Johnson & Johnson (JNJ) Earnings Report: Q4 2014 ...s.t.st/media/xtranscript/2015/Q1/13016704.pdf · acquisitions and divestitures, underlying operational growth was 6.7% worldwide,

CompanyName:Johnson&JohnsonCompanyTicker:JNJSector:HealthCare

Industry:DrugsEventDescription:Q4 2014 EarningsCall

©2014TheStreet,Inc.AllRightsReserved Page1of 29

Johnson&Johnson(JNJ)EarningsReport:Q42014ConferenceCallTranscriptThefollowingJohnson&JohnsonconferencecalltookplaceonJanuary20,2015,08:30AMET.Thisisatranscriptofthatearningscall:

CompanyPart icipants

LouiseMehrotra;JohnsonandJohnson;VP-IRAlexGorsky;JohnsonandJohnson;Chairman,CEODominicCaruso;JohnsonandJohnson;VP-Finance,CFO

OtherPart icipants

LarryBiegelsen;WellsFargo;AnalystDerrickSung;SanfordBernstein;AnalystMikeWeinstein;JPMorgan;AnalystGlennNovarro;RBCCapitalMarkets;AnalystJeffHolford;Jefferies;AnalystKristenStewart;DeutscheBank;AnalystDavidLewis;MorganStanley;AnalystRickWeiss;StifelNicolaus;AnalystVamilDivan;CreditSuisse;Analyst

MANAGEMENTDISCUSSIONSECTION

Operator:

GoodmorningandwelcometoJohnson&Johnson'sfourth-quarter2014earningsconferencecall.

(OperatorInstructions)

Thiscallisbeingrecorded.Ifanyonehasanyobjections,youmaydisconnectatthistime.

(OperatorInstructions)

IwouldnowliketoturntheconferencecallovertoJohnson&Johnson.Youmaybegin.

LouiseMehrot ra (VP-IR):

Goodmorningandwelcome.I'mLouiseMehrotra,VicePresidentofInvestorRelationsforJohnson&Johnsonanditismypleasurethismorningtoreviewourbusinessresultsforthefourthquarterandfullyearof2014.JoiningmeonthecalltodayareAlexGorsky,ChairmanoftheBoardofDirectorsandChiefExecutiveOfficer;andDominicCaruso,VicePresidentFinanceandChiefFinancialOfficer.

Afewlogisticsbeforewegetintothedetails.ThisreviewisbeingmadeavailableviawebcastaccessiblethroughtheinvestorrelationssectionoftheJohnson&JohnsonWebsiteatinvestor.JNJ.com.I' llbeginbybrieflyreviewingfourth-quarterandfull-yearresultsforthecorporationandforourthreebusinesssegments.

Followingmyremarks,Alexwillcommentonthe2014resultsandprovideastrategicoutlookfortheCompany.




ThenDominicwillprovidesomeadditionalcommentaryonthebusinessandreviewtheincomestatementandprovideguidancefor2015.Wewillthenopenthecalltoyourquestions.Weexpectthecalltolastapproximately90minutes.

Includedwiththepressreleasethatwasissuedearlierthismorningisthescheduleofsalesforkeyproductsand/orbusinessestofacilitateupdatingyourmodels.TheseschedulesareavailableontheJohnson&JohnsonWebsiteasisthepressrelease.

Pleasenotewewillbeusingapresentationtocomplimenttoday'scommentary.ThepresentationisalsoavailableonourWebsite.

Beforewebegin,letmeremindyouthatsomeofthestatementsmadeduringthisrevieware,ormaybeconsidered,forward-lookingstatements.The10Kforthefiscalyear2013andtheCompany'ssubsequentfilingsidentifycertainfactorsthatcouldcausetheCompany'sactualresultstodiffermateriallyfromthoseprojectedinanyforward-lookingstatementsmadetoday.

TheCompanydoesnotundertaketoupdateanyforward-lookingstatementsasaresultofnewinformationorfutureeventsordevelopments.OurSECfilings,includingthe10K,areavailablethroughtheCompanyandonourWebsite.

Duringthereview,non-GAAPfinancialmeasuresareusedtoprovideinformationpertinenttoongoingbusinessperformance.Thesenon-GAAPfinancialmeasuresshouldnotbeconsideredreplacementsfor,andshouldbereadtogetherwith,GAAPresults.TablesreconcilingthesemeasurestothemostcomparableGAAPmeasuresareavailableintheschedulesaccompanyingthepressreleaseandontheinvestorrelationssectionoftheJohnson&JohnsonWebsite.

Anumberoftheproductsandcompoundsdiscussedtodayarebeingdevelopedincollaborationwithstrategicpartnersorlicensefromothercompanies.Thisslideliststheacknowledgmentofthoserelationshipsnototherwisereferencedintoday'spresentations.

NowIwouldliketoreviewourresultsforthefourthquarterof2014.Worldwidesalestocustomerswere$18.3billionforthefourthquarterof2014,down0.6%versusthefourthquarterof2013.

Onanoperationalbasissaleswereup3.9%andcurrencyhadanegativeimpactof4.5%.IntheUSsaleswereup7.4%.InregionsoutsidetheUSouroperationalgrowthwas1.2%,whiletheeffectivecurrencyexchangeratesnegativelyimpactedourreportedresultsby7.9%.OnanoperationalbasistheWesternHemisphere,excludingtheUS,grew3.9%whileboththeAsiaPacificandAfricaregionandEuropegrew0.6%.

Thesuccessofnewproductlaunchesandcontinuedgrowthofkeyproductsinallregionswaspartiallyoffsetbydivestitures,themostsignificantonebeingOrtho-ClinicalDiagnostics.Excludingthenetimpactofacquisitionsanddivestitures,underlyingoperationalgrowthwas6.7%worldwide,10.7%intheUSand3.6%outsidetheUS.

Turningnowtoearnings.Netearningswere$2.5billionandearningspersharewere$0.89versus$1.23ayearago.Asreferencedinthetablereconcilingnon-GAAPmeasures,2014fourth-quarternetearningswereadjustedtoexcludeachargeof$1.1billionforafter-taxspecialitems.

Fourthquarter2013netearningswereadjustedtoexcludeanetchargeof$42millionforafter-taxspecialitems.Dominicwilldiscussspecialitemsinhisremarks.Excludingspecialitemsforbothperiods,netearningsforthecurrentquarterwere$3.6billionanddilutedearningspersharewere$1.27,representingincreasesof1.4%and2.4%,respectively,ascomparedtothesameperiodin2013.

Nowturningtothefinancialhighlightsforthefullyearof2014.Consolidatedsalestocustomersfortheyear




of2014were$74.3billion,anincreaseof4.2%ascomparedtothesameperiodayearago.Onanannualbasissalesgrew6.1%operationallyandcurrencyhadanegativeimpactof1.9%.Excludingthenetimpactofacquisitionsanddivestitures,underlyingoperationalgrowthwasapproximately8%worldwide,11.6%intheUSand5.1%outsidetheUS.

Turningnowtoearnings.2014annualnetearningswere$16.3billionandearningspersharewere$5.70.Fortheyear,2014adjustednetearningswere$17.1billionandadjustedearningspersharewere$5.97,up7.7%and8.2%,respectively,versusthe2013results.FreeCashFlowfortheyearwasstrongat$14.7billion,up$900millionversus2013.

Turningnowtobusinesssegmenthighlights,pleasenotepercentagesquotedrepresentoperationalsaleschangeincomparisontothefourthquarterof2013unlessotherwisestated,andthereforeexcludethecurrencytranslationimpact.I' llbeginwiththeconsumersegment.WorldwideConsumersegmentsalesof$3.6billionincreased0.9%,withUSsalesup2.5%whileoutsidetheUSsalesgrew0.1%.

Excludingthenetimpactofacquisitionsanddivestitures,underlyingoperationalgrowthwas2.1%worldwide,4.9%intheUSand0.7%outsidetheUS.GrowthwasdrivenbyOTCworldwide,USskincareaswellasoralcareandwomen'shealthoutsidetheUS.ThisgrowthwaspartiallyoffsetbylowersalesofbabycareandskincareoutsidetheUSduetocompetitivepressuresandprior-yearinventorystocking.

OTCsalesgrowthwasdrivenbyanalgesicsandupperrespiratoryproducts.Upperrespiratorygrew8%worldwidedrivenbysalesgrowthoutsidetheUS.Analgesicgrowthwas16%,withgrowthintheUSof24%drivenbysharegainsaswellastradeinventorybuildrelatedtotherelaunchofproducts.

IntheUS,adultanalgesicmarketsharewas11%,upfromapproximately9.5%ayearagowhileUSpediatricsharewasnearly42%,upfrom34%ayearago.NewproductlaunchesandsuccessfulmarketingcampaignsdrovetheresultsforNeutrogenaandAveenoinUSskincareaswellasListerineinoralcareandwomen'shealthproductsoutsidetheUS.

Movingnowtoourpharmaceuticalsegment,worldwidesalesof$8billionincreased13.9%,withUSsalesup22.7%andsalesoutsidetheUSup5.8%,drivenbystrongsalesofnewproductsaswellascoregrowthproducts.AmajordriverwasourHepatitisCproductOLYSIO.ExcludingsalesofHepatitisCproducts,OLYSIOandINCIVO,underlyinggrowthworldwide,USandoutsidetheUS,wasapproximately11%,16%and7%,respectively.

Othersignificantcontributorstogrowthwereimmunologyproducts,STELARAandSIMPONI,SIMPONIARIA,aswellasXARELTO,INVOKANA,ZYTIGA,INVEGASUSTENNA,orXEPLION,andrecentlylaunchedIMBRUVICA.NetrevenuerecordedFORIMBRUVICAinthefourthquarterwas$92millionworldwidewith$64millionintheUS.Onafullyearbasis,netrevenuewas$200millionworldwidewith$144millionintheUS.

Theresultsforimmunologyweredrivenbystrongdouble-digitmarketgrowthcomplimentedbyincreasedmarketshareforSTELARAandcombinedSIMPONI,SIMPONIARIA.USexportsalesofREMICADEweredownduetotimingofshipmentstoourdistributionpartners.

XARELTOsaleswereup58%andtotalprescriptionshare,orTRX,forthequarterintheUSanticoagulantmarketgrewto15%,upapproximately0.5pointfromlastquarterandupover4.5pointsfromayearago.CardiologyTRXestimatedat23.5%,wasupover4.5pointsfromayearago.

INVOKANA,INVOKAMETsaleswereapproximately$200millioninthequarterwithover$190millionintheUS,contributingapproximately3.5%totheUSpharmaceuticalgrowthrate.IntheUS,INVOKANA,INVOKAMETachieved4.1%TRXwithinthedefinedmarketoftypeIIdiabetes,excludinginsulinandMetformin,upfrom3.3%inthethirdquarterof2014.




TRXwithendocrinologistsgrewto10%forthequarter,upapproximately1%sequentially.INVOKANA,INVOKAMETwasthecategoryleaderinnew-to-brandsharewithendocrinologists,reachingover19%attheendofthequarter.

Stronggrowthofthecombinedmetastaticcastrate-resistantprostatecancermarketatover15%,drovetheresultsforZYTIGAintheUS.ZYTIGAsharewasapproximately31%ofthatmarket,downapproximately2pointsonasequentialbasisduetoincreasedcompetition.

ContinuedstrongmarketuptakeandadditionalcountrylaunchesdrovethestrongresultoutsidetheUS.ZYTIGAisapprovedinmorethan95countries.INVEGASUSTENNA,orXEPLION,achievedstrongresultsinallregionsdueprimarilytoincreasedmarketshare.

I' llnowreviewthemedicaldevicessegmentresults.Worldwidemedicaldevicessegmentsalesof$6.6billiondecreased4.7%.USsalesdeclined7.7%,whilesalesoutsidetheUSdeclined2.3%.Ortho-ClinicalDiagnosticswasdivestedmid-year2014.

Excludingthenetimpactofacquisitionsanddivestitures,underlyingoperationalgrowthwas1.5%atworldwide,withtheUSdown1%,andgrowthof3.5%outsidetheUS.Growthwasdrivenbyorthopaedicsandcardiovascularcareproducts,partiallyoffsetbylowersalesinvisioncare.

CompetitivepricingdynamicsnegativelyimpactedgrowthforvisioncareintheUS.ThiswaspartiallyoffsetbygrowthoutsidetheUSwithstrongresultsinemergingmarkets.

Orthopaedicsalesgrowthwasdrivenbysportsmedicine,hips,spine,andknees.ThesuccessfullaunchofMONOVISC,coupledwiththecontinuedstronggrowthforORTHOVISC,droveresultsforsportsmedicine.

Hipgrowthof5%worldwidewasdrivenbystrongvolumegrowth,partiallyoffsetbycontinuedpricingpressure.Primarystemplatformsaleswereamajorcontributortotheresults.

Spinegrew3%withsolidmarketvolumegrowthandnewproductlaunchespartiallyoffsetbycontinuedpricingpressure.Kneesworldwideincreased3%duetothesuccessfullaunchofATTUNE,withpricingpressureoffsetbypositivemix.Cardiovasculargrowthwasdrivenbya16%worldwideincreaseinourBiosenseWebsterbusinessduetostrongsalesoftheTHERMOCOOLSMARTTOUCHcatheter.

ThatconcludesthesegmenthighlightsforJohnson&Johnson'sfourthquarterof2014.Foryourreference,thereweresomenotabledevelopmentsinthefourthquarterwhichwehavesummarizedonthisslidetoassistasyoudevelopyourmodels.

Lastly,toassistyouinupdatingyourmodelsforthefull-year2014,onourWebsiteyouwillfindannualsaleshighlightsbysegmentaswellasadjustedearningsbeforetaxbysegment.

ItisnowmypleasuretoturnthecallovertoAlexGorsky.Alex?

AlexGorsky(Chairman,CEO):

Thankyou,Louise,andgoodmorningtoeveryonethathasjoinedthecalltoday.I'mreallypleasedtobereviewingwithyouthehighlightsofourverystrong2014resultsandtopreviewourplansfor2015andbeyond.

ButbeforeIgettothat,I'dliketostartasIoftendo,withjustawordonourcredo.Thisremarkabledocumentwaswritten71yearsagobythesonofourFounderandJohnson&Johnsonhaslongbeenguidedbyitsprinciples.WhatIcantellyouisthisphilosophy,thisethos,isaliveandwellinourorganization.

There'sasix-footversionofitetchedinglassandpositioneddirectlyinfrontofmydesk.It'ssomethingwepayalotofattentiontoanditchallengesourentireCompanytoensurethatwe'reworkingwiththeinterestsof




ourkeystakeholdersinmind,consumers,caregiversandpatients,ouremployees,theglobalcommunitiesinwhichweliveandworkandofcourse,ourshareholders.

Andasweenter2015,thebusinessofJohnson&Johnsonisverystrongandwe'rewellpositionedforthelongterm.Wedelivered31consecutiveyearsofadjustedearningsincreasesand52consecutiveyearsofdividendincreasesforourshareholders.

We'reoneofjustthreecompaniestobeAAAratedbyallthreemajorcreditagencies,whichcontinuestoaffordusmanybenefitsinthefinancialmarkets.Ourproductsareindustry-andsegment-leading,with70%ofsalescomingfromthenumberoneornumbertwomarketshareposition,and25%ofoursalescomingfromproductswe'velaunchedinthepastfiveyears.Andwerewardtheshareholdersbyreturningabout70%ofourfreecashflowoverthepastdecade,whichamountstoabout$90billion.

Asmostofyouknow,Johnson&Johnsonisbuiltaroundthreecorebusinesses.Asthechartontheleftoftheslideshows,ourpharmaceuticalsegmentgeneratedover$32billioninsaleslastyear,followedbymedicaldevicesat$27.5billionand$14.5billioninconsumertorounditout.We'rethelargestpharmaceuticalCompanyintheUnitedStatesandthefastestgrowingCompanyamongthetop10globally.

We'realsothemarketleaderinmedicaldevices,whichincludessurgery,orthopaedicsandconsumermedicaldeviceslikevisioncareanddiabetes.Andwe'reamarket-leadingconsumerproductshealthcareCompanyaswell.

Solookingbackon2014,hereisaslideIpresentedlastJanuarythatdelineatedourcommitmentsfortheyear.AndI'mproudtosaythatwe'veachievedournear-termprioritiesandexceededourfinancialtargetswithfull-yearoperationalsalesgrowthof6.1%.Wesuccessfullyrestoredareliablesupplyoftheover-the-countermedicinesfortheshelfintheUnitedStatesandsawstronggrowthinourpediatricanalgesics.

AndatDePuySynthes,whichshowed3%operationalgrowthovertheprioryear,ledbythetrauma,hipsandkneebusinesses,we'vebeguntorealizethebenefitsofthescaleandbreadthofthecombinedbusinesses,whichhavecontributedtostrategicwinsinkeymarkets.

Andbyanymeasure,we'vebuiltonthealreadystrongmomentuminourpharmaceuticalsbusiness,drivenbythestrengthofkeyproductsincludingOLYSIO,XARELTO,ZYTIGA,INVOKANAandIMBRUVICA.LaterI' llcovertheprogresswe'vemadeagainstourlong-termgrowthdrivers,particularlyintheareaofinnovation.

Tosetcontextforourbusinessesgoingforward,thereareafewpointsI'dliketomakeaboutthedynamicsshapingtheglobalhealthcareenvironment.Firstistherisingcostofhealthcare,whichby2020isexpectedtoaccountfor21%oftheGDPintheUnitedStates,nearly11%intheEuropeanUnionand6%inChina.

AsItravelaroundtheworld,itisclearthatprovidingsustainable,highqualityhealthcareisoneofoursociety'sgreatestchallenges.It'sattheforefrontofmanydiscussionsIhavewithourassociates,governmentleaders,physicians,hospitaladministratorsandexecutivesatourpeercompanies.Astheworld'slargesthealthcareCompany,we'reworkingtoassumealeadingroleinthesolutionswhichmustbecenteredonthepatientandimprovingoutcomes.

Next,expandingaccessisanimportantmacrotrendimpactinghowweandothersthinkaboutthefutureofthebusiness.Healthcarereformeffortsandimprovingeconomiesareclearlyhelpingmorepeopleaccessaffordablequalitycare,whichwillcertainlyhelpinthefightagainstcancer,obesity,andheartdisease.

HereintheUS,we'veseenhealthcareutilizationratesincreaseforthesecondquarterinarow,bothsequentiallyandversustheprioryear.Andweestimatethatwewillcontinueseeingsimilartoslightlyhighergrowthrateswhenallofthefourthquarternumbersarereported.

Managingthosedynamicsdemandinnovationandnewmodels,andaredrivingconsiderablehealth




industryconsolidationatthehealthsystemlevel,aswellasinthemedtech,pharmaceuticalandbiotechsectorswheretheM&Aactivityisbacktopeaklevelslastobservedbefore2009.ThegoodnewsisthatgovernmentsareincreasinglyrecognizingtheneedtocontinuetoaddresshealthcareneedsandaretakingstepstorewardinnovationthroughFDAandEMEAdesignationsthatarehelpingtospeedproductreviewtimes.

Inthinkingaboutallofthesedynamicsinthemarketplace,todayIwillcoverthreethemesaboutJohnson&Johnsonthataredrivingourconfidenceinthefuture.First,thecorebusinessesofJohnson&Johnsonarestrongandpositionedtocontinuetoexpandingtheirmarketleadershippositions.Next,wehaveanexcitinganddeepproductpipelineacrosstheentireenterprise.Andwe'rechangingthewayweinteractwithourcustomersandevolvingourstructuretobemoreeffectiveandefficienttodrivegrowth.

NowI'malsoafirmbelieverthatinordertoachieveourgoalsasaCompany,it'simportanttoestablishaclearsetofprioritiesfortheentireorganization.ThreeyearsagowhenIfirstassumedthisrole,wewereveryfocusedonexcellenceinexecution.

Giventheprogresswe'vemadetodate,we'reevolvingourapproach,placinganevengreateremphasisoninnovationandacceleratinggrowthwithcontinuedexcellenceinexecutionasanon-negotiablepartoftheprocess.Sowithoutcompromise,we'refocusedondeliveringonourfinancialandqualitycommitments.

Inpharmaceuticalswe'llcontinuebuildingonourlaunchexcellenceandrobustpipeline.Inmedicaldevicestheemphasisisongrowthaccelerationfrominnovationandalsobytransformingourgo-to-marketmodelsthatbetterreflecttherealitythatpurchasingdecisionsareincreasinglybeingmadeatthehealthcaresystemlevel,astheylooktoimprovethequalityofcaretheyprovidepatientswhilecontrollingcosts.Andinconsumer,we'reexpandingourmarketleadershipinkeysegmentswithintheover-the-countermedicines,oralcare,babyandbeautymarkets.

Letmetakeyouthroughthethinkingofhowwewillmeettheseprioritiesineachoneofourbusinesses.Let'sstartfirstwithourpharmaceuticalbusiness.I'vegottotellyouIcouldnotbeprouderofthisorganization.Aboutsixyearsagowelost$8.5billionofsalestopatentexpiry.Thiswasoutofabouta$24billionportfolioinourpharmaceuticalbusiness.

Nowalotofcompanieshavechosendifferentstrategies,butwhatwe'vesaidisfirstofall,wewanttobeveryfocusedoninnovationandondevelopingdifferentiatedproductsthatwillultimatelyhelpfulfulfillunmetmedicalneeds.We'vefocusedonfivetherapeuticareas,recognizingthatwecan'tbeeverythingtoeverybody.Andwe'vealsosaidwewanttogowherethebestscienceisandtohaveamixofinternalandexternalinnovation,whilebeingcompletelyagnosticaboutthesource.

Andtheresultsreallyspeakforthemselves,the14newproductslaunchedsince2009,drivingcumulativesalesofover$27billion.Sixoftheseproductshavealreadycrossedthe$1billionthreshold.Withthis,wearetheindustryleaderintermsofresearchanddevelopmentproductivityandNMEsperdollarspentcomparedtothebenchmark.

Andthestoryisnotover.In2014wehad20newlineextensionsapprovedandwefiledanadditional20.Wealsostarted23PhaseIIItrialsandinitiated11PhaseIItrials.Andascurrentlyconstituted,ourpipelineispoisedtoyield10potentialnewproductfilingsbetween2013and2017.

Next,ourmedicaldevicesbusinessisinaverystrongleadershipposition,particularlyinorthopaedics,electrophysiology,surgeryandvisioncare,wherethere'salotofinnovationadvancingthestandardofcare.Manyofourplatformsareoverwhelmingmarketleadersintheircategories,and85%ofoursalesarefromplatformswithanumberoneornumbertwoposition.

Wehavetendifferentplatformsinthisbusinessthathaveexceeded$1billioninsales,whichisquite




remarkablewhenyouthinkaboutit.Andwe'regrowingverywellinemergingmarketsandarecapitalizingonthescale,depthandbreadthoftheportfoliowecanoffertogovernments,largehealthcaresystems,andlargepayersaroundtheworld,toaddvalueandhelppatients.AndwegrewsalesinChinabynearly15%onanoperationalbasislastyear.

We'velaunchedover50majornewproductssince2012andhavemorethan30newfilingspendingasoftheendoftheyear.Soagain,thisisaverystrongbusinessthat'swellpositionedforthefuture.

Andourconsumerbrands.Thesearetheonesthatmostpeopleknowusby.Asyoucansee,we'reguidedbyinside-driveninnovationandhavetakenaveryfocusedapproachtomeetingkeyconsumerneedstates,ledbyour12megabrands.

AndwhiletheMcNeilU.S.OTCbusinesscontinuestooperateunderaconsentdecree,theyareontrackwithalloftheircommitments.Andaconsistentsupplyoftheseproductsarereturningtothemarket.

I'mincrediblyproudoftheworkthattheteamhasdone.Andbaseduponrecentmarketsharetrendsthatshowconsumptionisgrowingatfourtimesthemarket,withparticularstrengthbehindChildren'sTylenolandChildren'sMotrin,thenewstrategieswe'veimplementedwithintheorganizationarereallypayingoff.

NowtheworkthatI'vejustdescribedisleveragingthefullstrengthofourenterprise,theproductportfolios,theexpertiseofourresearch,medicalandepidemiologicalteamsandourcommercialorganizations.Lookinglongerterm,ourstrategyfordrivinggrowthshouldbeveryfamiliartoallofyoubynow,andI' llusethebalanceofmytimetakingyouthroughsomeoftheelementsbehindit.

Solet'sstartwithinnovation,becauseintheendwithoutinnovationwejustcan'tbesuccessful.That'sultimatelyhowwe'regoingtohelpmorepatientsandconsumers.Andweinvested$8.5billioninR&Dlastyearacrossoursegmentstokeepusattheforefront.

Ourapproachcanbeviewedinthesefourways.AsIsaidearlier,wewanttoensurewehavetherightmixofinternally-andexternally-sourcedscienceandproducts,andwe'vebuiltnewinnovationmodels.We'realsofocusingongreatercross-segmentcollaborationtoinnovateandfocusedoperationallyonbuildingmarket-leadingcapabilitiesthatenableustoachievethehighestqualityandefficiencystandardspossibleacrosstheworld.

Andthegoodnewsisit'sworking.We'vehadaboutan8%CAGRoverthelast20years,andwe'veinvestedalmost$200billionininnovationoverthatspan.About$109billionofthathasbeeninternalandabout$85billionhasbeenexternal,soaprettyfairmix.

Withthatexternalspendwe'vedoneover120deals,andwellover100ofthoseareunder$1billion.Ofcoursethelargeronesmakeupmoreofthevalue,butwhatthisgraphshowsisthatyou'vegottohavethosesingles,doublesandtriples,aswellasthelargerhomerun-typedealstobesuccessfuloverthelongterm.Andthat'shelpedusbuildaportfoliowith24brandsandplatformstogenerateover$1billioninsalesapiece.

Asanexample,ourteamhasdoneagreatjobofthisintheoncologyspace.Thepartnershipswe'vebuiltsince2008havehelpedusgrowfroma$1billionfranchisetoover$4.5billiontoday.Andwehaveearnedfourbreakthroughdesignationsinthisportfolio,demonstratingourabilitytoidentifyanddevelopproductsthatcanrevolutionizethecareofcancerpatients.

Andwe'redoublingdownonoureffortstoensurewecontinueaccessingnewideasandproductsattheirearlieststages.BuildingonthelegacyofentrepreneurshipattheJohnson&JohnsonDevelopmentCorporationestablishedsinceitsinceptionbyinvestingover$1billioninstart-upcompanies,theteammadeanadditional43investmentsworthnearly$200millionjustlastyear.

Ournewinnovationcenters,whichareinfourinnovationhubsacrosstheworld,havemadeover200



©2014TheStreet,Inc.AllRightsReserved Page8 of 29

alliancesinthepasttwoyears.Andinourfourno-strings-attachedincubatorsatJanssenLabs,we'regivingsmallstart-upsplacestoworkandaccesstoinstrumentation.

IhadanopportunitytovisitourfacilityinSouthSanFranciscojustlastweekandmetwithoneofourteamsthatwe'reworkingwith,whosaysitcouldhavetakenthemeightyearsand$300milliontodowhatwe'reenablingthemtodoinjustacoupleofyears,forsignificantlyless,inanenvironmentwheretheyarebuildingafoundationforstrongpartnershipsforthemselvesand,frankly,withusaswell.

Astechnologiesareadvancing,we'reseeingmoreandmoreopportunitiesforcross-segmentcollaborations,bringingtogetherthescientific,regulatory,clinicalandcommercialexpertisefromacrossJohnson&Johnsontoimprovecare.ExamplesincludeourEVARRESTfibrinpatch,whichisdemonstratinganabilitytocontrolproblematicsurgicalbleedingthatgoeswellbeyondthecurrentstandardofcare.

Stemcelltherapyforadultmaculardegenerationisanotherareathatwe'reveryexcitedabout.Wethinkitoffersagreatcomplementtoourexistingvisioncareplatform.

AlsowhileIwasinChinafortheAPECEconomicLeaders'SummitinNovember,IannouncedplanstooptimizeourexpertiseinoncologytohelptheChinesegovernmentfightlungcancer.It'sestimatedthatby2025therewillbe1millioncasesoflungcancer.AndwhileChinahas20%oftheworld'spopulation,they'vegotabout30%ofthecases.

Sowe'reintheprocessofestablishingaChinalungcancercenterwilladoptanintegratedmedicalapproachtotransformingthedisease,wehope,ultimatelyintoapreventableandcurableone,bytakingauniquelocalapproachwherewehaveR&D,medicaldevice,pharmaceuticalandconsumerexpertsallworkingtogethertobringforthnewandverycomprehensivesolutions.

Thisisalsoagoodillustrationoftheversatilityofthetypesofenterprise-widesolutionswecanuniquelyofferasJohnson&Johnson.We'realreadyintalkswithgovernmentsandothernationstodevelopsimilarmodelstohelpthemattackdiseasesthatarerapidlyspreadingthroughtheirnations.

Nowwerealizethatinordertoimplementprogramsliketheseonsuchalargescale,wemustchangethewayweworkasaCompany.FormanyyearsJohnson&Johnsonhasbeenextremelydecentralized,andwethinkthataccountabilityandresponsibilityissomethingthatwedon'twanttoloseorcompromise.

Butwealsorealizethatoperatinga$75billionglobalCompanyisdifferentthanoperatingamuchsmallerone.Andthatmakingsurewe'vegottherightstandardsandsystemsinplaceinareassuchasquality,supplychainandfinance,isessential.

Soweputinaveryambitiousagendatostriketherightbalanceinourorganization.AsIstatedlastyear,we'reaimingtotake$1billionoutofourP&Loverthenextthreeyears,andbelievethatwe'llbeanevenstrongerorganization.

SoallofourcommitmentstoinnovatehavehelpedusestablishaverystrongpipelineforJohnson&Johnson.Asyoucanseeinourpharmaceuticalbusiness,wehaveadeeppipelinethatasIsaidearlier,we'reexpectingtoyield10majorfilingsin25lineextensionsbetween2013and2017.

OneofthemisEsketamine,apotentialbreakthroughmedicationfortreatment-resistantdepression,aswellasDaratumumab,whichisbeingdevelopedformultiplemyeloma.TheybothhavebreakthroughdesignationsfromtheFDA.We'realsoexcitedbyARN-509,anext-generationtreatmentforprostatecancer,aswellasGuselkumabforpsoriasisandSirukumab,whichisforrheumatoidarthritis.

AndjustyesterdayweannouncedthattheFDAhasgrantedpriorityreviewofourNDAsupportingthethree-monthformulationofPaliperidonePalmitateforthetreatmentofadultswithschizophrenia.Ifapproved,itwillbethefirstandonlylong-actingatypicalanti-psychoticthatcanbedosedjustfourtimesayear,addingan




unprecedentedtreatmentoptiontohelpaddresstheneedsofthesepatients.We'llkeepyouappraisedoftheseprogramsastheirdevelopmentprogresses.

Innovationisalsodeepinmedicaldevices,whereweexpect30majorfilingsbetween2014and2016,includingtheECHELONFLEXPoweredVascularStapler,andourTFN-ADVANCEDProximalFemoralNailingSystemintrauma,whichwilllaunchthisyear.We'realsoinnovatingmedicaldevicesforconsumers,likethenewCalibra3-DayWearableInsulinPatch,aswellaswithournewbrandofACUVUEforuseinthebeautyandastigmatismandpresbyopicsegments.Andinourconsumerbusiness,wehave20keyproductlaunchesplannedforthis,yearincludingNeutrogenaHydroBoostandListerineHealthyWhite.

Innovation,though,isnotjustaboutnewproducts.It'salsoaboutnewwaysofmanaging.MoreandmorewhatI'mhearingfromhospitalCEOsorfromhealthcareadministratorsaroundtheglobe,isthattheywanttoworkwithJohnson&Johnsononalessfragmentedbasis.

Sowe'reimplementingdifferentapproaches.Totakeonhealthcareinthefuture,weneedtotakeamuchmoreholisticapproachandbuildmoreholisticpartnerships.

Andwe'remakingiteasierforhealthsystemstodobusinesswithusthroughcustomer-focusedteamleadersthatcanrepresentanenterpriseview.Again,whenyouthinkaboutthedepthandthebreadththatwehavefromorthopaedicstosurgerytothepharmaceuticalgroup,ourabilitynotonlytocontractbuttofundamentallypartner,priceandworkcollaborativelyinadifferentconstruct,itoffersusauniqueandexcitingopportunitytobepartofthesolutioninhealthcareasitcontinuestochangearoundtheglobe.

Wealsohaveaverystrongglobalfootprint.53%ofourtotalsaleslastyearweremadeoutsidetheUnitedStates,withabout21%inthefast-movingemergingmarketsaroundtheworldwhereweseestrongergrowthratesthanwhatwe'reseeingindevelopedmarkets.

Whilethesemarketsalwaysrepresentacertainchallengeoracertainrisk,we'vebeenoperatinginthemformanyyears.Andwebelievethattakingalongtermviewistherightwayforus,notonlyintermsofexpandingourpresence,butalsointhewayweconductresearchanddevelopmentandthewayweembedelementsofoursupplychaininallareasofourbusiness,whichisanimportantstrengthforusoverall,andwhichishelpingustodriveustothislevelofsuccess.

Now,whilewe'vetalkedalotaboutwaysinwhichwe'rebuildingourportfolio,wealsothinkit'simportanttomakesurethatwe'rebeingthoughtfulaboutwherewearegoingtoparticipateandwherewearenotgoingtoparticipate.

Again,you'veseensomeofthedecisionsthatwemadearoundareassuchasdrug-elutingstents,Ortho-ClinicalDiagnostics,selectedpharmaceuticalandconsumerbrands.Ourapproachistofocusonbeingnumberoneornumbertwoinaparticulararea,aswellasonthosebusinessesorproductareasthatwefeelhaveapathtoachievingleadershiporthatwillbedirectlycomplimentarywithoneofourbusinesses.

Now,ifabusinessorproductdoesn'tmeetatleastoneofthosecriteriaforus,itmaybethatit'sbetterservedinsomeoneelse'shands.Tobeclear,thesecanbeverygoodbusinesseswithalotofopportunity,suchastheUSNUCYNTApainbrandwejustannouncedplanstodivest,orOrtho-ClinicalDiagnostics.Thepointisthatmoveslikethesegiveusachancetorejuvenateourportfolioandtofocusonthoseprogramsthatweknowareultimatelygoingtohelpmorepatientsandgrowourbusiness.

OneothertopicthatI'dliketotalkaboutbeforewecloseregardsoureffortsaroundEbola.Now,inadditiontotheprivilegeofworkinginhealthcare,wehavearealresponsibilitytoleadwithpurposeandtohelptheglobalcommunityintimesofcrisis.

OurworktoexpeditedevelopmentofanEbolavaccineisagreatrepresentationofourabilitytomobilizeand




focusourresourcesinareallyshortperiodoftimetohelpmeettheneedsofpatients.Andbecauseeverydaycounts,we'vecommittedtosubstantiallyacceleratetheproductionofourvaccineregimenthroughunprecedentedcollaborationsamongtheglobalhealthcommunity.

Ourgoalistobringthisvaccinetofamiliesandfront-linehealthcareprofessionalsasfastaspossible.WestartedourPhaseIclinicaltrialsandhaveproducedmorethan400,000regimensforuseinlarge-scaleclinicaltrials.

AsIstartedthistalk,IshowedyouaslidefrommypresentationlastJanuaryoutliningwhatweexpectedtoaccomplishin2014.So,we'llremainfocusedonournear-termprioritiesandcontinuetoadvanceourlonger-termgrowthdrivers.IlookforwardtoreportingonourprogressnextJanuarywhenwereviewour2015accomplishments.

AsIclose,IjustwanttoemphasizewhyI'msoconfidentinourbusinessandourgrowthpotential.First,ourcorebusinessesarestrongandpositionedtocontinueexpandingtheirleadershippositions.Wehaveanexcitinganddeepproductpipelineacrosstheentireenterprise.Andwe'rechangingthewayweinteractwithourcustomersandevolvingourstructuretobemoreeffectiveandefficienttodrivegrowth.

Finally,I'mprivilegedtoworkwithsomeofthegreatestpeopleintheworld.AndIbelievethatwiththeprogresswe'vemade,asharedcommitmenttoourcredoandresolveandpursuitofouraspirationtohelpbillionsofpeoplelivelonger,healthier,happierlives,weareextremelywellpositionedforthefuture.Thankyou,andit'snowmypleasuretoturnthecallovertoourCFO,DominicCaruso.

DominicCaruso (VP-Finance,CFO):

Thankyou,Alex,andgoodmorning,everyone.It'sagreatpleasuretoreportonourexcellent2014performance,whichwasdrivenbythemanysuccessesthatAlexpreviouslydiscussed,aswellastoprovideguidanceforyoutoconsiderasyouupdateyourmodelsfor2015.Nowlet'sreviewhighlightsofourfull-yearandfourth-quarterfinancialperformance.

Turningtothenextslide,youcanseeourcondensedconsolidatedstatementofearningsforthefull-year2014.Atthebeginningof2014,weprovidedonoutlookofourexpectedfinancialperformancefortheyearandwesawcontinuedimprovementinourresultsthroughouttheyear.

Thatgrowthwasdrivenbystrongsalesresults,particularlyinourpharmaceuticalbusiness,andalsogoodexpensemanagementacrosstheenterprise.Andsoweended2014withfull-yearsalesgrowthof4.2%withoperationalsalesgrowthof6.1%,whichexceededourinitialguidanceof4%to5%.

Excludingtheimpactofacquisitionsanddivestitures,ouroperationalsalesgrowthwasastrong8%fortheyear.WhilewedidbenefitfromasignificantlevelofsalesofourHepatitisCproducts,excludingbothofthesefactors,ouroperationalsalesgrowthfor2014wasapproximately5%.

I'malsopleasedtoreportthatourpretaxoperatingmarginfor2014,excludingtheimpactofspecialitems,improvedby190basispointswithmorethanhalfofthatcomingfromsalesofOLYSIO.Finally,ournetincomemarginexcludingspecialitems,improvedto23%.

Turningtothenextslide,youcanseeourcondensedconsolidatedstatementofearningsforthefourthquarterof2014.Whileourtotalsaleschangeofnegative0.6%reflectsthenegativeimpactofcurrencymovements,wearepleasedtoreportoperationalsalesgrowthof3.9%,whichasLouisediscussedearlier,wasdriveninpartbythecontinueduptakeofourrecentlylaunchedpharmaceuticalproducts.ExcludingtheimpactofHepatitisCproductsandacquisitionsanddivestitures,operationalsalesgrowthwas5.6%forthequarter.

Nowlet'stakeafewmomentstotalkaboutcertainitemsonthestatementofearningsforthequarter.Iam




pleasedtopointoutthatwesawverygoodoperatingperformance.Costofgoodssoldwas40basispointslowerthanthesameperiodlastyear,primarilyduetoourproductmixandcostimprovementactions,partlyoffsetbycurrencyimpacts.

Selling,Marketingandadministrativeexpensesweredownascomparedtothefourthquarterof2013,asfavorablemixofthebusinesswaspartiallyoffsetbyinvestmentsmadeinallareasofourbusiness.Ourinvestmentinresearchanddevelopmentasapercentofsaleswasupcomparedtotheprioryear,aswecontinuetomakeimportantinvestmentsforfuturegrowth.Andweclosedanumberofexcitinglicensingdealsinthefourthquarter.

Overallourpretaxoperatingmargin,excludingspecialitems,decreased60basispointsinthefourthquarterascomparedtotheprioryear,duetothetimingoftheseinvestmentsduringthefourthquarter.Interestexpensenetofinterestincomeofapproximately$122millionwasslightlyhigherthantheprioryear.

Otherincomenetofotherexpenseswas$963millionofexpenseinthequartercomparedto$868millionofexpenseinthesameperiodlastyear.Excludingthespecialitemsthatareincludedinthislineitem,otherincomenetofotherexpensesshowedanetgainofapproximately$103millionforthequarterversusnetexpenseofapproximately$47millionintheprioryear.

Inthequarter,theeffectivetaxrate,excludingspecialitems,was8%comparedto8.9%inthefourthquarterof2013.Andfortheyear,excludingspecialitems,thetaxratewas19.3%comparedto17.2%for2013.Thiswasprimarilyduetothegeographicmixoftheresultsineachoftheperiods.

Thiseffectivetaxrateforthefourthquarterof2014includesthefederalR&Dtaxcreditforallof2014,whichwehadanticipatedwouldbepassedbyCongress,andinfactwaslatein2014.Thiswasincludedinourguidancebutnotyetinourreportedresults.Therefore,theentirefull-yearcreditisnowreflectedintheresultsforthequarter.

Nowturningtotheboxedsectionatthebottomoftheslide.Duringthefourthquarterwerecordedseveralspecialitemsthatnettedtoanapproximate$1.1billionchargeonanafter-taxbasisandconsistedprimarilyofthefollowingitems:Increasedlitigationaccruals;costsassociatedwiththeSynthesacquisition,whichisconsistentwithwhatweexpectedwouldbeincurredasspecialitemsthroughout2014,andwhichweexpecttocontinuethroughthemiddleof2015asthatintegrationactivitywrapsup;andsomechargesforin-processresearchanddevelopment.

Together,thesespecialitemsnegativelyimpactedourfourthquarterresultsby$0.38pershare.Excludingthesespecialitems,ouradjustedearningspersharewere$1.27forthefourthquarter,whichexceededthemeanoftheanalystestimatesaspublishedbyFirstCall,despitetheincreasedcurrencyheadwindsinthequarter,whichIwilldiscusslater.

Now,Iwillprovidesomeguidanceforyoutoconsiderasyourefineyourmodelsfor2015.I'dliketostartbyfirstprovidingsomecontextwhichwebelieveisimportanttoconsiderregardingourguidancefor2015.

First,asareminder,aswediscussedlastyear,thatalthoughwetooktheopportunitytoinvestinthebusinesswiththeincreaseinprofitabilityfromOLYSIOsales,ourearningsin2014didbenefitbyapproximately$0.20pershareevenafterthoseinvestments.Also,aswedidthroughout2014,wewillprovideareviewofoursalesgrowthexcludingtheimpactofHepatitisCaswellasacquisitionsanddivestitures,whichasyouknow,arebothimportantwhenconsideringtheunderlyingbasebusinessperformance.

AdditionallycurrencyheadwindshaveincreasedquitesubstantiallysincewelastspokewithyouinOctoberof2014,negativelyimpactingbothsalesandearningsinourguidancefor2015toagreaterextentthanwehadanticipated.Wenotedthatsomeofyouhaveupdatedyourmodelsforcurrencybutmanyofyouhadnotyet.




Andeventhosethathaveupdatedforcurrencyhavenotyetreflectedanegativeimpactthatcurrentratescouldhaveiftheyweretoremainatrecentlevelsforallof2015.Finally,wehavedecidedtoexcludeamortizationofintangiblesfromouradjustedearningsguidance,consistentwiththemajorityofourcompetitorsandwhichIwilldiscussinmoredetailshortly.

BeforeIdiscusssalesandearningsI' llgiveyousomeguidanceonitemsweknowaredifficultforyoutoforecast,beginningwithcashandinterestincomeandexpense.Attheendoftheyear,wehadapproximately$14.3billionofnetcash,whichconsistsofapproximately$33.1billionofcashandmarketablesecuritiesandapproximately$18.8billionofdebt.Forpurposesofyourmodelsandassumingnomajoracquisitionsorothermajorusesofcash,I'dsuggestyouconsidermodelingnetinterestexpenseofbetween$450millionand$550million.

Regardingotherincomeandexpense,asareminder,thisistheaccountwherewerecordroyaltyincomeaswellasgainsandlossesarisingfromsuchitemsaslitigation,investmentsbyourDevelopmentCorporation,divestitures,assetsalesandwrite-offs.Wewouldbecomfortablewithyourmodelsfor2015reflectingnetotherincomeandexpense,excludingspecialitems,asagainrangingfromapproximately$1.5billionto$1.6billion,whichincludestheanticipatedgainfromthedivestitureofourUSrightstotheNUCYNTApainmedicine.

Asannouncedlastweek,weanticipatethistransactiontocloseinthesecondquarter.Thisisahigherlevelofotherincomethansomeofyoumayhavemodeledandhigherthantheprior-yearlevel,andweexpecttousethisincreaseinotherincometocompensateforlowerlevelofincomefromOLYSIO,whichweexpectin2015ascomparedtowhatwehadin2014,allowingforcontinuedinvestmentsinourcorebusiness,primarilyinresearchanddevelopment.

Nowawordontaxes.Ourguidancefor2015anticipatesthattheR&DtaxcreditwillalsoberenewedbyCongressfor2015,althoughthathasstillnotyethappened.Wewouldthereforebecomfortablewithyourmodelsreflectinganeffectivetaxratefor2015,excludingspecialitems,ofapproximately20%to21%.IftheR&Dtaxcreditisnotapproved,itwillnegativelyimpactthetaxratebyapproximately0.5%for2015.

Nowturningtosalesandearnings.Oursalesandearningsguidancefor2015takesintoaccountseveralassumptionsandkeyfactorsthatIwouldliketohighlight,whichmaynotbefullyreflectedinyourmodels.

Forsales,ourassumptionforPROCRITisthattherewillnotbebiosimilarcompetitionin2015.WealsodonotanticipategenericcompetitionthisyearforRISPERDALCONSTAorINVEGASUSTENNA.Weare,however,expectingagenericentrantforINVEGAinthefirsthalfof2015aswellasbiosimilarcompetitionforREMICADEinEuropeinearly2015andhaveincludedtheexpectedimpactinoursalesguidance.

Aswe'vedoneforseveralyears,ourguidancewillbebasedfirstonaconstantcurrencybasis,reflectingourresultsfromoperations.Thisisthewaywemanageourbusinessandwebelievethisprovidesagoodunderstandingoftheunderlyingperformanceofourbusiness.WewillalsoprovideanestimateofoursalesandEPSresultsfor2015withtheimpactthatcurrentexchangeratescouldhaveonthetranslationofthoseresults.

Wewouldbecomfortablewithyourmodelsreflectinganoperationalsalesincreaseonaconstantcurrencybasisofbetween1%and2%fortheyear.Thiswouldresultinsalesfor2015onaconstantcurrencybasisofapproximately$75billionto$76billion.Additionally,bywayofcomparisontohowwedescribedourresultsin2014,ouroperationalsalesgrowthfor2015,excludingtheimpactofallacquisitionsanddivestituresaswellastheimpactofHepatitisC,wouldbeapproximately6%,ahigherlevelofgrowththanthecomparable5%for2014whichwenotedearlier.

Throughoutthelatterpartof2014,theeuro,likemanyothercurrencies,weakenedsignificantlyversusthedollar,andasoflastweekwaslowerbyapproximately11%ascomparedto2014averagelevels.Asyou




know,thedollarhasstrengthenedrecentlyversusvirtuallyallmajorcurrencies.

Wearenotpredictingtheimpactofcurrencymovements.Buttogiveyouanideaofthepotentialimpactonsalesifcurrencyexchangeratesweretoremainwheretheywereasoflastweekforthebalanceoftheyear,thenoursalesgrowthratewoulddecreasebynearly5.5%,reflectingrecentweakeningoftheeuroandothermajorcurrenciesagainsttheUSdollar.Thus,underthisscenario,wewouldexpectreportedsalestoreflectachangeintherangebetweennegative3.5%andnegative4.5%,foratotalexpectedlevelofreportedsalesbetweenapproximately$71billionand$72billion.

Nowturningtoearnings.Consistentwiththereportingpracticesbythemajorityofourcompetitors,beginningin2015wewillexcludeintangibleamortizationexpenseinadditiontospecialitemswhenprovidingouradjustedearningsguidanceandactualresults.

Theimpactoftheamortizationofintangibleassetsthatweareprojectingisapproximately$1.3billiononapretaxbasis,representingapproximately$0.32pershareonanafter-taxbasisfor2015,comparedto$0.42persharein2014.Theamountfor2014includestheaccelerationoftheamortizationexpenseoncertainintangibleassets,whichwedon'tanticipatefor2015atthistime.

Toassistyouincomparingourguidancetoyourmodelsandtoourprior-yearresults,Iwillfirstdescribeouradjustedearningsguidance,excludingspecialitems,aswehavedoneinthepast.ThenIwillupdatethatguidancetoalsoexcludetheimpactofamortizationofintangibles.

Asignificantfactorimpactingourearningsguidancefor2015istheimpactofcurrencymovementsontransactions,whichalthoughhedged,isstillsomewhatnegativeincrementallyversustheprioryear.Weexpecttransactioncurrencyimpactstobenegativetoourgrossprofitbyapproximately50to70basispointsin2015ascomparedto2014.

Iwill,ofcourse,discussthetranslationimpactofcurrencyonEPSinafewminutes.Consistentwithourprior-yearpresentationofadjustedEPS,excludingspecialitems,wewouldbecomfortablewithadjustedEPS,excludingspecialitems,rangingbetween$6.22and$6.37pershareaconstantcurrencybasis,upapproximately4.2%to6.7%comparedtoaconstantcurrencysalesgrowthrateof1%to2%.

Now,excludingtheimpactofamortizationofintangiblesinadditiontoexcludingspecialitems,wewouldbecomfortablewithadjustedEPSguidanceintherangebetween$6.54and$6.69pershareonaconstantcurrencybasis,reflectinganoperationalorconstantcurrencygrowthrateof2.3%to4.7%.

Again,wearenotpredictingtheimpactofcurrencymovements,buttogiveyouanideaofthepotentialimpactonEPS,ifcurrencyexchangeratesforallof2015weretoremainwheretheywereasoflastweek,thenourreportedEPS,excludingintangibleamortizationexpenseandspecialitems,wouldbenegativelyimpactedbyapproximately$0.42pershare,amuchhighernegativeimpactthanweprovidedbackinOctoberof$0.15to$0.20pershareduetothesignificantstrengtheningoftheUSdollarduringthepastseveralmonths.

Therefore,ourreportedadjustedEPSguidance,excludingtheimpactofintangibleamortizationexpenseandspecialitems,wouldbeinarangebetween$6.12and$6.27pershare,reflectingasignificantheadwindofcurrencyonEPSifexchangeratesweretostaywheretheyarenowforallof2015.Atthisearlystageintheyear,wewouldbecomfortablewithyourmodelsreflectingthemidpointofthisrange.

Soinsummary,asyouupdateyourmodelsfortheguidanceIjustprovidedandreflectingonthecontextIsharedwithyouearlier,Iwouldliketomakeafewkeypoints.Althoughoperationalsalesgrowthisexpectedtorangebetween1%and2%,wearepleasedtonotethatwhenexcludingtheimpactofHepatitisCandacquisitionsanddivestitures,ouroperationalsalesgrowthatthemidpointofourguidancewouldbe6%for2015ascomparedto5%for2014.




Weexpectthatthehigherlevelofotherincomeinourguidancefor2015willreplacethelowerlevelofincomefromOLYSIOin2015ascomparedto2014,allowingforcontinuedinvestmentinthebusiness,particularlyinresearchanddevelopment,aswecontinuetobuildourpipeline.Thenegativeimpactofcurrencyexchangeratesin2015ascomparedto2014willbemuchmoresignificanttobothsalesandearningsthatmanyofyouhavemodeled.Andweexpectthatthisadditionalnegativecurrencyimpacttobemoresignificantinthefirsthalfoftheyearascomparedtothesecondhalfoftheyear.

Onaconstantcurrencybasis,ouroperationalEPSgrowthinourguidanceisexpectedtorangebetween2.3%and4.7%.Andfinallygoingforwardaswenotedtoday,wewillbereportingouradjustedearningspersharetoexcludeintangibleamortizationexpenseaswellasspecialitems,consistentwiththemajorityofourcompetitors.

Soinclosing,we'reverypleasedwithourstrongresultsfor2014.Andwehavethefinancialstrengthandbreadthtoexecuteonournear-termprioritiesandtocontinuetodeliversolidresultswhilealsocontinuingtoinvestforlongtermgrowth.Ilookforwardtoupdatingyouonourprogressthroughouttheyear.Thankyou,nowI'dliketoturnthingsbacktoLouisefortheQ&Aportionoftheprogram.Louise?


Thankyou,Dominic.Toassistyouwithupdatingyourmodelswithcomparative2014adjustedEPS,excludingintangibleamortizationandspecialitems,wehavepostedareconciliationbyquartertotheWebsite.Wewillnowopenthecalltoyourquestions.Leah,canyoupleasegivetheinstructionsfortheQ&Asession?

QUESTIONS&ANSWERS

Operator:

LadiesandGentlemen(OperatorInstructions)

YourfirstquestioncomesfromthelineofLarryBiegelsenWellsFargo.


Goodmorning,Larry.

LarryBiegelsen(Analyst-WellsFargo):

Goodmorning,Louisethanksfortakingthequestion.

LetmeasktwotoAlex.Alex,letmejuststartoffwiththenearly14billioninnetcashthatyouhave.That'sclosetothelargestforJ&Jinrecentyears,butyou'vedonerelativelysmalldealssincetakingoverastheCEO.IsthereanycoloryoucanprovideonyourappetitetodoalargerdealandyourprioritiesforM&A?AndthenIhadonefollow-upquestionforyou.


Sure,Larry.Thanksalotforthequestion.

Consistentwithourstrategy,we'realwayslookingforopportunitiesfranklythathelpusbetterfulfillunmetmedicalneed.Soifwestartwithourpharmaceuticalarea,overthepastseveralyearswe'vedoneareallynicejobofidentifyingcompoundsearlyoninthedevelopment,thingslikeZytiga,thingslike[Abrutenib]bringingthemin,puttingthemthroughaveryrapidandextensiveClinicalDevelopmentprogramandthenofcoursehavingsuccessfullaunches,andaswe'veexperienced14newproductlaunchessince2009.




Sowethinkinthepharmaceuticalarea,thatkindofapproachtosourcing,newtechnologyandnewcompoundsisdefinitelyasuccessfulone.Ifwelooktoourmedicaldevices,ofcourse,ourbigfocusoverthepastseveralyearsismakingsurethatwearemakingthemostofthesignificantinvestmentthatwemadein[Synthes].

AndIthinkwe'vemadealotofheadwayasIoutlinedduringmypresentation;andinfact,Ithinkwewereoneofthefirstcompaniestoreallylookhardatspaceslikeorthopaedicsandrecognizethatconsolidationwasverylikelytooccur.Andso,wewereabletodothatinawaywherewefeelwe'vegotaverygoodportfoliofit.

Andaswe'vemanagedthroughthattransitionoverthepastseveralyears,wefeelwe'reinaverygoodpositionnow,particularlyasmanyofourcompetitorsarejuststartingtogothroughsomeofthoseconsolidationinitiatives.

Buteveninthisspacewecontinuetolookfornewoptions,newinnovations.There'sanumberofspaces--we'veidentifiedareassuchasorthopaedics,suchassurgical,suchasvisioncare,inparticular,tobesignificantprioritiesforus.Andwecontinuetolookinthosespaces.

Ifwelooktoconsumer,youknow,ourtoppriorityoverthelastseveralyears,frankly,hasbeenonremediatingourover-the-counterbrands,particularlyhereintheUnitedStates,andIreallycommendtheteamforthegreatworkthey'vedone.

TheMcNeilGroupisbasicallycompletedthemajorstepsthe[consentdecree],sotheyareonaverygoodpath.They'rere-launchingbrands.Youseeitinourresultsforthequarter.Buthere,too,wecontinuetolookforwaystoinnovate,continuetolookforwaystoaddscaleandexpandintheappropriateway.

Andofcourse,whilewe'redoingthat,we'realsomakingsurethatwe'rebeingverydisciplinedanddecisiveaboutbusinesseswe'rechoosingnottoparticipatein.AndIthinkwe'vemadeanumberofmovesoverthelastseveralyearsthatalsohasallowedustocontinuetoinvestbuthasalsobeenhealthyfortheshareholdersatthesametimethat'sveryhelpful.


That'sveryhelpful.

Alex,Iknowthismayseemlikeanoverlysimplisticquestion,butoverthepast15years,J&J'spharmabusinesshasgonethroughthreeroughlyfiveyearcycleswiththefirstfivebeingstrongfollowedbyadecelerationduetopatentexpirationsfollowedbyanotherfivestrongyearsorso.

Andwhenonelooksatthepharmabusiness,onecan'thelpbutseeincreasingcompetitiontokeyproductslikeZytigaandStelaraaswellasthebiosimilarcompetitionthatyouhighlightedonthecall,whichwillslowyouroverallpharmagrowth.somyquestionishowconfidentareyouthatyoucanbreakthosefiveyearcycleswe'veseenoverthepast15yearsandwhy?Thanks.


Yes,Larry,thanksforthatquestionaswelllook,I'mveryproudofourpharmaceuticalbusinessandfranklytheworkthey'vedoneoverthepastfiveoresixyearstoaddressasyouhighlightedthesignificantpatentExpirychallengeweexperiencedandthatwesuccessfullynavigatedourwaythrough.

Whenyouthinkaboutit,welostabout$8.5billiontopatentexpirationseveralyearsago,andwetookaverydeterminedstrategythat,frankly,wasdifferentthanalotofourcompetitorswherewedecidedtofocusonfivemajortherapeuticareaswherewehadcapabilitiesandfranklywherewestillfelttherewasalotofunmetmedicalneed.




Wegotveryagnosticaboutthesourcingofourresearch.Attheendoftheday,wewantedthebestmolecules,thebestsciencewherewefeltwecouldmakethebiggestdifference.AndthenofcourseitwasabouthowdoyoubuildrobustClinicalDevelopmentprogramsandthenultimatelyhavebenchmarkcommercialandreimbursementteamstomakesurethatyou'remaximizingallofthosecompounds?

Andifyoulookatthetrackrecord,asImentionedearlier,14compoundssince2009,sixofthosehavereachedabilliondollars.Andagain,thesearecompoundsthatarereallymakingadifferenceforpatients.

Butatthesametime,wehavemadeaverystrongcommitmenttomakesurethatwhilewewerelaunchingthose,wewerealsoinvestinginthenot-too-distantfuture.AndhereIreallywanttocommendourscientificteam,ourBusinessDevelopmentteam,becauseifyoulookatournear-termpipeline,Ithinkit'squiteencouraging.

We'vegotthingslikeARN509,anotherapproachinandrogenreceptorinhibitorsthatwethinkwillbeagreatcomplementwithZytigainthenottoodistantfuture.TocomplementanalreadyverystrongimmunologyfranchisewithRemicade,Stelara,andSimponi,we'vegotSirukumabandIL6andpatientsforRAandGuselkumabinIL23.That'sanantibodyforpsoriasis.Bothofthoseareprogressingverywellthroughthedevelopmentstagesaswell.

We'vegotaveryinterestingcompound[foramumab],andanti-NGFantibodyforosteoarthriticpain.We'vebeeninpainforsometime,butwethinkthiswillbeanewapproachforpatients.Andwe'vealsoEsketamine.You'veheardsomeofthedataonthat.It'sthefirstMDAantagonist,andthesearefrompatientswithtreatmentrefractorydepression,areallydifficultconditionwithhighratesofsuicidality.Andweseeverygoodresults.

Again,it'searly.Wehavemoreworktodo,butwe'requiteencouraged.

Soifweaddthattotheverystrongplatforms--andyouheardearlierinmypresentationthatwehadover20lineextensionsapprovedin2014offourexistingcompounds,we'vesubmittedatleastthatmanymorethatwe'llseeapprovedoverthenextseveralyears.

Andwhenyoulookatsomeoftheareaswherewearecurrentlyparticipating,beitprostatecancer,beitTypeIIDiabetesandsomeoftheotherareas,suchasthrombosis,weseemanyoftheseareasgrowingatdoubledigits.AnarealikeXarelto,Ithinkwe'vepenetratedperhapsathirdoftheWarfarinmarketthatwethinkthere'sstronggrowthopportunitiesinourcorebusiness.Wethinkwe'vegotexcitinglineextensions,andwethinkwe'vegotagreatcomingpipelineofPhaseIIIandPhaseIIcompoundsforthefuture.


Thanksfortakingthequestions.


Nextquestionplease?

Operator:

YournextquestioncomesfromDerrickSungofSanfordBernstein.


Hi,Derrick.

DerrickSung(Analyst-SanfordBernstein):




Higoodmorning.Thanksfortakingmyquestions.

Alex,youspentalotoftimehighlightingthesuccessesthatyou'vehadinpharmawhichwewouldagree,you'vedoneagreatjobandseeminglyfindingthesecretsaucethereintermsofbothexternalandinternalinnovation.

I'mwonderingifyouhaveanythoughtsonhowtranslatablethatformulaisovertoyourmedicaldevicebusiness,whichhascontinuedtoyou-youstruggledtogrowabovemarket.Andmaybeyoucouldtalkaboutifthereareanylearningstherethatcouldbetranslatedovertomedicaldevicesandwhatitwilltakeeitherinternallyorexternallyforyoutogetthatmedicaldevicebusinessgrowingabovemarket.


HiDerrick.Thankyouverymuch.

Andfirstofall,clearlyweacknowledgeourmedicaldevicegrouphasfacedchallengesthatmanyofthebusinesseshaveoverthepastseveralyears.Andwe'vegotsomeverypromisingandIthinkverystrongstoriesinourmedicaldevicegroup,andwhenyouthinkaboutourEPbusiness,BiosenseWebsterandthegrowthratesthatitsexperienced,Ithinkwehaveabout19consecutivequartersofdouble-digitgrowthforthatbusiness,acontinuousandconstantstreamofinnovation,ultimatelyreallyhelpingpatientsandgrowingourbusiness.It'simpressivebyalmostanymeasure.

Ithinkwe'vealsostartedtoseesomeofourothercorebusinessescomebackandgrow.Andwethinkaboutthemedicaldevicemarketprobablygrowinginthe3-5%range.Itsbeenconsistentwithourlongertermprojectionsandofcourseourgoalistooutpacethatgrowthbecausewewanttogainsharevis-a-visinnovationthewayweworkwithcustomersinourbroaderportfolio.

IfIlookacrossotherareas,we'restarting,Ithink,toseesignsofastrengtheningorthopedicsperformancebytheDePuySynthes.Forexample,wesawhipsuparound4%,kneesupthree,traumagrowingatthehighfours,almost5%.Andwethinkourshareperformancehasbeenverygoodinallofthosedifferentareas.

Wesawenergyalsoonafull-yearbasiscomebackover5%andevenoursuturebusinessisgrowingover3%onanannualbasis.Sowethinkthosearestrongperformersandcancontinue.

Andthenofcoursewehavesomebusinessesthatwe'reworkinghardon,areassuchasdiabetes,whichasyouknowwaschallengedbythepricesetbacks;ourvisioncarebusinesshasfacedchallengesinthemarketplace,butthey'vedonealotofgoodchangesrecently,andwethinktheyarewellpositionedforthefuture.

Butaswelookevenlongerterm,clearlywe'retryingtotakepagesfromtheinnovationplaybookthatyoumightsayourpharmagroupisbuiltonandapplythoseinotherareas.Sowhetherit'sinourClinicalDevelopmentprograms,thewaywemonitorsafety,adverseeventreporting,thoseareareaswe'respendingalotoftime.

We'redoingmoreandmorethroughourinnovationcentersthatwe'rerecentlyopeninginutilizingJJDConhowdowebettersourceearlystart-upinnovation,again,inthepharmaaswellasthedevicebutevenourconsumerbusinessesgoingforward.

Andofcourse,we'relookingatwaysalsotopartnerwithcustomersinnewuniquewayssoweremainconfidentinourmedicaldevicebusinesseswe'vegotverystrongbusinessesandwe'vegotrealizethere'sotherswestillhavemoreworktodobutwethinklongtermtheyofferasignificantopportunityforpatientsforusandforourshareholders.





Thankyou.That'sveryhelpful.

Iwaswondering,Alex,alsoifyoucouldfollow-upabitonyourcommentsonhealthcareutilization.Youmentionednowyou'reseeingacouplequartersofsequentialuptakeinhealthcareutilization.

Canyouperhapsbreakthatdownbygeographyandgiveusyouroutlookandalsowhatyou'reseeingintheU.S.versusEurope,versustheemergingmarketsandhowyou--whatyouseethedriversareforutilizationaswelookoutto2015andbeyond?


Sure,Derrick.Andasyouknow,becauseofourpresenceinPharmaceuticalsaswellasdevicesandevenconsumer,itgivesusaprettygoodlenstounderstandwhat'sgoingonfundamountalleyinthemarketsoletmestartinUnitedStateswherewehavetheclearestandmosttangibledataandyouknow,herewe'reencouraged.

Wethinkwe'vegotaboutthreequartersnowinthepositive.WhenIsayinthepositiveImeansomewherebetween2-3%whenwe'relookingathospitaladmissions,surgicalprocedures.Physicianofficevisitsstillappeartobenegative.SoIthinkthatit'stooearlytodeclarecompletevictoryyet.

Butgenerally,Iwouldsaywe'reencouragedbysomeofthesignsthatwe'resaying,andifwecanseethefourthquarterthefullresultscomingafterthisyeartohaveathirdquarterthenofincreasingresults,thatwouldbeapositive.

IthinkoneoftheareasofchallengehasbeenEurope.ThereremainobviouslyalotofconcernseconomicallyinEurope.Wehavesomebusinesses,frankly,thataredoingquitewell.Wehaveothersthatarechallenged.Ithinkit'sabitofamixedbag.

We'vecontinuedtoseegoodgrowthinChinaonafull-yearbasis.WesawoverdoubledigitgrowthinChinaandclosetothatinthebrickregions.Although,obviously,withRussia,that'sbeenaparticularchallengeoverthelastyeargivensomeofthethingswefaced.

SouthAmerica,alittlebitmorewithVenezuela.Brazilhasbeenalittlebitmixed.Wesawsomechallengesinourconsumersegmentinsomeoftheotherareaswehaven'tfeltthatasmuch,butIthinkthat'stheglobalsensethatIwouldgiveyou.


Great.Veryhelpfulthankyouverymuch.

Operator:

YournextquestioncomesfromMikeWeinsteinJPMorgan.


Hi,Mike.

MikeWeinstein(Analyst-JPMorgan):

Hithere.Thanksfortakingthequestion.

SoDominicletmestartwithyouifyoudon'tmind.Ijustwanttowalkthroughkindoftheapproachtonumbersthisyear.SoyouhaveastartingpointonacashEPSbasisof$6.39for2014butthenyoulose$0.42fromFX,let'scallit$0.20fromOlysio.




Butthentheotherincomestepupfrom14to15addsanextrabilliondollarsgainsyouabout$0.30.Isthathowtothinkaboutitandthenifthat'srightitwouldstillseemtoimplyrelativelyconservativeunderlyingEPSgrowthoutlookofabout1-3%,soisthereanythingI'mmissingthere?


Ithinktheimpactofthehigherotherincomeandexpenseline,youhavetothinkaboutthatasutilizingataxratethat'spredominantlyU.S.versusourblendedtaxratesIwouldsaythattheimpactslowerthan$0.30ashareandcloserto20-$0.22ashare.

Justthinkaboutabilliondollarsata35%taxrateand650anddothemathonthat,soIdon'tthinkyougetto30onthat.SoIwouldjustadjustthatalittlebit.AndthenIwouldjustgiveyoumaybeanothermacroobservation,Mike,andthatis--Iknowthatnoteveryonehasupdatedtheirmodelsforallofthemovingparts.

ButwhenIlookedatconsensusatabout6.14andthenIconsiderthefactthatweshouldaddbacktothat$0.32ofthisamortizationexpenseandthenreduceitbywhatI'musingasabout$0.24,whichisthedifferencebetween$0.42IjustdiscussedandthemidpointofwhatweprovidedasanestimatebackinOctoberofbetween15and$0.20socallthat18soanincremental$0.24so614plus32minus24getsyouinthe620rangesowe'rethinkingthatthat'saboutapartfromtheexpectationoncurrencyaboutwhereeveryonehadsortofexpectedustocomeout.


Okay,letmefastforwardthento2016.Weshouldassumethatthatlevelofotherincomebenefitphasein2016,soisthatabitofaheadwindaswearetryingtoupdateourmodelsfrom15to16?


Well,Ithinkthat,asAlexhastalkedaboutandI'vementionedinothercallsandyouallhaveaskedusabout,we'recontinuingtoreviewourportfolio.Weexpectthatwewillcontinuetomakechoicesaboutareaswe'regoingtoplayinandareaswe'renotgoingtoplayin,wherewewanttoinvestandwherewethinkothers,certainassetsmaybebetterinthehandsofothers.

Andwhenwedothat,andwedivestcertainbusinessesasaresultofthatanalysis,wetendtousethosedivestituregainstobasicallybenefitshareholders,soeitheruseittoinvestinothermorepromisingactivitiesthatwethinkwillgiveusabetterboostinlong-termgrowth,or,infact,wedeliverahigherlevelofearningsasaresult.

Andofcourse,aswedidwithOCD,ifthere'sanydilutiveimpactofthatonagoforwardbasis,wewouldthenadjustforthatwithsharebuybacksandthelikesoIwouldsayIwouldn'ttake15asanabnormalnumberanditwouldfadeinto16.Italldependsonwhatchoiceswemakewhenweevaluateourportfoliogoingforward.


Okay,I' llsneakinonebiggerpicturequestion.SoifItakeoutthenoisefromOlysio,theunderlyinggrowthofthebusinessisacceleratinginyourguidancefor2015.Couldyoujustcommentonthat?Sowhatbusinessesareyouassuminggetbetterbetweenpharma,medicaldevicesandconsumer?


WelloverallIwouldsaythatthegrowthrateinpharma,ex-olysiowillbeslightlysofterthanitwastheprioryearastheseproductsrampedupinthemarketplacesothemedicaldevicebusinessoverallandtheconsumerbusinessareexpectedtohavebettergrowthprospectsin15thanwesawin14.





Veryhelpful,thankyouDominic.

Operator:

YournextquestioncomesfromGlennNovarro,RBCCapitalMarkets.


Goodmorning,Glenn.

GlennNovarro (Analyst-RBCCapitalMarkets):

Goodmorning.Thanksfortakingthequestions.

TwoquestionsforAlex.First,Alex,canyoudescribeyourcommitmenttoyourcardiovasculardevicebusinessandthereasonI'maskingisthattherewassomewrittenupafewmonthsagothatJ&JmaybethinkingaboutsellingtheinterventionalcardiologybusinessbutnottheElectricphysiologybusinesssocommitmenttocardiovascularandthenasafollow-up,whatisyourcommitmenttothetripleArating?

Inotherwords,howsacredisthetripleAratingandthereasonI'maskingthatisbecauseasyourcompetitorsaregettingbiggerandbiggerisbetteraccordingtosomeofyourcompetitors,ifJ&JweretoseeadealthatwaslargerbutitwouldsacrificethetripleArating,wouldJ&Jdosuchadeal?Thankyou.


Thanksalot,Glenn.

Look,Glenn,Ithinkthatifyouaskmeaboutcardiovascular,myresponseiswethinkcardiovascularisanimportantarea.WehavedoneverywelloverthelastseveralyearsinourEPbusiness,asImentionedearlier.AndIthinkbyanystandard,ifyoulookatthewaythey'vebeenabletoadvancethestandardofcare,ifyoutakealookatthenewtechnology,theinnovationroll-outs,andfranklytheexecutionofthatbusiness,itsbeensuperlativeinjustabouteverymark,andwe'rereallyproudofthat.

Wemadedecisionsinotherareasofthecardiovascular,suchasourdecisionondrug-elutingstentsseveralyearago.Wecontinuetolookatemergingareasincardiovascular.ButIthinkoverall,wewanttoparticipateinareaswherewe'vegottechnologythatwethinkcanreallymakeadifferenceforpatiencewherewethinktheMarketsarepromisingforthefutureintermsofreachingmorepatients,expandingshare,volumegrowth,pricingstabilityit,andsowe'regoingtocontinuetoevaluateourportfoliotomakesurethatwe'reconsistentwithourstrategyandasitrelatestocardiovascular.

IfwetalkaboutourtripleA,lookwe'reproudofthefactwe'reonlyoneofthehandfulofcompaniesthatstillhasatripleArating.Itgivesusalotoffinancialflexibilityasanorganization,whenyourealizethatweliterallyhavealmostnocovenantsinthewaythatwe'reabletomanageourbusiness,foranenterpriseofoursizeandfranklyforthesustainabilityofourperformanceoveraverylongperiodoftime,wethinkthat'simportant.

However,whatwewouldalsosayifwecameupontechnologythatwefeltwastrulytransformational,thatopenedupnewpatientsegmentsforus,newopportunities,thatisonefactorthatwewouldconsideraswewouldthinkaboutdifferentacquisitionsordifferentopportunities,soit'soneamongmanyfactors.Itisveryimportanttousbutit'snottheonlyfactorthatwewouldjudgeasstrategicoptioninthefuture.

GlennNovarro (Analyst-RBCCapitalMarkets):




Thanks,Alex.

Operator:

YournextquestioncomesfromJeffHolfordofJefferies.


Goodmorning,Jeff.

Jef f Holford(Analyst-Jefferies):

Goodmorningthanksfortakingmyquestions.Sowe'veseenalotofcontractingpressureinsomeareasofpharma.IjustwantabitofcolorfromyouwhetherXareltoisaproductthatyoupotentiallyarestartingtogetanymoreseriousdiscussionswithEloquestbecomingmuchmorepenetratedwithintheU.S.market.AndalsojustforInvegaaswell,whatthesituationisliketherejustfromacontractingperspective.

Andthensecond,justabitmorecoloronwhatkindofimpactyou'veexpectedwithinyourguidanceforRemicadewithinEuropefrombiosimilars.

Andthenjustlastlyifyoucanjustgiveusabitmorecolorontheincreaseinthelitigationaccrualyoudescribedinyourrelease.thankyou


Okay,thankyou,Jeff.Letmestartoffwiththefirstone,andI' llaskDominictochimeinontheothercouplequestions.

Firstofall,wetakeaverybroadlookintheveryearlystagesofourcompounddevelopmentonwhatpotentialimpactorscenarioswecouldfaceregardingpricingandreimbursementsoitstartsveryearlywiththescience.

AndasImentionedearlierinmycommentaryaboutpharmaceuticalstrategy,wethinktakingaveryhighinnovationapproachinpharmaistherightapproachandcertainlyhasbeentheonemostsuccessfulforusandsopartofitstartswithselectingcompoundsthatwefeelhaveastrongprobabilityofdifferentiationversuscurrentstandardsofcareandwethinkthat'sthecasewithXareltoandInvokana.

Secondly,itgetsinClinicalDevelopmentprogramsandifyoulookattheXareltoClinicalDevelopmentprogramthatwehadIbelievewehadmorethan60,000patientsaspartofourplan,extensivestudies,we'vegotmorethanfiveindicationsforthat,literallyatlunchorverysoonthereafter,onceadaydosing.Andso,aspartofourdevelopmentprogramandlabeling,wehadaverycomprehensiveapproach.Andwethinkthatclearlyplayedastrongroleinitsrapidlunchuptake.

IthinkthesameforadruglikeInvokana.IfyoutakealookatthecomparativelabelswehaveversusJanuvia,regardingHB1acreductionregardingweightlossotherparametersthat'senabledustohaveaverydifferentiatedandstrong[Docier]tosharewithdecisionmakers,payersaroundtheworld,sonotonlyhaveweseenstrongacceptance,butgoodformulauptakeandXareltointheUnitedStatesisavailableinmorethan90%ofcommercialaswellasMedicareandMedicaidprograms.

WeseeverystronguptakewithInvokanaaround70-80%eveninmostcases.Andwe'vehadgoodsuccessoutsidetheUnitedStates,aswell.AndsowethinkittakesagainaverygoodClinicalDevelopmentprogram,stronglabelingverystrongreimbursementincommercialexpertise.Andso,that'sthewaywethinkaboutthosecompounds.Wehaven'tseenadditionalpressuresasoflate.Wecertainlyseecompetitivepressures,butwefeelverygoodaboutourcompoundsthatwe'refranklystillinthelaunchstageofintheirpotentialforfuturegrowth.




Dom?


Jeff,withrespecttoRemicadeinEuropeasyouknowwedon'tprovidespecificproductsalesguidanceonanyproductandparticularlywithRemicadeinEuropeasyouprobablyknowMerckisourpartnerfordistributioninEuropeinthecountriesaffectedbybiosimilarcompetitioninthebeginningofFebruary2015sothequestionisbestposedtothem.

OnethingIwouldsaythoughisthatwehaveaviewonhowbiosimilarsarelikelytounfoldinthemarketplacewhichisunlikehowtypicalgenericchemicalcompoundsunfoldatthemarketplaceandourbestexperiencetherewaswithProcritandEprexinEurope,sousingthatasaguidewefeltprettycomfortableupdatingourguidancetoreflectourexpectationofthat.Butwewon'tgiveveryspecificguidanceonanyproductinparticular.

Operator:

YournextquestioncomesfromKristenStewart,DeutscheBank.


Goodmorning,Kristin.

KristenStewart (Analyst-DeutscheBank):

Goodmorningguys.Dominicjustwantedtogobackandreconfirmtheotherincomecommentary.Soyou'reincludingthegainfromIcenta,andgoingforwardyousaiditwouldbelikelythatwewouldcontinuetoseethesegainsonsaleofassetdivestitures,isthatcorrect?


Right.SowedidincludethatinthisyearsguidanceandinresponsetoMike'squestionwherewesaidwoulditfadeoffin2016,Icommentedthatconsistentwithourreviewofourportfolioandmakingdecisionswhereweinvestandwherewearen't,ifwedecidedtodivestotherassetsaspartofthatreview,thenwewouldhavesimilartypetransactiongainsintheparticularyear,andwewouldhighlightthemtoyouaswe'redoingtoday.


Andthisyear20-$0.22justforthatafter-tax?


Ithinkifyoulookatthechangeinguidanceonourotherincomeandexpensecomparedtowhatyouallhavemodeledit'saboutabilliondollarsafter-taxof35%goatsyoutoabouta20to$0.22pershareimpactversuscurrentmodels.


AndthenjustkindofIguessmorebusinessoperational.Canyoujusttalkalittlebitaboutthesurgerybusinessyouhighlightedasbeingakeyareaoffocuswithinmedicaldeviceswithsomenewproductscomingup?Canyoujustrefreshusonyourstanceonroboticsandwhatproductsyouhavewithinthepipelinethatyou'remostexcitedaboutin2015?





Sure,Kristen,thankyouverymuch.I' lltakethatone.Lookwe'reexcitedaboutthebroadareaofsurgeryandasyouknowwebreakitoutbothbyspecialtysurgeryaswellassurgicalcare.

AndwhatIwouldstartwithinspecialtysurgery,there'sanumberofareasthatIthinkaregreatopportunities.Oneiscertainlyenergy.We'vehadanumberofnewlaunchesthisyearthatIthinkhasresultedinover5%,5.2%fullyeargrowthrateinthatfranchise.Wethinkthere'salotofopportunitygoingforward.

Andwesawverygoodperformancefromourmentorbusinessthisyear.Itgrewatalmost9%afteracoupleofyearsofalotofchallenges,itcamebackstrong,andsowe'repleasedwithwhatweseenthere.Andfinally,ourbiosurgerybusiness,whichisonethatwealsothinkcanreallyrevolutionizethewaybleedingiscontrolledintra-operatively.Wesawover8%growthinitforthequarter.

Sobyandlarge,thatsegmentofoursurgicalbusinessisdoingwell.Andwe'recontinuingtoaddresssomeissuesatASP,butourteammadealotofheadwaythere,sowe'reconfidentaboutthatplatformaswellgoingforward.

IfIlookmorebroadlyinourothersurgicalbusiness,wesawsuturegrowover3%whichwasniceyearonyeargrowthinthatparticulararea.Wethinkthat'sagoodprecursorofwhatyouseegenerallyacrossallofsurgeryandourflexportfolioisalsobeingintroducedandisdoingbetter,clearlyincertainareastherewe'refacingpricingpressurebutoverallwethinkthatthesurgicalareabothinspecialtyaswellasmoregeneralsurgeryoffersasignificantopportunityforus.


Withrespecttorobotics?


I'msorry,regardingroboticslookasGarymentionedduringlastyearsreviewofourmedicaldevicespace,wethinkthatareasofroboticsvisualizationparticularlyassomeofthosecomponentsbecomemoreinherenttotheinstrumentationthemselveswedothinkthattheycanofferopportunities.We'vegotseveralpartnershipsthereaswespeakandwe'llcontinuetolookforwaystothinkabouthowthat'sgoingtoimpactsurgerygoingforward.

Operator:

YournextquestioncomesfromDavidLewis,MorganStanley.

DavidLewis (Analyst-MorganStanley):

Goodmorning,guys.

Alex,moreofahigh-levelquestiononinternationalifwethinkaboutthelastthreeyears.Thirteengrowthrateswerealittleslowerthan12;14growthrateslookslowerthan13.Evensecondhalf14wasslowerthanfirsthalf14.

Givenyourkindoffocusonglobalreach,canyoujustdescribewhyinternationaliscitysellratingisitemergingMarketsandwhat'sthestrategytoturnthataroundandIhaveaquickfollow-up.


Thanks,David.Lookthere'salotofdifferentmovingpartswhenwetalkaboutit.Ithinkfirstofall,let'stalkaboutEuropeandyouknow,EuropewesawacontractioninitiallyandthenEuropeactuallyperformedbetter.

AsImentionedearlierintheguidancegoingforwardwe'rewatchingitcloselyandeventhereyou'vegot




SouthernEuropeversusNorthernEurope.WecontinuetoseeNorthernEuropeperformingslightlybetterthantherestofEurope.It'sbeenimpactedmostrecentquartersbyRussiainasignificantway.

Sothat'sawatchalthoughwehavehadsomeofourbusinessessuchasourconsumergroupdorelativelywellinRussiabutit'ssomethingthatwe'rewatchingclosely.Chinawecontinuedtoseeprettysolidgrowth,forourbusinessesourmedicaldevicebusinessisthemostsignificantandthey'vecontinuedtoseegoodgrowththere.

Ourconsumergrouphashadsomeotherchallengesthatwedon'tthinknecessarilyarerelatedtothemacroeconomicenvironment,franklytheyhavetodowithsomeofourownproductsandingredientsbutwethinkweareonabetterpaththereandifIlooktoSouthAmericawedidmostchallengeinVenezuela.Brazildefinitelywefeeltherewassomeslowdowninthebackendoftheyearandwe'rejustgoingtohavetowatchitcloselyasweheadinto2015.


David,onethingtoremindyouaboutwhenyousaidthatitsloweddownfurtherinthebackhalfof14comparedtofirsthalfof14justareminderthatthedivestitureoftheOCDbusinesswouldhaveimpactedthatcomparisonaswell.


Yes.

DavidLewis (Analyst-MorganStanley):

That'strue,thankyouDominicsomaybeaquickoneforDominicandstrategiconeforAlexifIcansneakitin.Dominic,Iknowit'shardwiththemovingpieces,doyouhaveanysenseofwhatyouconsidertheunderlyingoperatingmarginexpansiontobeforthebusinessin2015?

AndthenAlexjuststrategically,justthinkingthroughyourcommentsintheslidedeckisitsafetointerpretyourcommentswithinPharmaceuticals,oncologyprobablyseesanincreasedrelativeinvestmentoverthenextcoupleyearsrelativehistoricalperiods?Thankyou,I' lljumpbackinqueue.


Sure.Intermsofoperatingmarginexpansionin15justtosetthestagerememberweexpandedouroperatingprofitmarginby190basispointsin2014sowe'realreadyataprettyhighlevelandwewantedtocontinuetheinvestmentwesaidwewouldusethedivestituregainthat'sincludedinourOI&EnumberforNucyntatooffsetthelostprofitabilityonOlysioandbydoingthat,we'regoingtomaintainthelevelofinvestmentwehaveachievedsoincrementaloperatingmarginexpansionin2015wouldbeverymodest.


AndDavid,Iwouldsaywe'rereallyfocusedonallfivetherapeuticcategories.Oncologyiscertainlyanexcitingoneandwhenyoulookatthescienceandwhat'shappeningthere,wethinkthatthere'salotofopportunitytobetteraddressneedforpatients.Wethinkthere'salotofveryinterestingsciencebutalso,whenwelookatimmunologywhenwelookatinfectiousdiseaseandlookatneuroscienceaswellasbroaderspacesincardiovascularanddiabeteswethinkthatallofthoseoffersignificantpotentialforus.

Operator:

YournextquestioncomesfromRickWeiss,StifelNicolaus.





GoodmorningRick.

RickWeiss (Analyst-StifelNicolaus):

Goodmorning.Thankyoufortakingthequestion.

Alex,maybestartinalittlemoredetailwithdiabetesifyouwould.It'sbeenanunder-performingasset.Maybejustbroadly,whatdoyouneedtoturnitaround?

Andletmetouchonacoupleofpoints.Reminduswhenyouanniversariedthepricecuts.VibeapprovedandlaunchinghereweheardgreatthingsaboutitinEurope.ThatgoingtobeagoodproxyforwhatweexpecttoseeintheUSandmaybeyouhadapictureoftheCleverpatch.ReminduswhenyouhopetofileandgetthatapprovedandlaunchedintheUnitedStates.


Sure,Rickthankyouverymuch.

Indiabetesit'sclearlyoneofthoseareasRickwhereyouknowandwe'vegotseveralconversationsonthis,thereis350milliontypetwodiabeticsaroundtheworldandsomanyofthemnotincontrol.There'salotofunmetneedbutwealsorealizeitsbeenaverychallengingmarketparticularlyintheareasofthepartofthemarketthatwe'vebeeninforthelastseveralyears,soLouiseisgoingtogettheexactdatewhenwelappedit.


ThepricechangeswentintoeffectaboutayearagoJune,butyou'restillseeingimpactofthem.Andyousawthemearlierintheyear,andyou'restillseeingsomeofthem.


Yes,solook,foraverysignificantportionofourmarketwesawovera70%pricereductionandasyouknowwheneverthathappensinoneofyourbusinesses,youhavegottoreframethatentirebusinessandIthinkallofthecompaniesinvolvedinSMBGhavegonethrewthatkindoftransitionoverthelastyearandahalf.Ifwelookattheunderlyingfundamentalsthingssuchasvolumeshare,we'veactuallydoneaverygoodjob.

We'vedoneaverygoodjobinManagedCarecontractingsoasaresultwe'vebeenabletokeepourvolumesup,ourcostsundercontrolbutnonethelessthatbusinessiscompletelyhadtoreshapeitselfandtheyarestillintheprocessofgettingitstabilized.Weareexcitedaboutthevibeapproval.Wethinkthat'sgoingtorepresentarealnicebreakthroughforpatientsoverinEuropewe'vehadstrongresultsandwe'relooking,we'reputtingtogetherthelaunchliterallyaswespeaksowe'reexcitedaboutthat.

WethinkCalibracouldbeaveryniceopportunity,veryunobtrusivewaytohaveinsulindelivery,anditlooksrightnowlikebythebackendoftheyear2016,weshouldhavemoreonthatsoagainoverall,diabetesisanareawefeelstronglyabout.

Andbytheway,thisisthesameteamthathadaverysignificantroleinthelaunchofInvokanaaswellandwethinktherelationshipstheybuiltwiththeendocrinologistshavebeenquiteimportantforusinthelaunchsuccessofthatbrandaswell,soit'sanareathatwe'reinterestedbutclearlyonethat'schangedandwestillhavemoreworktodotomakesureweunderstandthebestpathforward.


That'sgreat.




AndDominic,justonequestionforyou.Thebilliondollarcostreductionprogramitsoundslikethenewone,newincrementaloneifIunderstoodyouoverthreeyears,justhelpusbrieflywheredoesthatcomefrom,whatoperatinglinedoesitaffect,andisitincrementalorwillyoureinvestit?Thanks.


Yes,weactuallytalkedaboutitlastyearatthistimeaswellsoit'snotanewprogram.It'sjustthesameprogramwediscussedandwe'reconfidentwe'llgetaboutabilliondollarsoverthenextthreeyearperiod.

It'sintheareaofIT,finance,HR,allthefunctionsthatsupportthebusinesses,howweperformthoseservices,whereweperformthoseservices.AndasAlexmentionedearlier,somemorestandardizationandcommonalityacrossthebusinesssystemsharedserviceenvironments.You'llseeitacrosstheSG&alineinparticularbutwewouldalwayslooktoseewhattherightbalanceisofinvestingversusdeliveringthosecostsavings.Ofcoursewedoexpectpricingpressuretocontinuesothisisagoodhedgeagainstthataswell,Rick.


Thanksagain.

Operator:

YournextquestioncomesfromVamilDivan,CreditSuisse.

VamilDivan(Analyst-CreditSuisse):

Thanksfortakingthequestion.Justafollow-uptoanearlierquestionfromJeffonInvokanaandXareltoforthecontractingissues.JustcuriousaboutthespecialtycaremarketsspecificallytheTNS,andyou'reseeingalotofdiscussionaroundpricinginprimarycareandareyouseeinganythingmoreinthespecialtycareareasspecificallyinautoimmune?Howhasthatchangedoverthelastsixto12monthsfromwhatyouwereseeingbefore?


Vamil,thisisAlexhere.Wehaven'tseenanychangesoverthelastsixor12monthsandagainwe'vegotalotofexperienceinthoseareaswithRemicade,Simponi,Stelara,andIthinkourteamhasdoneanicejobinmanagingtheoverallvalueinpricingandreimbursementissuesbutwehaven'tseenanynoticeablechangesinthatenvironment.

VamilDivan(Analyst-CreditSuisse):

Okay,andjustonefollow-upifIcouldonthetaxside.Wehadthelowerratethistime,andyoumentionedfor15.Howshouldwethinkaboutjustlongertermtaxplanning?Istherangeyou'regivingnowwhatyoukindofassumegoingforward?Orarethereotherstepsthatcouldloweryourlongertermrate?


Well,Ithinkwe'realwaysdoingprudenttaxplanning,andIthinktheultimatechangeintaxrateswouldcomefromhopefullycorporatetaxreformbeingimplemented,inwhichcaseifyouprojectthat,Iwouldthenprojectaslightlyhighereffectivetaxrate.

Butofcourse,youknow,theutilizationofourOUScashetceterawithoutpenaltyisagreatbenefitthatarisesfromthat.SoIcan'tgiveyoualong-termprojection,butyouknowyou'veseenthatwe'vebeensortofinthe20%rangeforquitesometime,andthatIthinkisasolidplaceifyoujustwanttomodelitfornow.





Thankyou,andwe'lltakeourfinalquestionfrom[Danielle]?

Operator:

Yournextquestioncomesfrom[DanielleAntalsi,LirikPartners].

Unident if iedPart icipant :

Higoodmorningguys.Thankssomuchforsqueezingmein.Iappreciateit.

Aswe--soappreciatingalltheheadwindsthatareimpactinggrowthin2015,howdowethinkaboutsortofmedium-termgrowth,so16,17?Andwhat'sinthepipelinetoreturntheCompanybacktogrowth?

ThisitsortoffollowinguponLarry'squestion,Alex,onspecificallythepharmaCompanyandgoingthroughafewyearsofstronggrowthandafewyearsofdeceleratinggrowth.what'sinthepipelinethatgivesyouconfidencethat2015isaoneoffwhereyouabsorbheadwindsfromOlysiospecificallyandthenofcourseFX?


Yes,thankyou,[Danielle].

Look,Iwouldsayfirstofall,wethinkthatthere'ssignificantgrowthleftinourcorebrands.AndasImentionedearlier,whetheryoulookatthepenetrationthatyouhavewithintheparticulartherapeuticcategory,forexactthenewNovelmechanisms,againstWarfarin,forexample,ifyoulookatthepenetrationoftheSGLT2'sversusotheroptionsindiabetes,andfranklythegrowthratesofthemarketsinareassuchasprostatecanceraresomeoftheleukemiaswethinkthere'salotofgrowthopportunitiesjustfromreachingmorepatients.

Numbertwo,it'saboutgettingadditionalindicationsandlineextensions.AndsoIthinkourteamhasdonealsoaverynicejobthereincontinuingtoreinforce,introducenewdata,newinformation,newapproachesthatwhetherit'scombinationtherapies,whetherit'ssomethinglikeourthree-monthversionofPalperadome,thatwejustannouncedthatweknowinaconditionsuchasschizophreniacouldhaveatremendousimpactifyoukeepcompliancehighonjustfourinjectionsayear.

Wethinkinthatcorebusiness,itgivesusaverysolidopportunitywiththelineextensions.Andofcourse,ifwelookbeyondthat,someofthecompoundsthatImentionedearlier,wethinkARN509willbeagreatcomplementwithZytiga.

Andwe'relearningmoreandmoreaboutthatandbecomingincreasinglyconfidentaswegathermoredateAinimmunologyourIL6andIL23willbegreatadditionstoaportfoliowherewe'vealreadygotthreecompoundsandweknowverywellclinically,weknowverywellcommerciallyaswellasfromareimbursementperspective.

Andfinally,Esketamine,whileit'sstillearly,we'reveryencouragedbythedata.Wereallyareencouragedbythefactthatwe'veseen-orthatwe'vereceivedBreakthroughTherapyDesignationaswellfulranumabinpain.

Sowethinkthoseinadditiontoourlineextensionsandadditionalindicationsthatwe'llbegathering,rememberwefiledmorethan20differentlineextensionsoverthecourseof2014andwehad11compoundsinPhaseIIdevelopment.

AndIthinkwe'vegot50compoundsinearlydevelopment,morethanahundredindiscovery.Inadditiontotheongoinglicensingflowthatwewereabletobuildthisyear,Ithinkitgivesusalotofconfidenceinour




portfoliogoingforward.


Okay.Thankssomuchforthatcolor,Alex.

AndifIcouldjustfollow-upreallyquicklywithaquestiononthedevicesideofthingssoobviouslywe'renearingacloseofoneofyourcompetitorsortwoofyourcompetitorsmerginginamegatransactionhere,makingabigbetonbreadthandscaleacrossthehospitalandbundlingetcetera.

Sojustwonderinghowyouguysareplanningtorespondtothat,howyouthinktheenvironmentcouldchangefromapurchasingperspectiveatthehospitallevelwiththeMedtronic/Covidiendealonceitcloses.


IguesswhatIwouldsayisthatwewouldn'trespondnecessarilyandweinitiateditwithsomeofourmovesseveralyearsagowhenwestarteddownthispathourselvesandwe'vebeenprettysteadfastonourstrategy.Oneit'saboutinnovationandthat'swherewe'recontinuingtoinvestininnovationinallofourcoremedicaldevicebusinesses.

Wedothinkthathavingscaleintherightareasisalsoimportantaspayersandashospitalsystemswanttodealwithyoudifferentlyandthenit'sabouthavingalsoaverygoodgeographicalpresencesothatyoucanexpandglobally.Andyouknow,we'realwayslookingforopportunitiestoaddtherightnewtechnologyortherightbusinesstoours,andthat'sthepaththatwe'llstayon.


Allright.That'sgreat.Thankssomuchguys.


Okay.

Well,thankyouagainforjoiningtoday'scallandtogetherwithDominicandLouise,Ilookforwardkeepingyouappraisedofourprogressoverthecourseoftheyear,andI'msurewe'llbetalkingonseveraldifferentoccasions.

Sopleasenotethatwe'regoingtobehostingapharmaceuticalbusinessreviewforanalystsonWednesday,May20,2015righthereinnewBrunswick.Anditwillincludeareviewofouroverallstrategyforcontinuingtobuildourlaunchexcellenceandrobustpipeline,muchofwhichItalkedabouttoday.SoIlookforwardtoseeingmanyofyouthere.

Enjoytherestofyourday,everybody.Thankyou.

Operator:

Thankyou.Thisconcludestoday'sJohnson&Johnsonfourthquarter2014earningsConferenceCall.Youmaynowdisconnect.

Allrightsreserved(c)2014TheStreet,Inc.

Pleasefeelfreetoquoteupto200wordspertranscript.Anyquoteshouldbeaccompaniedby"ProvidedbyTheStreet"andalinktothecompletetranscriptandwww.thestreet.com.Anyotheruseormethodofdistributionisstrictlyprohibited.

THEINFORMATIONCONTAINEDINEACHWRITTENORAUDIOTRANSCRIPT(the"TRANSCRIPT")ISA




REPRODUCTIONOFAPARTICULARCOMPANY'SCONFERENCECALL,CONFERENCEPRESENTATIONOROTHERAUDIOPRESENTATION.THETRANSCRIPTSAREPROVIDED"ASIS"AND"ASAVAILABLE"ANDTHESTREETISNOTRESPONSIBLEINANYWAYNORDOESITMAKEANYREPRESENTATIONORWARRANTYREGARDINGTHEACCURACYORCOMPLETENESSOFTHETRANSCRIPTSASPRODUCED,NORTHESUBSTANCEOFAPARTICULARCOMPANY'SINFORMATION.

THETRANSCRIPTSAREPROVIDEDFORINFORMATIONALPURPOSESONLY.THESTREETISNOTPROVIDINGANYINVESTMENTADVICEORENDORSINGANYPARTICULARCOMPANY.

Documents

Johnson & Johnson (JNJ) Earnings Report: Q4 2014 ...s.t.st/media/xtranscript/2015/Q1/13016704.pdf · acquisitions and divestitures, underlying operational growth was 6.7% worldwide,