, Alex here and thank you very much for your question. Glenn, 3 years ago when we started looking at our strategies going forward, we tried to outline a very clear path ahead that would really consist of multiple components. One is obviously continuing to invest in our organic businesses, both in sales and marketing and research and development and I think we demonstrated that in spite of a lot of different puts and takes that we have continued to do that in a responsible way as Dominic outlined earlier when he was taking you through the P&L. An area where we did have a lot of focus was on making sure that our businesses were competitive, then of course, we tried to be very clear in that criteria there that look we want to be number one and number two in the marketplace. We want to have a clear innovation or technology path to really help patients or consumers or very importantly, we wanted the business to be complementary to something else that we are doing in another area of the enterprise and of course just fundamentally be a strong business. And if they didn’t meet those criteria, then of course we consider other options where they maybe better served in someone else’s hands. And as you noted, we have demonstrated that we are willing to do that as well. We think that’s an ongoing process in the business. We would expect there, business our size is in excess of $70 billion involved in the numerous platforms. That’s something that you will see as part of our natural cadence and flow going forward. But clearly, we are always also interested in growth opportunities. And when we see strong innovations that really make a difference for patients that also where we feel it offers a great complement to one of our existing franchises or frankly a platform for significant growth into the future, we have got the balance sheet, we have got the wherewithal to make those investments and that’s always the priority for us and will remain so into the future.

And just as a follow-up to that, if you look at the pipeline of M&A potential, number one, would you call the pipeline meaningful, in other words there are a lot of rich targets out there. And then as you look at these targets, what do you see in terms of the valuation of these targets, are these targets getting stretched and is that maybe one of the reasons why you haven’t done as much M&A here in the last few years? Thank you.

No Glenn, thank you. Look, we do feel that there are several significant opportunities really across each one of our segments that offer potential for growth and that are consistent with the strategic outline that I mentioned earlier. At the same time, I think we demonstrated that we want to be thoughtful and disciplined about our approach. And we intend to continue that path going forward.

Next question please.

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

Good morning, Kristen.

Hi, good morning everybody. I was just wondering Dominic, if you can maybe just walk us through just again with the disposition of Cordis, just kind of what you are assuming in terms of timing of the sale of the business and then the dilution, how we should think about that, should we think about that similar with the OCD business in terms of the use of the proceeds perhaps with another round of repurchase to offset dilution again or kind of how we are thinking still about cardiovascular?

Sure, Kristen. Well, we expect that the Cordis divestiture will close in the latter part of the year. We still have some regulatory approvals and customary closing conditions. So we would expect that towards the end of the year, that’s been consistent with our previous discussion, nothing has changed there. The dilution of not having Cordis as part of the business is not that significant, quite frankly not as much as it was for OCD. As you know, that business after we exited the drug-eluting stent business is a relatively small portion of our business. And then with respect to use of proceeds, as we do typically when we do divestitures we wait after the transactions are complete, look at other opportunities we have for the use of cash and then make our decisions then as we prepare our plans for the coming year. So as of now, I really can’t comment on what we might do with any of the proceeds.

Hi, Kristen, this is Alex. I just might also add that cardiovascular remains an area of strategic importance for us. We have a very strong Biosense Webster business. In fact, if you look at the quarterly performance for the second quarter, which is once again double-digit. I think this reflects almost 3 years or 4 years now of consecutive improvements in that performance at a very similar level, a great flow of new technologies that’s really making a difference for patients. We also think cardiovascular, so look it still remains a global healthcare issue with a lot of innovation. So it’s an area where we remain interested and we still feel we have very solid footing with our Biosense Webster EP business.

Got it. And then just maybe can you give us a little more color just on REMICADE, I know that that’s obviously been a key concern of investors just what you are seeing in the quarter and kind of expectations ahead just with respect to the business over in Europe with biosimilars?

So in the quarter, Kristen we had in the export sales, we actually had an inventory change that negatively impacted the reported results there for the pharmaceutical group by about 2%, what we are seeing in Europe is as expected, so for the countries that went off patent in February 2015, we are seeing about market share for the biosimilars in the mid single-digits, so as expected.

Okay, perfect. Thank you.

Okay. Next question please.

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

Good morning Mike.

Hi, good morning. Let me turn to the pharma side for a minute, I think two products that people focused on in the first half of the year for impact of the competition were STELARA and INVOKANA, INVOKANA looks like the momentum has continued and continues to look fantastic, STELARA looks like it slowed this quarter, so could you just comment on both?

Yes, Mike, Alex. Look, we still see STELARA growth at over 15%, strong growth in the U.S. and particularly strong growth outside of the United States at almost 27%. There was a slight sequential decrease in share we are projecting, but overall if we look at the competitive profile of the product, how we are doing combined, frankly with our overall franchise presence that we see in this area, we remain really confident in it.

And any comments on INVOKANA?

INVOKANA is the same, I think look we continue to highlight the profile. We have a got great reimbursement, well in excess of 50% to 60% in both commercial as well as the Medicare side of the business. We have continued to see strong TRx trends, both in primary care well as endocrinology. So overall, we are seeing strong uptake and we think it’s a big opportunity, Mike.

Okay. Alex, while I have got you here, it’s been 3 years since you guys closed the Synthes acquisition and I am sure as you commented, you are not thrilled by the first half performance in trauma and spine, so can you just talk a little bit about how you are feeling about that deal and what it will take to get it back on track? Thanks.

Sure, Mike. Thanks for the question. Look, overall we absolutely believe it was the right move when to bring Synthes in and create the largest and most diversified Orthopaedics company. And when we reflect back there, there have been changes that have taken place in the market. One is just the market growth across all these segments. If you remember back in 2008, 2009, 2010, we saw high single-digit growth really for our hips, knees, trauma as well as spine. That has changed significantly. We are now seeing that in the 3% to 4% range. I am pleased with the performance overall that we have seen through the integration. Whenever you bring two large organizations together, there is always a lot of moving pieces. But I think over the last 3 years if you take a look at the overall disruption and the way that we have been able to manage it, I think the team has done a very good job. And now we are really focused on what do we do to ensure that we are best positioned for the future. And frankly, we are doing it at a time when a lot of our competitors are just getting ready to go through a significant amount of integration and transition. And this is where we are excited. And I think it starts with innovation. We have had a nice cadence of innovation. In fact, we are in the midst – we just launched the TFNA, the transfemoral nail in trauma that we are excited about. We think will be an important addition to the bag – to the portfolio that part of the business. In the U.S., we were encouraged by the performance that we saw in knees and hips at 5% and 4% growth, respectively for the quarter. And also going forward, I think we are also quite excited about the opportunity to work with customers in new, unique and different ways across that portfolio. And I also think it’s fair to say that in all those areas we are going to continue to look for ways to drive that business through innovation, but also through increasing our effectiveness and efficiencies across all areas as well. So I think we are pleased, we are not satisfied, there is more work that we need to do and that’s where we are focused right now.

Thanks Alex.

Next question please.

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

Good morning Larry.

Good morning. Thanks for taking the questions. Two clarifications, on the utilization comments about the fourth consecutive quarter of improving utilization, is that through Q1 or Q2. And then second on REMICADE outside the U.S., by our math we had total international and export sales growth in Q2 down about 18% constant currency, Louise you talked about that 2% impact from the inventory reduction, was that to that 18 or so percent, was that just the REMICADE outside the U.S., could you help clarify those two points, that would be great? And I have just one follow-up for Alex after that.

So Larry, that 2% is on total pharmaceutical sales. So, it’s a large reduction in the inventory.

Total worldwide pharma?

Yes, yes.

Okay. And then on the utilization, was that through Q1 or Q2?

Yes, Larry, Alex here. That was through Q2. And again, you know this data as well as we do and we are trying to triangulate from multiple different sources, but what we see is, for example, around 4% growth in hospital admissions. If you take a look at hospital surgical procedures, we are thinking probably between 2.5% and 3% and if we look at overall outpatient procedure growth, probably around 3%. So, it’s still positive. In some cases, it’s flat, perhaps a slight decrease versus what we saw in Q1, but we think overall the trends are relatively constant what we have seen thus far.

Good, good. That’s helpful. And I appreciate your comments earlier on M&A and the M&A environment, but you have $15 billion in net cash, which is obviously not earning much. I know your first priority for cash is the dividend and then M&A. But at what point do you consider using your cash to repurchase shares, Alex? Thanks for taking the questions.

Sure, Larry. I think look overall, ultimately, we want to create more value for shareholders. And as we look at our capital allocation strategy you just iterated, we have a strong commitment to dividends. We have done that for a long time. You know our statistics and our track record there. Regarding M&A, it’s also another area obviously that we keep our eye on. I mentioned earlier in the discussion that we are always looking for the right opportunity and we try to do that in a balanced approach. Of course, we want innovation. Of course, we want complementary things to add to our portfolio of growth opportunities, but we also want to ensure that we maintain the discipline and the perspective of our approach that I think has served us well over a lot of years. And even if you look at the internal versus external investment in the company, I think if you look over a 20, a 10 or even the near-term period, about 45% of our growth comes from what I call organic investment in our research and development versus slightly over half through M&A. And so that will continue to be our approach.

Also Larry, I would say that if you look at it over long periods of time, I think we are very proud of the fact that over a decade, we have returned about 70% of our free cash flow to shareholders. So, I think it’s important to keep that in mind although we may be evaluating opportunities all the time, we are always mindful of the fact of appropriate return to shareholders consistently over long periods of time.

Yes. And I think even recently through some of the announcements that we have made about share repurchases, we have demonstrated that, that’s part of our mix and we will continue to be so going forward.

Thanks for taking the questions.

Next question, please.

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

Good morning, Jami.

Good morning. Good morning, everyone. Just a couple of follow-up questions on sort of the major themes of the earnings call, Alex and I appreciate your taking the time to be on the call. Just if you look at the MD&D business, the MD&D business has underperformed its peers for at least the last 4 to 5 years and maybe longer, I am not sure, but I can’t imagine you are pleased with that performance. And I am just wondering, what is your interest level in moving up the technology curve out of what you are in which are mostly commodity businesses? When I look across where the major growth opportunities are in MedTech, you guys aren’t there, robotics, transcatheter heart valves, et cetera. So, I appreciate valuations are high and you want to be disciplined, but at the same time, J&J’s MD&D business continues to under perform. So, if you could comment on that, please? And then secondly to you, Dominic, you are looking about $2 billion in non-operating income in 2015 largely related to divestitures, how do you repeat that performance in 2016 without creating again a very difficult comparison? Thanks very much.

Hey, Jamie, thank you for the questions. Look, first of all, as I said regarding our medical device businesses, we think this is an important business and remains a very solid growth opportunity going forward. And look as you look across that entire business, we have a number of very exciting areas, frankly, that are doing quite well. We highlighted some of them earlier whether it’s Biosense Webster, whether it’s what we are seeing in areas like biosurgicals, energy, our Endocutter business, we are starting to see the turnaround in areas such as vision care and we don’t think those are commodity businesses. We think those are driven by innovation, technology, and they have been a steady strain. Now, are there other areas where we are interested? Well, you know that we have made an investment in the robotics space. We have announced an exciting opportunity with Google. It’s still early days. We recognized that, but we think that there is a lot of opportunity there given our expertise in general surgery overall and combining it with some of the expertise that those new technology partners can add. And we are also interested in other areas beyond that. We have demonstrated the ability in the past that when we see them, we will participate and acquire them. And I think we have also demonstrated over the past few years that in areas where we don’t see that path forward that we will be active on the divestiture front as well. So, we think that there is room for improvement. We know that we have got businesses like diabetes care, for example that had a significant impact from pricing a few years ago, vision care, that’s still in the midst of a turnaround, but we think that we have got the strategies, the innovation in place to turn those around, and these can be very solid and strong performance going forward.

And Jami, with respect to the other income and expenses, $2 billion roughly that you quoted, I think we were very clear early in the year that we were going to use those divestiture gains to offset some pretty significant headwinds and in particular the major headwind of currency this year. Going forward, I don’t believe we will have the same level of divestiture income, but we will still have some. As Alex have mentioned earlier, we are continuously reviewing our portfolio and making decisions of where we want to participate and where we think the assets would be better off in someone else’s hands and where we could get value for our shareholders by selling the assets. So, I think for ‘16, we would still see some level of divestiture income, but again in ‘16 versus ‘15, we won’t have – we don’t believe we will have the significant headwinds of currency that we just experienced in ‘15 nor will we have the tough comparisons of not having OLYSIO. So, I think you will continue to see it as part of our strategy to reevaluate our portfolio and deploy those gains against higher growth opportunities.

Thank you. And I just want to clarify something on the inventory for the pharmaceuticals. The 2% negative impact includes also some inventory reductions for OLYSIO. So, if you just look at the REMICADE export, total U.S. impact would be about 1%, about half of that, okay? Thank you. Next question, please.

Your next question will come from the line of Josh Jennings with Cowen & Company.

Good morning, Josh.

Good morning. Thanks so much for taking the questions. I would like to have first one for Dominic, just as we look into 2016 and beyond and the annualization of OLYSIO and other headwinds experienced in ‘15, how should we be thinking about leveraging the P&L driving a higher level of EPS growth relative to revenue growth? Should we be anticipating consistent constant currency EPS growth in 100, 200 basis points range or could that spread improve as you experience operating improvements in consumer and the device franchises and the continued strength in the pharma unit?

Yes, thanks, Josh. Well, as we have said many times, we always plan our business to grow our top line at a rate faster than the competitive set and then grow the bottom line at a rate of growth that’s slightly faster than the top line growth. That depends each year on what investments we want to make to continue the growth trajectory of the business. So, I can’t give you a formula to think about, but I think you have seen us be very consistent in our ability to continue to grow earnings at a rate that’s appropriately at a level faster than sales, again, depending on what the market is doing and then depending on what particular investments we have. We do see increased profitability in the consumer business, but as you mentioned it in your comments and Sandi had referred to it earlier, now that we are through many of the issues in the consent decree, we saw the increase in the profitability last year and we expect that business will continue to contribute more profitability in the future.

Thanks. And just a follow-up on the pharma product specific question, there is some recent ANDA filers for ZYTIGA, can you just talk about any inherent risk of a generic coming to the U.S. market prior to ‘16 and just an update on your patent positioning for that asset? Thanks a lot.

Okay. So, just to repeat what I said in the prepared remarks, the composition of matter patent expires in December 2016 and the method of treatment patent expires in August 2027. We would not speculate on any ANDA approval timing or outcome of any litigation. However, if we decide to file a lawsuit, the 30-month stay would begin April 2016 at the earliest and the length of which will be of course subject to any outcome of any litigation.

Thank you and next question.

Your next question will come from the line of Vamil Divan with Credit Suisse.

Good morning Vamil.

Hi, good morning. Thanks so much for taking the question. So just two here, if I could. One, you talked a little bit about INVOKANA earlier, I know Mike asked about this as well, but just about halfway through the quarter, we did have the FDA comment around ketoacidosis and just curious I mean obviously performance was fine this quarter but any on a qualitative basis it gives sense from any sort of questions or changes in prescribing habits as a result of what the FDA has stated at this point. And then second, I appreciate your comments on Greece, I was just curious also regarding Puerto Rico, just some of that kind of macro issues that are going on there I know you guys have some manufacturing down there, do you sense any sort of risk or concerns there depending how that sort of plays out over the next few weeks or months?

We will take first the questions on the DKA, it’s early on, but our Phase 3 trial is actually included about 10,000 patients and we saw very few cases of it.

Right. And with respect to Puerto Rico, you are right we have a significant manufacturing presence there and significant employment on the island, of course as a result. But I don’t see that as a major factor in our ability to continue progressing with our plans. So it's not on our radar screen as a major issue to contend with.

Next question please.

Your next question comes from the line of Jayson Bedford with Raymond James.

Good morning and thanks for taking the questions. I think I heard Alex mention $1 billion in cost savings by 2018, I just wanted a little clarity, is that a new program or is that a program that I thought you introduced a couple of years ago?

This is Dominic, Jayson. It’s the program that we introduced a couple of years ago. We are a couple of years into it now and so we are already seeing some of those cost benefits. And Alex is describing the same program where we the looked that by 2018 if you compared it to base year of 2013, the overall cost reduction would be in the aggregate of $1 billion.

And how far along are you, are you at 50%, 60%?

We kicked it off in ‘13. We did a lot of planning, of course in ‘14. So we are just starting to ramp it up this year into the next couple of years.

Okay. And then maybe a question for Sandi on the consumer side, you have added investment over the last few years to support the are-launch of the OTC products, but margin seem to improve nicely over the last few quarters, does the added investment wind down to generate better margins or just the growth pick up to improve margins?

Thanks for the question. The way in which we are looking at this is the – as we are sun-setting the consent decree, it enables us to improve the productivity of our manufacturing footprint. So a large part of where you will see continued improvement in the profitability of the business is by improving our COGS and our gross margins for the business. So that’s one aspect of it. The other aspect of it is we are – we have undertaken over the last couple of years an approach to globalize our brands and to globalize how we manage them, which drives increased efficiency in every single marketing dollar. So our perspective on this is we need to continue to invest behind these brands, both the U.S. OTC portfolio as well as the global portfolio. So you will not see us reduce our investments behind our brand building of all of our core brands, but what you will see is improved leverage in our manufacturing footprint and actually how we are spending those dollars to drive improved profitability across the sector.

Jason, this is Alex. If I can just add, I really want to commend Sandi and Jorge and their teams for the job that they are doing on these re-launches. I think when we were having these calls several years ago, there was probably a fair amount of skepticism on our ability to re-launch against private label, making sure that we can work our way through the consent decree requirements. And if you look at the progress that’s been made over the past few years, obviously it starts with great products. I think now we have over 80% of our brands return to the shelf, a lot of new recent launches, particularly along the TYLENOL line. If you combine that with the way that we have achieved all the consent decree requirements, I think we worked closely with the agency. We have done that. In fact, I think we will be the – if not the one of the only large over-the-counter companies to ever be able to do that successfully. And really good news is that when you look – as we re-launch these brands, the share uptake is strong. I think we are back up to now about 60% of the share that we achieved in areas like pain. So we are building our way back up. And when you combine that with some of the new innovations that we have, we definitely see a nice growth opportunity in that part of the business.

So with respect to everyone’s time, we will take two more questions. Next question please.

Your next question comes from the line of David Lewis with Morgan Stanley.

Good morning David.

Good morning. Thanks Louise for squeezing me in, maybe just a question for Alex and Sandi and a quick follow-up for Dominic, but the Consumer business is clearly recovering, that’s the big message I think of this call and I think the commentary, I think you have made publicly these last few months seems to be that for M&A in Consumer, it’s going to center more on brands and not company, so you see more willing in consumer at least from our estimation to rule out large M&A, am I reading that right and why is that the case?

So our first – the way in which we are thinking about acquisitions in consumer is a combination of things. We are going to clearly stay focused on our priority consumer need states and geographies. So the way we look at it is a combination, are there brands that are appropriate to tuck into our infrastructure to drive growth in certain markets or in certain areas at the consumer need state. But we also will look at technologies that we can license in like we have done in other parts of J&J. And lastly, we do look at companies to acquire, whether they are mid-size companies or whether they are larger companies. And we are highly disciplined about looking at those and understanding the benefit of doing those kinds of larger acquisitions versus mid-size or smaller acquisitions. So we haven’t ruled out any particular part of the marketplace. We are looking at a variety of different opportunities given that the business is now stabilizing, growing again. We believe we are sort of in a position where we can look at these things a little bit more on an ongoing basis.

Yes. And David, I would just add onto that that the Consumer area remains one of strong strategic importance for Johnson & Johnson. When you think about the role of consumers and healthcare utilization going forward, when you think about the way that you are able to drive innovation and frankly when you think about the reach that it gives you, particularly in the emerging markets and the fast growing markets. And by the way, for Johnson & Johnson, it not only operates that way to drive growth in consumer, but it acts also as a way to increase our uptake in our other businesses, particularly in those growth markets. We think there are a lot of opportunities. And I think mission one over the past few years has been getting it on the right track. As you mentioned yourself, we think we made a lot of progress there. We are feeling much, much better. And now we are obviously looking for ways how do we expand that, how do we take it to the next level.

Okay, very helpful. Thank you for that color. And then, Dominic just a quick question, I am just thinking about international growth, this quarter was a little slower, I am just wondering if you can give us an update on what you are seeing macro in emerging markets maybe specifically China just given the events the last month, have you seen any acute slowdown or is it relatively stable? Thank you.

So we have seen in China some slowdown. I wouldn’t call it acute. There are some dynamics, of course of generic competition in China and an overall slower growth in economic growth. So we are seeing that, but I think we are well positioned. We have been in China for many, many years. We have a good footprint there. We obviously manufacture there as well and our brands continue to get good uptick there. And of course, we are not in the generic part of the pharmaceutical business in China because we are focused more on innovation in that market. So I wouldn’t call it acute, but I would say we have seen some slowdown in the overall market growth in China.

Thank you very much.

Last question please.

And your next question will come from the line of Rick Wise with Stifel.

Thanks so much for taking the question. Good morning everybody. Alex, maybe just a question for you and then one for Sandi, you talked again and you highlighted your focus on the OR the future and talking about the Google JV and robotics, can you maybe give us a little more concrete color, I mean is there a grand plan, does it require acquisitions, are we going to see some tangible products or launches that are going to impact sales and earnings over the next 6 months to 12 months, how do you want us to think about it?

Rick, when you think about this as a really strategic investment in the future for robotic surgery and we – as we see the surgical suite continue to develop in today’s environment, I would say there is a pretty clear line of demarcation between what you would say as standard surgery and robotic surgery. And we think as technology develops in the future, whether it’s real-time data collection, whether it’s visualization, whether it’s incorporating some of the new technologies in areas, such as energy and hemostats, combining these in very new and unique approaches we think offers a real significant opportunity to improve patient outcomes ultimately to grow our business. We also think there was some inherent limitations to today’s robotic surgery environment when you frankly look at the size and the scale of some of the existing innovation. And if you look at what’s happened with other technology platforms as they have become smaller, more flexible, more mobile, and frankly have a better ability to integrate various activities around the OR, that’s where we think we can really make a difference. We realize, of course, that we bring certain capabilities to the table, but we are also thinking – working with partners like Google and others. It expands our capabilities significantly. And so, look, we see this as really not something to have an impact, where I would say over the next 6 to 12 months, this is likely more over a 2-year to 3-year plus timeframe, but we – this is something that we are quite committed to that our partners are committed to and that we see as a real opportunity to fundamentally change the way we think about surgery and robotics in the future.

I really appreciate that. And just last quickly, Sandi, I mean, it seems clear that VIBE is off to a strong start, I think you launched it in the U.S. late last year, maybe just talk if you could give us a little more color on the rollout where are you, are you fully rolled out, are you converting your own patients to VIBE, or are you gaining new accounts just – and maybe what’s next beyond VIBE? Thanks so much.

Thanks. So, as you – in insulin delivery in total, what we have done is as you know we have launched the product in Europe and also in Canada over the last couple of years. And both in Europe and in Canada, it also has a pediatric indication, which clearly gives it some unique differentiation in the marketplace. We effectively launched it in the United States really at the beginning of this year. So, we have seen significant positive growth in uptake of the product in the U.S., which is a combination of existing patients upgrading to the new product as well as gaining new – basically new to therapy insulin pumpers as well as there we have seen a lot of conversion from other pump platforms to our platform. We, in the second quarter, also filed for the pediatric indication for the U.S. product. And so obviously, the FDA will go through its review process, but we are hopeful that before the end of this year, we should have the pediatric indication, which will be a further uptick in the business in the U.S. and be very helpful to us in the U.S. As I also mentioned earlier, there is two other things in insulin delivery that we are very focused on, actually three, but two of them are working in partnership with Dexcom on a next-generation pump that really brings the best of what we have learned of how to make this much more user-friendly and effective with a patient as well as ensuring that we have got the right algorithm in the pump for insulin delivery. Combining that with the next generation of sensor, our current pump has that with Dexcom. And then we are also and have done a lot of work not just in the insulin side, but also in the BGM side of really creating a much better ecosystem for the patient to have information and data that helps them manage their condition much more effectively. And so we are using information technology in a smarter way going forward and we are seeing very positive impact of that, not just in the insulin delivery side, but in our core BGM business. So, that’s another place that we will see a number of different things that we are going to be doing in this business. And last but not least, I mentioned that the Calibra patch pump is another great growth platform we believe for us, because it’s really a unique to the marketplace way to help type 2 diabetics who are insulin-dependent, have a new way of getting their insulin delivered to them in a much more discreet way. So, there are lot of things in the works, there is a lot of things in our pipeline in insulin delivery.

Appreciate it. Thanks.

Thank you. We will have some closing remarks by Alex.

Okay. Well, thank you everyone. And look, in closing, I want to again extend our appreciation to all of you for joining today’s meeting. We are pleased with the solid results we reported this morning, which as we discussed today, really do reflect the strong underlying growth we are seeing across the enterprise. And when you combine this with the actions we have taken to even further strengthen our core businesses and advance our pipeline, Johnson & Johnson is well-positioned to continue to drive growth over the long-term. So, I wish everyone a great day and thank you very much.

Thank you. This concludes today’s Johnson & Johnson second quarter 2015 earnings conference call. You may now disconnect.