Good morning and welcome to Johnson & Johnson’s Second Quarter 2017 Earnings Conference Call. All participants will be in listen-only mode 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.

Hello. This is Joe Wolk, Vice President of Investor Relations. Welcome to the review of Johnson & Johnson’s business results for the second quarter of 2017. I am pleased to be accompanied on the webcast by Alex Gorsky, Chairman and Chief Executive Officer and Dominic Caruso, Executive Vice President and Chief Financial Officer. Thank you for joining us today. As you've likely already seen in today's press release and accompanying materials, our results for the second quarter reflected strong adjusted earnings per share growth. Sales performance in the quarter highlights the strength of new products across all three segments as well as the positive contribution from recent acquisitions. Although there were some anticipated, nonoperational offsets to reported sales growth in the quarter, which we'll address during the call, we believe the business is poised to accelerate sales growth in the second half of 2017. A few logistics before we get into the details. This review is being made available via webcast accessible through the Investor Relations section of Johnson & Johnson's website at investor.jnj.com. There you can find additional materials including today's presentation and accompanying schedules. Please note that this morning's presentation includes forward-looking statements. We encourage you to review the cautionary statement regarding such statements included in today's presentation as well as the company's Form 10K, which identifies certain factors that could cause the company's actual results to differ materially from those projected. Our SEC filings, including our 2016 Form 10-K, along with reconciliations of the non-GAAP financial measures utilized for today's discussion to the most comparable GAAP measure are available at investor.jnj.com. A number of the products and compounds discussed today are being developed in collaboration with strategic partners or licensed from other companies. This slide acknowledges those relationships. After prepared remarks from Alex and Dominic, we will…

Thank you, Joe and thank you all for joining our call and webcast today. I'm pleased to be here to discuss our performance for the first half of 2017 as well as update you on our outlook and expectations for the remainder of the year. There have been a number of significant events in the first half of the year including completing the acquisitions of our new Surgical Vision business as well as Actelion. A few weeks ago, we also shared with you our pharmaceutical R&D strategy and pipeline of transformational medicines at our Business Review Meeting. These events all illustrate how we continue to invest for strong long-term sustainable growth and as Joe outlined for you this morning, we are very pleased with the earnings-per-share results we delivered, which exceeded your consensus estimates and our businesses have largely continued to deliver sales results in line with expectations. Dominic will take you through a bit more detail in a few minutes regarding our performance and outlook will impact our guidance moving forward, but we're optimistic that the investments we made and strategies we put in place can continue to build the momentum we need to accelerate our growth in the second half of the year. First and most importantly, I'm proud of how the commitment to our credo continues to be upheld by our more than 130,000 employees around the world. You can find many examples of how we're living into our credo in our recently released Help for Humanity Report. Holding ourself accountable to the important responsibilities highlighted in our credo, unites us and guides us in achieving our mission. As we look at the external environment and potential impacts on our business, there are a few topics that I am often asked to comment on that have been…

Thanks Alex and good morning, everyone. I'll begin my remarks with a few comments on second-quarter results, which will be followed by comments regarding some changes to our guidance for you to consider as you update your models. We are very pleased with our adjusted earnings per share growth of 5.2% for the second quarter, which exceeded the mean of the analyst estimates on FirstCall. Overall sales results and our operating performance were largely in line with your estimates. We continue to expect an acceleration in our sales and earnings growth in the second half of the year, which I will provide further insights into later in my remarks and of course we are extremely pleased to have closed the acquisition of Actelion and I'd like to add my welcome to the Actelion employees joining Johnson & Johnson. I will now turn to our consolidated statement of earnings for the second quarter of 2017. As Joe described, our operational sales growth this quarter was 2.9% and excluding the impact of acquisitions and divestitures it was 0.5%. As many you have modeled and as we've discussed previously, this quarter's results were impacted by prior period positive adjustments we recorded in the second quarter of 2016 for reserves set aside for discounts and rebates to various payers such as managed Medicaid. Adjusting for that and excluding acquisitions and divestitures, operational growth was 2.4%. If you will direct your attention to the box section of the schedule, you will see we have provided our earnings adjusted to exclude intangible amortization expense and special items. As referenced in the table of non-GAAP measures, the 2017 second-quarter net earnings were adjusted to exclude intangible asset amortization expense and special items of $1.2 billion on an after-tax basis, which consisted primarily of the following. Intangible asset…

Great. Thank you, Dominick. We will now move into our Q&A session. Manny, can you please provide instructions for those on the line wishing to ask a question?

[Operator instructions] And with that, the first question comes from Glenn Novarro of RBC Capital Markets. Please go ahead.

Hi. Good morning, guys.

Good morning, Glenn.

Thanks for taking the question. Let me start on the pharmaceutical side, so we continue to see pricing pressure in XARELTO and INVOKANA and we understand both drugs are in competitive categories. But is there a light at the end of the tunnel to these two drugs based on less pricing pressure in the back end of the year, so that specifically on those two drugs and then more broadly Alex, maybe talk about what you're seeing in pricing in terms of pricing pressure across the franchises? Thank you.

Hey Glenn, thank you very much for your question and I am assuming that you're talking about the pharmaceutical business, is that correct?

That is correct. Yes, thank you.

I think it's two very different stories between XARELTO and INVOKANA and while there's always a secular backdrop here, I think of pricing pressure in many of these areas in the Pharma business. In the case of INVOKANA of course we've seen a significant impact based upon the relabeling issue and even prior to that we've seen a lot obviously a competitive pressure around pricing. And just given the incidence of Type II diabetes and the pressure on systems, we feel that the competition frankly exemplify that. If you look at XARELTO however, we continue to be encouraged by the ongoing stream of really positive data. Our very strong managed care, account management capabilities. And so, we feel optimistic about the future of XARELTO and while there will undoubtedly be pricing pressure, we think that by continuing to differentiate the brand with strong clinical information, strong value information, as well as frankly there is execution in the field, that we'll be well positioned going forward.

And then Alex can you just broadly talk about pricing in general across the pharmaceutical franchise because it look like some of your differentiated drugs, such as IMBRUVICA and DARZALEX are holding up a lot better in terms of pricing than may be some of your more GP mainstream oriented drugs.

Glen in general, we would say is that in the specialty areas, particularly in areas whether it's IMBRUVICA, whether it's DARZALEX where you're literally adding months, years of life to patients and really making significant differences in terms of outcomes, we're seeing less pricing pressure, versus the categories where you have very large patient populations, very large incidents, used more in a primary care setting. And so, we definitely see that in both cases. We think that our account management and our reimbursement teams globally are doing a very good job of making sure that stakeholders particularly our payers understand not only the benefits, but frankly the difference in overall outcomes and economic value that the drugs represent, but I think overall, those have been our major observations.

Hey Glenn, I might add as well, with the more competitive dynamic in some of the primary care drugs, you do have elevated discount levels that raise the statutory rebates as well. So, things like Medicaid, the rebates are going to be a little bit greater in those areas and then under the Affordable Care Act, you had a few states opt in to expand their Medicaid. I think it was Louisiana, Indiana and Pennsylvania, So that's having a minor impact as well. That's correct.

Thank you. And the next question is from Mike Weinstein of JPMorgan. Please go ahead.

Good morning, everybody.

Hi Mike.

I am making in a couple here. So, let me touch on a few. So, number one, I was hoping you could comment on STELARA. It's probably one of the top products that the street seems to have a debate on the outlook going forward. And I think the expectation is that psoriasis uses to climb as well Crohn's sees uptake in this quarter STELARA exceeded the street's expectations with some of your commentary pointing to a strong Crohn's launch. So, can you talk about the outlook for STELARA and how you size the Crohn's opportunity and how you view it going forward? The second question is hope you can give us an update on the ZYTIGA ITR decision for the core 38 patent? I think originally you were expecting that we would hear something by the end of May, we haven’t. So, we would like your expectation as to when we could hear something? And then last one, hope you can give us an update on the diabetes business and where that process stands, thanks?

Hey Mike, thank you very much and you did sneak there, but let me start with the first one. Look, we remain very positive about the overall opportunity in psoriasis. It just starts with the patient population, the unmet medical need. We believe it's only about 25% to 30% of the patients in that category are actually on some of the newer agents. So that in and of itself, represents a significant opportunity. We know that there are shifts from therapy, from one therapy to another and then when you really look at the strong data that we have and by the way, we're really excited with the recent approval just last week at TREMFYA as well that that gives us a big opportunity. And as we've been talking about now for quite some time, we really are trying to look at our immunology portfolio, not just a product by product accounting so to speak and with that, we think with TREMFYA -- STELARA, certainly we saw rapid uptake in psoriasis now in Crohn's. But if we look at the data with TREMFYA physically competitively, what we have versus Humira, we think that represents a very significant opportunity going forward. While at the same time, you take a drug like STELARA in Crohn's, again high prevalence, a lot of unmet medical need, very strong data that's going to allow us to continue to grow STELARA we think at a very significant rate going forward. So, it does represent again a portfolio approach and we think that's why we're especially well-prepared to manage through the Remicade Biosimilars, but also continue to expand our overall immunology portfolio. I'll let Joe you pick up on ZYTIGA and then I'll come back for diabetes.

Okay. Mike, with ZYTIGA you're absolutely correct. We were expecting to hear from the PTO at the end of May. We had not received order and there has been no notification since that point in time and they're not obligated to do so. So, we're awaiting word just as you are.

And Mike, as we talk about Type 2 diabetes, look obviously an area where there is a lot of unmet medical need, but at the same time an area where there's a lot of competition among SGLT2 let alone other therapeutic options in that category. There's still a lot of good news about the Canvas Trial when you really look into the data. At the same time, the recent labeling change has also impacted along with just the overall competitive environment. So, this remains an area where we're very interested. We want to make sure the patients continue to have options as well as physicians, but we also recognize the competitive nature of the category.

Hey Mike, I might just add that you may be referring to the diabetes Medical Device franchises as well and there you saw we took an impairment charges just as largely related to the Animas Pump business, not the overall blood glucose sponsoring business, which is of course the larger portion of the business. And our efforts to review various strategic alternatives are still progressing, moving along just fine, but nothing to report on that front yet.

Thank you. The next question is from Jami Rubin of Goldman Sachs. Please go ahead.

Hi. Can you hear me alright because there is a really bad echo? I hope I am not echoing.

No. We hear you fine Jami.

Okay. Great. Good. Thank you. So, I just wanted to get some clarification on the guidance raise and the revenue raise and trying to better understand where that's coming from? It seems based on our math and Dominic I want you to correct me if I am wrong that the additional $500 million or so, $500 million to $600 million or so in asset sales is adding $0.15 to your EPS. But then when I look at your previous guidance, it looks like you are only raising the guidance by $0.10. So, what is happening? What is the offset to that that $0.05? And then secondly on revenues, FX will be less of a hit than what you anticipated adding $600 million in benefit, but taking the midpoint of your previous guidance that was only about $200 million. So again, what is the claiming the difference? Why are revenues going up more just given your competence in a stronger back half and a less challenging FX environment. Thanks very much.

Sure Jami. So, let me take it in the order of EPS and other income first and then revenue. So, in the area of other income and expense, you're right, we did raise that guidance roughly $500 million. We don't expect all of that to flow to the bottom line because as we commented in my earlier remarks, we expect as we always have done in the past, whenever we have portfolio shifts to reinvest some of those gains back into the business with respect to new product launches, R&D investments and the like. So, you may recall that we also commented that our operating profit margin instead of maintaining or slightly improving, would maintain or slightly decline. So, the vast majority of the other income raise is going to be reinvested in product launches and R&D and therefore operating profit margin before other income and expense will decline. So that's the offset. You had rightly so commented on the $0.10 raise in EPS, little over 65% of that is currency related. So, we saw benefits to revenue from currency. We'll see benefits to EPS from currency and the balance's operating performance some of which from OI&E line and none from the tax line. So hopefully that explains or reconciles for you that distinction and then with revenue, yes currency will have a more favorable impact of roughly $600 million due to a less negative impact of currency, but we did tighten up our range on operational or constant currency sales a little bit, lower that midpoint just a bit and we talked about earlier what we see in the back half of the year, although acceleration will take place across all three businesses. In the consumer business, we're seeing some much weaker markets and some macroeconomic conditions particularly in China and India. So, we've adjusted our expectations although they will increase revenues in the back half, consumer is going to face some lingering market deceleration versus the prior year. So hopefully that reconciles those two points for you as well.

It does. Can I just follow-up with REMICADE?

Sure.

On REMICADE, you only had one competitor on the market that will be another biosimilar that enters later this year. What are you seeing in terms of market share from Inflectra and the pricing dynamic and how do you expect that to change with the second biosimilar entering the market later in the year.

Okay. Well let me tell you what we're seeing so far is that you saw Remicade was down about 14%, but the significant impact to that was this prior period adjustment issue for rebate reserve that we discussed. So, excluding that, Remicade's only down about 5%. That 5% down has some impact of price, some minor impact of share erosion and we see some conversion of Remicade in Crohn's disease to STELARA in Crohn's disease part of Mike Weinstein's earlier question of why STELARA is doing so well is a conversion over from REMICADE patients in Crohn's. So roughly 5% decline is much lower than I think us and any of you had expected for erosion of Remicade, which we all targeted to be somewhere between 10% and 15%. So, we haven’t seen much impact now. We don't know when the new biosimilar from Samsung will launch. It may launch later this year and in terms of what the impact that might have, I think that all depends on the degree to which they discount that product and significance of which they discount that product. But I would say largely for this year, we have our contracting in place with all the managed care organizations. So, we feel pretty good that REMICADE erosion overall even with the entrance of a new biosimilar will be less than we previously expected. Next question.

The next question is from Matt Miksic of UBS. Please go ahead.

Thanks, and good morning. thanks for taking our question and I would say we are getting a pretty strong echo here from our end anyway. So just a follow-up if I could on the Pharma business and then I wanted an additional follow-up on device trends. But first on Pharma we would be interested in any additional color you could share on some of the key drivers and forthcoming drivers here in the back half for example you have seen very strong first half in DARZALEX. Maybe where are we and maybe in terms of some of the extended indication what kind of ramp might we expect towards this $1 billion TREMFYA opportunity and any transitional adjustment to the Actelion DH business. Those are the odds and ends for us to consider as we put together our back-half estimates and one have follow-up for devices if 1 could.

Sure Matt. This is Alex. Look we remain very optimistic about Pharma in the second half of the year and we continue to see really strong uptake both with DARZALEX and the various multiple myeloma indications earlier utilization. In IMBRUVICA, in lymphoma, again with all the different datasets that we have going out, we continue to see very nice uptake there. We mentioned earlier the strong performance of STELARA, I think up over 23% for the quarter, a lot of that in Crohn's. The other area that we've been really pleased with that is showing growth I believe at around 13% 14% is our long-acting anti-psychotics TRINZA in particular. We've continued to see uptake go well there. The Actelion integration thus far has gone very well under leadership of both Paul and Joaquin, teams are working I think very smoothly together and as alluded to earlier, Actelion overall is meeting and/or slightly exceeding some of our expectations. We're certainly putting in a big premium on minimizing or eliminating any disruption and in fact looking for ways to grow these areas and appropriately, but in even higher growth rate as we indicated earlier in some of my comments. And then when you compound that with the launch of TREMFYA in our Immunology Group and the lapping of some of the earlier PPA's that we're talking about, I think give us confidence in the back end. And then of course if we go one step further out and you combine that with some of the new data sets that we expect in the back end of the year and as we head into early '18 around Esketamine and the transform data, Thalidomide in prostate cancer, a continuing stream of data with DARZALEX, its first line multiple myeloma and IMBRUVICA first line in the obese CL and then the COMPASS data with Xarelto, we think that again all these will be reinforcing the great profiles of these compounds and provide even additional sources for growth.

Got it. That's very helpful Alex thanks and then on devices, understanding that you're addressing some of the competitive gaps as you mentioned that you have in spine and the different kind of business there is a lot of competitors there now you're one of the market leaders. If we look at ortho and general surgery it seems like the trends into Q2 here were on the margin just slightly more favorable potentially and I wanted to get just your thoughts qualitatively on the tone of those businesses, the trends in price or whether any qualitative comments you would make just on what you see here sequentially from Q1 to Q2?

Yeah Matt, thanks. Look we think the core businesses in our ortho, excuse me in our broader hospital Medical Device Group, we think continue to show good performance and we mentioned earlier EP was up around 14%. The launch of the SMARTTOUCH catheter continues to go very well. Our Vision Care business in particular showed really strong growth and again even with the transition, the acquisition with AMO you're seeing over 7.5% growth in our contact lens business, which when you think about the job that that team has done, Ashley McAvoy and the rest of her group over the past several years, competitively the launching of new products, the OASYS ASTIG lens that is in the launch phase as we speak and now augmented with the surgical business and Tom Frinzi and his team are doing a really nice job on coming on board. I just had a chance to visit those businesses. They're doing particularly well. If we look across surgery, even in wound closure, we saw growth of about 3%. Energy and Endomech are in the 3%, 4%, 5% range. You have to keep in mind that we did have an impact from selling days where we don't anticipate that we're seeing major share shifts. We're seeing some movement, but overall, I think we are quite competent. We do have some areas that frankly we need to do a better job in such as aesthetics and ENT that we mentioned. Spine certainly, we're focusing a lot and we're more optimistic at the back end of the year based upon some additional Viper line extensions that we're coming out with as well as an expandable cage. And if you look at core orthopedic such as Hips and Knees if you look -- particularly at the U.S. business, we saw Hip grow over 5% in the U.S. business and if you also add on for our selling days, we think we're doing very well gaining share of the Stem along with the anterior approach. It create a nice opportunity. The ATTUNE rollout, again if we adjust for selling days, we're seeing good performance. We're going to have some additional launches in the back end of the year for that platform. And in sports also put in a really good quarter as well based upon some more recent introduction and we think trauma overall, we're in line. The TFNA launch continues to go well. So, we certainly have areas where we should and we need to do better, but we've also got a lot of core platforms in that group that are performing with a very solid performance overall.

Thank you. The next question is from Larry Biegelsen of Wells Fargo. Please go ahead.

Good morning, guys. Thanks for taking the question. Hey Dominic I wanted to understand the guidance in the acceleration in the second half of this year, a little bit better on the last call in the first call you had an organic underlying sales growth of 3% to 3.5% in 2017. Based on my math, it looks like that's about 2.7% today based on the reduction that you talked about earlier, that would imply by my math about 4.5% growth in the second half versus about 2.3% in the first half if you adjust for the PPA. Hopefully you can follow along with me, but I'm trying to understand that and in Pharma, Dominic it looks like the first half grew about 4.5% once you adjust for the gross to net adjustment. Are you expecting that type of growth in the second half? In other words, the acceleration is more just about moving past the gross-to-net adjustment or could you actually do better than the 4.5% underlying in the first half and I just have one quick follow up for you Dominic.

Sure. Well Larry, I think your math is pretty straight on. If you exclude acquisition divestitures and this purchase price adjustment that we've spoken to at length, first half is about 2.4% and on a similar analysis for the full-year, underlying growth might be about 3.2%ish. So, 4% back half of the year versus 2.4% first half of the year. All three of our business segments are expected to accelerate growth. Pharma will benefit not only from the easier comps from the first half to the second-half, but obviously we talked about the things that Alex mentioned earlier with lower erosion for Remicade, uptake from the launch of TREMFYA, better performance in STELARA as well as XARELTO despite some setbacks in pricing for INVOKANA. So overall, we think Pharma will continue to accelerate and medical devices and consumer are expected to accelerate as well, primarily driven of the fact that most of the launches in both of those business are planned for the second half of the year. We've already seen some launch of course in the Vision Care business, but in the base hospital Medical Device business a number of new launches as well as easier comps because of no impact of a lower selling day in the back half. In Consumer, as I mentioned earlier, although they will accelerate new product launches, we're excited about the markets there are somewhat softer and some economic trends in China and India are impacting our expectation there. So somewhat muted for the back half versus our previous expectations, but overall the acceleration to about 4% growth for the second half of the year, excluding acquisition divestitures and this purchase price adjustment is about right.

Hey Dominic just for the record, that 3.2% you said that the old guidance was 3% to 3.5% underlying sales excluding acquisitions that has to be lower today?

It is lower today and the 3.2% I was using your analysis, which excluded this purchase price adjustment. So, you're right, the 3% and 3.5% is now lower maybe 2.5% to 3%, but adjusted for this purchase price adjustment it exceeds 3%. So, I was just trying to keep apples and apples straight.

Thank you. The next question is from David Lewis of Morgan Stanley. Please go ahead.

Good morning.

Good morning.

I just wanted to start with a strategic question for you and then a quick follow-up. So, it start out with consumer, there is a general concerns out there in the consumer industry about brand risk whether it be Amazon or Millennials. How are you feeling about the durability of sort of key consumer franchises and I know the consumer still remains the smallest piece of corporate profit. Do you still think that's the appropriate mix and I had a quick follow-up?

Look we still remain very bullish long-term on the brands that we currently have and a lot of it David gets to the fact that our brands are rooted in science. And I think a key differentiator for our OTCs but as well as our beauty franchise, oral care is the strong science that we have behind all these different areas. And then that of course helps translate in a very strong brand images and while we have seen some recent slowdowns in some of the markets as Dominic mentioned earlier, we think at the end of the day we're still going to need products to fill all the channels and having great innovation and innovative products is going to be essential. As far as our overall mix as we said in the past, look we don't have a particular algorithm. We look at opportunities as they present themselves in each way or in each different sector. We think we made some pretty significant investments last year in consumer at Vogue. I just had a chance to go down and visit that group and again when you look at the rate, the pace of their innovation and our ability now to globalize that platform, we're quite excited about it and to expand it into other areas outside of hair care. So, we still think consumer represents a very solid opportunity going forward.

Okay. Very helpful. Maybe I'll just stick with strategic there for a second. Dominic, you mentioned further assets, maybe it was Alex, further opportunities for asset divestiture to drive other income and then Alex in your commentary in devices I sensed you specified certain markets that you haven't talked about before. So maybe just help us understand two markets struck out for me. What's the strategic commitment to the aesthetics business? It seems like kind of an undersized business for J&J we could go either way. And then you mentioned ENT in this call, which I thought was sort of interesting. Is that an area where you could be interested in expanding through acquisition? Thanks so much.

Yeah, thanks David. Look, if you look over the past few years, I think our esthetic business had done a very nice job of actually improving the performance. There's recently been a broader dynamic with some of the side effects seen that have tempered the growth in that market. So, it's one where we're going to continue to watch very closely. ENT has been one frankly of competitiveness, but our team has done a nice job of addressing that. We're in the midst of some launch as we speak and so we'll be watching that obviously closely in the back half of this year and as we head into early '18.

Great. Next question Manny.

Thank you. The next question is from Vamil Divan of Credit Suisse. Please go ahead.

Great. Thanks very much for taking my question. So, one, just following up on the earlier question around pricing, can you just break out how much of your U.S. growth quarter was driven by price versus how much came from volume? And then my second question relates to the COMPASS Data, which you mentioned one of the key events for the second half of the year. I think we're just trying to get a better sense to I think it was trying to give a sense of the -- how you think about the potential impact there given that there is three arms of that study, which stopped early. How does you think about as we hear the results in a few weeks here, how much more important is that if you see a benefit from the group withdrawal to only rest of the group or is there Ortho is added on therapy and if you maybe just give color on how you think about that, thank you?

Sure. So Vamil with respect to price, if you look at our entire business it's a little bit I guess messy because of the prior period price adjustments, but let's take those out of the mix for this discussion. If you look our domestic form price was down about 2% overall and on the entire business was down about 8% overall. Worldwide price was similar to that as well. So, a little bit better volume than price this particular quarter. And then with respect to COMPASS, what I would say there is largely around the patient population, the expansion of the entire Explorer Program. So, with CAD and PAD, we obviously have the chance to expand the market by about 10 to 12 million patients here in the U.S. What we're currently indicated for is about seven to eight million patients. So, you can see significant opportunity and if you take the entire Explorer Program, it has the potential to be 30 to 35 million additional patient. So, it's a matter of market expansion. We don't believe that our competition has anywhere near as robust a clinical development program as we do for all of those indications that we're seeking and so we seem to be in pretty good position. We continue to take share from Warfarin. So, we were up as we said in the earlier comments more than 2% in terms of total market share versus this time last year.

Okay. All right. Thank you.

You're welcome. Next question Manny.

Thank you. The next question is from Tony Butler of Guggenheim Partners. Please go ahead.

Thank you very much. Alex you alluded to the fact that you're in Washington and I'm just asking do you need to take a more defensive posture while you're there having meetings or is it one of an offenses nature? And then I have one follow up.

Thanks Tony. No, look we're spending a lot of time doing is making sure that we're educating lawmakers with facts regarding the overall healthcare system as well as obviously the important role that pharmaceutical and medical devices as well as consumers ultimately play. And as you heard my earlier remarks as relates to Pharma it's making sure that we understand that it is about 15% of healthcare. We think it's a really important part of healthcare when you look at overall benefits, making sure that they understand the intricacies of the system as you heard in earlier comments, it is complex. And so, we think it's very important to be constantly taking them through the data, the information so that ultimately, we can have the most informants policy decisions.

Thanks very much for that and then Joe or Dominic, just two brief product related questions. One and for INVOKANA I recognize the relabeling effect and managed Medicaid rebates, but did you find that the total category did grow despite those effects because sometimes they can bleed to the entire category. And second, does your full year earnings guidance Dominic include the opt in R&D expense that would be included for a door shift from Actelion. Thanks very much.

Sure Tony. Let me take the second question. Yes, consistent with our previous guidance update, which we provided last quarter to include Actelion we've maintained the assumption in that guidance and as you update guidance that we would exercise our option with respect to Idorsia product that we have the rights to we're optimistic to see those results and discuss those results with the FDA and that option is not exercisable until we complete those particular steps. But of course, we're expecting that we will complete those steps in a favorable manner. So, our guidance does in fact impact include that extra R&D expense associated with opting in on that particular product. Joe?

And Tony, with respect to Invokana this market the way we define it excludes metformin. By our projections it grew about 3.5% in the quarter.

Thank you. The next question is from Danielle Antalffy of Leerink Partners. Please go ahead.

Hi. Good morning, guys. Thanks so much for taking the question. I just had a higher level question for you Alex or Dominic as we just think about your calling for growth acceleration in the second half of the year, but as we move into 2018 how do we think about the sustainability of that for its acceleration profile, particularly since you should have increasing competition on the REMICADE side of things. And I believe in 2018 as I see it goes off patent, but please remine me is that's the case. There is something within the underlying growth trends in some of the other businesses that could sustain this growth acceleration trajectory or how should we be thinking about that?

Yeah Danielle, thanks for the question. So obviously we expect that the growth acceleration in the back half of 2017 will create some momentum going into 2018 of course, right because the majority of that growth acceleration in both Hospital Medical Devices and Consumer have to do with new product launches and we expect that that momentum will carry over into 2018. You're right, there are some puts and takes with respect to some competition as well as patent expiration issues like ZYTIGA, which you just mentioned, but remember the overall farm portfolio remains strong. Joe talked about the COMPASS data with Xarelto and IMBRUVICA and DARZALEX continuing to move upward in an upward trend and gaining share with more data and obviously the entire immunology portfolio now is bolstered by the earlier launch of guselkumab or TREMFYA and so that's exciting and able to propel growth further. So, we expect that although there may be some puts and takes, we're not prepared to talk about guidance. Now for 2018 we expect that momentum to continue.

Yeah Danielle, what I would add to that are a couple things. One is I think it really starts with the unmet need that exists among our core platforms. So, if you look at penetration rates in areas for example in our pharmaceutical group, in areas like psoriasis, Crohn's disease, you're seeing treatment rates of only 20% to 30%. If you take a look at even treatment with next-generation anticoagulants, you're only around 50%. If you look at antipsychotics, long-acting antipsychotics, thereto you're looking at in the vicinity much smaller below 20%. So, we think that there is just a lot of unserved need in each of those categories it's going to allow for growth. Secondly, when you look at the data stream that we have coming out across all these platforms, again whether it's XARELTO, whether it's a continued launch uptake of TRINZA, the great date for STELARA in Crohn's disease, the TREMFYA launch we think that's going to add momentum. And then you compound that with the Actelion acquisition, the reasons why we believe that we can reach more patients and generate additional growth, it gives us a lot of confidence in our Pharma group for growth potential going forward. And then certainly we'll be in the events that you mentioned, but underlined that's why we're going to be launching 10 new brand between now and 2021. We think we have $1 billion potential, several of them with over $3 billion and $4 billion potential. A long list of other line extensions I think 50, a of which we think have about $0.5 billion potential and so that's our Pharma group and our Medical Device Group, we mentioned more than 12 launch that we have in the back end of the year combined with some of the other work that we've done around making us more effective, more efficient. And then you compound that with some of the acquisitions that we've done, really in each of our major platforms over the last 12 months and project that going forward. Things like AMO, things like the expandable cage in spine, Megadyne that I mentioned earlier, we think that also provides us a very solid opportunity for growth going forward. Then of course in consumer, we're very excited about the Vogue acquisition, about neo-strata combined with -- we're very confident that we will see positive trends going forward. So again overall, we think that the rest of 2017 and 2018 while we're not providing any guidance, represents a great opportunity for J&J.

Thanks Danielle, next question.

Yes, the next questions is from Rick Wise of Stifel. Please go ahead.

Good morning, Alex. Hi Dominic. Just talking about the device pipeline Alex, one thing you haven’t talked about more so is the robotic program. Can you update us on where you are? I think there is a working prototype of this system in December. What's next, is this all on track from your point of view and just if you can update us there. I appreciate it, thank you.

Yeah the short answer on that Rick is we are quite excited about our Computerized Surgery program. Everything up to this point in time is on track. We're continuing to make really good progress. We had outlined earlier there are reasons for excitement. We think that there's an opportunity there not to just actually improve the surgery itself, bring data to bear in the operating room, having much more flexibility and modularity in the system that we would introduce. And of course, we think that also offers a great opportunity for the rest of our surgical care business as part of an entire system and offering. So, it's on track but what I would tell you is stay tuned. We're obviously not going to provide too much information on that right now given the competitive environment but we still remain very committed to that program.

And Rick, the working prototype was already available at the end of last year and in fact Alex, actually tried it out. So, we're not behind there. We're actually on track with that working prototype.

Thank you. The next question is from Bob Hopkins of Bank of America, Merrill Lynch. Please go ahead.

Hi thanks very much for taking the questions. Just two quick ones. First Alex I would love to get your prospective on emerging market growth and the outlook for J&J's emerging market growth going forward and maybe specifically could you just comment on what the end growth was this quarter for you guys and were there any stand out like there were last quarter where devices I think grew almost close to 10%?

Yeah, thanks a lot Bob, but overall if we look at emerging markets performance for this quarter, we saw a growth of around 4%. Sequentially it was a little bit slower, but again it was a couple of things. One, we mentioned earlier consumer, we had issues with the demonetization and some lingering policy issues as it related to our consumer business. We saw some competitive issues in China, but overall for example, our Medical Device business was up over 10%. So, we saw strong investment in China, excuse me, total emerging markets, we saw that kind of growth. We've got to get through some of these policy issues in India related to demonetization. There's some in the way that OTC in Pharma drugs are being distributed that we've got to get through in China. The other markets can be impacted frankly at their economies to a certain degree by how reliant they are on petroleum. But overall for the next several years we think emerging markets in particular brick represent a significant opportunity other than those things that I just mentioned. I don't think we've seen significant issues that would affect our outlook.

Great. And then just as a follow-up, you mentioned earlier about the changing guidance related to potential divestitures and incremental $500 million gains. I was just wondering if there is any more color there? Are these potential divestitures, several smaller deals, is it one bigger one, is it more device, more consumer, more Pharma, just any more color on those in which would be helpful, thank you.

Yeah Bob, let me provide as much color as I can without obviously jeopardizing potential value we expect to get from these additional divestitures. So, they're not of any major consequence. So, the ones that are of major consequence which haven't yet closed for example, the Codman Neurosurgery business that's still on track to close this year that was in our original guidance, that's one of the most significant of the group, but not an additional divestiture although we hope that that will actually close at a bit higher value than we previously estimated. The rest are across multiple businesses, I would call them smaller brands, I'll call them not of any major consequence and we'll have to see whether we can get the right value for those assets before we actually execute on them, but that's our plan for them for the remaining part of this year. But not any more detail and I'm sure you can appreciate that.

Thanks Bob. I think we have time for one more question Manny.

Yes. The final question is from Damien Conover of MorningStar. Please go ahead.

Great. Good morning. Thanks for taking the question. I just had a question on ZYTIGA and just wanted to follow-up on the higher utilization by the Independent Patient Assistance Foundation. I know it started in the first quarter and continuing into the second quarter here. I was just wondering if you could give us an update on why that is continuing and why is prostate cancer one of the focus points for these particular groups? And then second question was wondering if you could also give us an update on your outlook for the amortization expense for the rest of the year. I know it's going to be increasing with the closure of the Actelion deal, thank you.

So, thanks for the question Damien. With respect to the Patient Assistance Foundation, as we stated previously, those are independent foundations. So, they really do operate distinct from Johnson & Johnson. So, our insights and data around that is very, very limited. What I can say with respect to ZYTIGA is it actually goes back to probably the fourth quarter of last year where we saw a significant bump Bob and we've got some statistics that suggest our prescriptions for ZYTIGA last year this time that ran through the foundation, we're about 4% of total prescriptions. Now they're up to about 15%, but the good news is we've seen a leveling off. So, in the last couple quarters where we've commented to this impact, it's been around that 13%, 14%, 15% level. So, we think there's a leveling off as to why these are more utilized and maybe some other foundations that's probably related to some funding that went dark for some other foundations, but again that's pure speculation on our part because these Patients Foundation Assistance programs are run independently from Johnson & Johnson.

Yeah Damien, earlier I gave you some after-tax impacts of intangible amortization expense that are in this year's earnings, were adjusted from this year's earnings to arrive at our adjusted earnings. The pretax number so far just for the second quarter was $480 million and the pretax number in the same quarter of last year was $326 million. The largest impact of that increase is obviously the AMO acquisition because of course we had a full quarter's worth of amortization there and only couple weeks worth of amortization of Actelion. So, going forward, the Actelion acquisition will add substantially to the amortization expense, but as you know our practice is consistent with all those in our industries to exclude that from our adjusted earnings because it's obviously a non-cash impact. So hopefully that helps you model going forward.

Great. Thank you.

Great. So that concludes the question-and-answer session. Thanks for your questions as well as your continued interest in Johnson & Johnson. I will now turn the discussion back over to Alex for some closing remarks.

Thank you, everyone for making time to be on the call this morning and I want to end where we began with a few thank you. First of all, to really thank all the associates at Johnson & Johnson for their ongoing commitment to our credo, to being competitive and ultimately to producing the results that we just had a chance to review with you this morning. And also, a big thank you to all of you for your continued trust and confidence in Johnson & Johnson. We look forward to updating you at upcoming calls as we work our way through 2017 and with that I'll close the call and look forward to speaking with all of you again soon. Thank you.

Thank you. Ladies and gentlemen, this concludes today's Johnson & Johnson's second quarter 2017 earnings conference call. You may now disconnect and have a wonderful day.