Louise Mehrotra - VP of IR Alex Gorsky - Chairman of The Board of Directors and CEO Joaquin Duato - Worldwide Chairman, Pharmaceuticals Paul Stoffels - CSO, Johnson & Johnson and Worldwide Chairman, Pharmaceuticals Dominic Caruso - VP, Finance and CFO.

Matthew Dodds - Citigroup Michael Weinstein - JP Morgan Derrick Sung - Sanford Bernstein Larry Biegelsen - Wells Fargo Matt Miksic - Piper Jaffray Josh Jennings - Cowen & Co. Rick Wise - Stifel Glenn Novarro - RBC Capital Markets Bruce Nudell - Credit Suisse David Lewis - Morgan Stanley Kristen Stewart - Deutsche Bank Jay Olson - Goldman Sachs.

Good morning, and welcome to the Johnson & Johnson Second Quarter 2014 Earnings Conference Call. All participants will be able to listen-only until the question-and-answer session of the conference. This call is being recorded. If anyone has any objections, you may disconnect at this time. (Operator Instructions).

I would now like to turn the conference call over to Johnson & Johnson. You may begin..

Good morning and welcome. I’m Louise Mehrotra, Vice President of Investor Relations for Johnson & Johnson and it is my pleasure this morning to review our business results for the second quarter of 2014.

Joining me on the call today are Alex Gorsky, Chairman of The Board of Directors and Chief Executive Officer; Joaquin Duato, Worldwide Chairman, Pharmaceuticals; Paul Stoffels, Chief Scientific Officer, Johnson & Johnson and Worldwide Chairman, Pharmaceuticals; and Dominic Caruso, Vice President, Finance and Chief Financial Officer.

A few logistics before we get into the details. This review is being made available via webcast accessible through the Investor Relations section of the Johnson & Johnson Web site. I’ll begin by briefly reviewing second quarter results for the corporation and for our three business segments.

Following my remarks, Alex will provide some additional commentary on the business and an update on our near term priorities. Next, Joaquin and Paul will provide an update on our pharmaceutical business, and lastly Dominic will review the income statement and provide guidance for 2014. We will then open the call to your questions.

Included with the press release that was issued earlier this morning is a schedule of sales for key products and/or businesses to facilitate updating your models. These schedules are available on the Johnson & Johnson Web site as is the press release. Please note we will be using presentation to complement today’s commentary.

The presentation is also available on our Web site. Before we begin, let me remind you that some of the statements made during this review are or may be considered forward-looking statements.

The 10-K for the fiscal year 2013 identifies certain factors that could cause the Company’s actual results to differ materially from those projected in any forward-looking statements made today. The Company does not undertake to update any forward-looking statements as a result of new information or future events or developments.

The 10-K is available through the company and online. During the review, non-GAAP financial measures are used to provide information pertinent to ongoing business performance. These non-GAAP financial measures should not be considered replacements for GAAP results.

Tables reconciling these measures to the most comparable GAAP measures are available in the press release and on the Investor Relations section of the Johnson & Johnson Web site at investor.jnj.com. A number of products and compounds discussed today are being developed in collaboration with strategic partners or licensed from other companies.

This slide lists the acknowledgment of those relationships, not otherwise referenced in today’s presentations. Now, I would like to review our results for the second quarter of 2014. Worldwide sales to customers were $19.5 billion for the second quarter of 2014, up 9.1%.

On an operational basis, sales were up 9.4% and currency had a negative impact of 0.3%. In the U.S., sales were up 14.9%. In regions outside the U.S., our operational growth was 5%, while the effect of currency exchange rates negatively impacted our reported results by 0.6%.

On an operational basis, the Western Hemisphere excluding the U.S., grew by 6.5%, Asia Pacific, Africa region grew 5.3% and Europe grew 4.1%. The success of new product launches and continued growth of key products made strong contributions to the results in all regions.

Excluding the impact of divestitures net of acquisition, underlying organic operational growth was 10%. Turning now to earnings; net earnings were $4.3 billion and earnings per share were $1.51 versus $1.33 a year ago.

As referenced in the table reconciling non-GAAP measures, 2014 second quarter net earnings were adjusted to exclude a charge of $449 million for after tax special items. Second quarter 2013 net earnings were adjusted to exclude a charge of $456 million for after tax special items. Dominic will discuss special items in his remarks.

Excluding special items for both periods, net earnings for the current quarter were $4.8 billion and diluted earnings per share were $1.66, representing increases of 11.3% and 12.2% respectively as compared to the same period in 2013.

Turning now to business segment highlights, please note percentages quoted represents operational sales change in comparison to the second quarter of 2013 unless otherwise stated and therefore exclude the translational impact of currency. I will begin with the Consumer segment. Worldwide Consumer segment sales of $3.7 billion increased 3.6% with U.S.

sales down 0.5%, while outside the U.S. sales grew 5.8%. Excluding the impact of net divestitures, worldwide growth was approximately 6% with U.S. growth of approximately 5%.

Major drivers of the results were over-the-counter products, skin care, baby care, as well as international sales of oral care and feminine protection products, partially offset by the divestiture of the North American Sanitary Protection business.

OTC sales were strong due to analgesic growth of nearly 17% worldwide and nearly 25% in the U.S., driven by market share gains as we continue to return products to the shelves. Upper respiratory products, digestive health and antismoking products also made strong contributions to the results.

Skin care results were driven by share gains for both NEUTROGENA and AVEENO with new product launches supported by robust marketing campaigns, category growth, as well as an increase in trade inventory levels. Baby care results were driven by strong sales across the number of categories.

International oral care results were driven by strong results for LISTERINE due to new product launches and successful marketing campaigns. Moving now to our Pharmaceutical segment. Worldwide sales of $8.5 billion increased 21.1% with U.S. up 36.6% and sales outside the U.S.

up 6.9% driven by both strong sales of new products as well as core growth products. A major driver was our recently launched hepatitis C product called OLYSIO in the U.S. and EU and SOVRIAD in Japan. Excluding sales of the hepatitis C products, OLYSIO and INCIVO, underlying growth worldwide, U.S. and outside the U.S.

was approximately 10.5%, 15% and 6.5% respectively. Other significant contributors to growth were immunology products; STELARA, REMICADE and SIMPONI, SIMPONI ARIA, as well as XARELTO, ZYTIGA, INVEGA SUSTENNA/XEPLION, INVOKANA, PREZISTA and recently launched IMBRUVICA.

Partially offsetting the growth were lower sales of ACIPHEX and CONCERTA due to generic competition and INCIVO with competitive entries. The strong results for immunology were driven by double-digit market growth complemented by increased market share for STELARA and SIMPONI. We continue to be the U.S. market leader in immunology.

XARELTO sales were up over 90% compared with the same quarter last year and grew over 13% on a sequential basis. Total prescription share or TRx for the quarter in the U.S. anti-coagulant market grew to over 13% with cardiology TRx estimated at over 23%. The strong results for ZYTIGA in the U.S.

were driven by increased market share in the combined metastatic castrate-resistant prostate cancer market and estimated market growth of nearly 11.5%. ZYTIGA has captured approximately 34% of that market. Continued strong market uptick and progress on reimbursement drove the strong results outside the U.S. ZYTIGA is approved in more than 90 countries.

Increased market share drove results for INVEGA SUSTENNA/XEPLION and PREZISTA. INVOKANA sales contributed over 2.5 points to the U.S. pharmaceutical growth rate and for the quarter achieved 2.3% TRx within the defined market of type 2 diabetes excluding insulin and metformin, up from 1.8% in the first quarter of 2014.

TRx with endocrinologists grew to 7% for the quarter, up approximately 1% sequentially. I’ll now review the Medical Devices and Diagnostic segment results. Worldwide Medical Devices and Diagnostic segment sales of $7.2 billion increased 0.9%. U.S. sales declined 1.4%, while sales outside the U.S. increased 2.6%.

Growth was driven by orthopedics, cardiovascular care and specialty surgery, partially offset by lower sales in diabetes care, vision care and diagnostics.

Lower price primarily related to competitive bidding continue to impact the diabetes care business in the U.S., while reversal of the noted customer inventory build from the first quarter and competitive pricing dynamics impacted growth for vision care. Excluding OCD and diabetes care, worldwide growth was approximately 2%.

Orthopedic sales growth was driven by trauma and hips. Trauma was up 7% worldwide with sales outside the U.S. up 11% due to a successful tender offer as a result of our comprehensive portfolio offering. Hips growth of 5% worldwide was driven by strong volume growth, partially offset by continued pricing pressure.

Primary stem platform sales were a major contributor to the results. Knees worldwide increased 1% with the U.S. flat and 4% growth outside the U.S. Increased sales due to the successful launch of ATTUNE were partially offset by price pressures across the region and softness in the U.S. market.

Cardiovascular growth was driven by a 14% worldwide increase in our BioSense Webster business due to new catheter launches and continued market expansion. Specialty surgery results were driven by energy and bio-surgery outside the U.S. with new products driving market growth and market share.

There were some notable developments in the second quarter which we have summarized on this slide to assist as you develop your models. Alex, Joaquin and Paul will provide some additional commentary in their remarks. That concludes the segment highlights for Johnson & Johnson second quarter of 2014.

It is now my pleasure to turn the call over to Alex Gorsky.

Alex?.

Well, thank you very much, Louise and thanks to all of you who are participating in today’s call, welcome. It’s a very dynamic time in the healthcare industry led most importantly by significant advancements in the care of patients and consumers. Treatment options have never been greater.

Today hepatitis C and certain cancer treatments are more promising than ever and while diabetes and heart disease which we are unfortunately still seeing rates increased, they are much more manageable for the patient with oral medication that are increasingly convenient to take.

That being said, all of us in healthcare realized that there is still so much more work to do to improve the lives of patients around the world.

It is encouraging to see that healthcare reform initiatives are taking hold around the world which will enable more people to see a doctor or to have procedures they needed, it may not have had the means to do so in the past.

Over the past several years, we have been discussing with you how Johnson & Johnson has been taking a consistent series of steps to ensure we are best positioned to serve the needs of patients and consumers in this dynamic and rapidly evolving environment. I would like to begin our discussion today by reviewing some of these issues.

Much as we had anticipated the medical devices landscape is evolving as innovations, scale and breadth become more important to meeting the needs of the customer. At that time we noted that due to market dynamics in segments like orthopedics, the industry would likely need to consolidate, which was one factor that led to our acquisition of Synthes.

In the larger device space, what the industry is now realizing is the companies like Johnson & Johnson with larger portfolios are better able to partner with hospital systems and managed care organizations to find the right balance of innovation, value and service.

And as we are all observing, there are many dynamics happening in the pharmaceutical industry as well. We noted several years ago that a focused portfolio, consistent investments in R&D and overall increased productivity in our development capabilities would be the key to driving our innovation.

Since making the decision to focus our portfolio on five therapeutic areas where our expertise and the opportunity to make a significant difference aligned, our pharmaceutical business has been exceptionally productive with 14 new compounds launched since 2009, making it the fastest growing of the top 10 pharmaceutical businesses in the U.S., Europe and Japan.

These innovations and indeed the innovations that we’re making in each of our segments enables us to meet the growing demand for health care products and services and creates new opportunities to address unmet medical needs. I want to now briefly review our perspective on where we see health care today.

As I mentioned in January, the worldwide market is immense with an overall spend of over $8 trillion. At $2.4 trillion, products account for nearly 30% of the spend, growing at about 3% to 5% a year. In medical devices, we’re still seeing that utilization rates in the U.S.

remain depressed both in admissions and surgical procedures but we continue to believe that as the economy recovers and healthcare reform gains momentum, utilization rates will increase. In terms of prescription rates in the first half of the year, trends have modestly continued upward versus 2013 with the U.S.

Rx volume increasing through May by approximately 1% over the prior year. And global growth and GDP forecast remain above 3% on stronger momentum in advanced economies such as the U.S. and Europe, while key emerging economies including Brazil and India continue to be challenged.

Given the positive demographic trends we’re seeing globally in the underlying strength of our businesses, we remain confident about the long-term growth prospects of the health care market and with our comprehensive and diverse portfolio of consumer health products, medical devices and pharmaceutical, Johnson & Johnson has a distinct competitive advantage in meeting the needs of patients.

We re-implemented the strategic framework, a very disciplined and focused approach to evolving our position as the world’s largest and most diverse healthcare company.

Grounded by our credo, we identified four growth drivers which by now all of you should be very familiar with, creating value through innovation, global reach, local focus, excellence in execution and leading with purpose.

We are executing against these growth drivers and capitalizing on our scale and breadth across Johnson & Johnson to ensure that we’re effectively positioned to drive and sustain strong global growth over the long-term. Now in the near-term, we also have clear priorities for the businesses including achieving our financial targets.

As announced earlier today, we had record sales in the quarter of $19.5 billion which is a 9.4% operational increase as compared to the second quarter of 2013. These strong results reflect a continued success of our new product launches and progress we made in achieving our near-term priorities.

In our Medical Device and Diagnostic segment, we are leading the industry with the largest most comprehensive business in the world. And while combining businesses with overlapping products and different business models can be disruptive, our integration over the past two years of DePuy and Synthes which we mentioned earlier has gone well.

Given that we’re largely through it, we set a strong foundation for capturing the full growth potential we envisioned at the onset and we’re pleased with the revenue and cost synergy we’ve begun to realize.

And despite the market pressures, we remain optimistic about the future in this segment and are seeing strong performance in many of our MD&D businesses.

In hips, we experienced strong operational growth at 5% in the quarter and continue to complement this growth with new product introductions such as the recently launched CORAIL Revision Hip System in both the United States and Europe.

We also continue to see solid growth in trauma at 7% for the quarter which is built on the strength of our portfolio and the positive impact of a tender we were awarded in the Middle East as a result of our comprehensive offerings.

In our global surgery business, we continue to see progress in many areas including consistent double-digit growth of our BioSense Webster electrophysiology portfolio.

We also have a steady cadence of new product offerings exemplified by the recent FDA approval of our supplemental PMA with the SEDASYS System which we anticipate introducing into the U.S.

market in the latter half of 2014 as well as the launch of the HARMONIC ACE +7 Shears with advanced hemostasis, the first purely ultrasonic device with a 7 millimeter sealing indication; it’s really a great technology.

And as you heard at our MD&D Investor Meeting in May, our strategy for sustainable long-term growth is driven by building on the strong market leadership positions we hold on the majority of our key platforms, as well as the contributions we anticipate from our recently launched products and future pipeline which includes more than 30 major filings planned by the end of 2016, many on which we have already made good progress since our presentations in May.

Finally, in-line with our emphasis to tighten the focus within our MD&D portfolio, we’re creating value through divestiture opportunities and completed the divestiture of our ortho clinical diagnostics business to The Carlyle Group which Dominic will discuss in his remarks.

OCD plays a very important role in health care and we’re confident that it is well positioned to continue serve in the interest of patients, customers and employees. Turning now to our consumer business, where growth is closely tied with GDP trends, we’re pleased with the progress of the business and executing the strategy we outlined last summer.

We have successfully exited a few business categories recently, enabling us to focus on delivering above market growth in our core business. And we anticipate greater opportunities to expand the business in the future as global economies recover and the middle-class continue to grow.

Our consumer brands are important for the equity of Johnson & Johnson and consumer health care truly is strategic for us with the potential to serve the 2 billion additional consumers who are predicted to join the growing middle-class in emerging markets.

We made significant progress in this segment over the last few years and have plans for the coming years to accelerate the growth of this business through new innovations, brand building and strategic collaborations, working off with foundation that starts with deep consumer insights.

As part of our strategy, we have defined 11 key need states where with our expertise we can make a difference to consumers and grow our business. We are also focusing on 12 mega brands including LISTERINE, AVEENO, TYLENOL and JOHNSON’s Baby to ensure they are exceeding consumers’ expectations around the world and the strategy is working.

We are capturing share in these and several of the other key categories. For example, we have seen strong growth in our oral care business outside the U.S. at 7% operationally. Our skin care and baby businesses are both up 7% operationally in the quarter.

And we are also developing innovative collaboration models with retailers across the globe where we are working to create an unparalleled experience for shoppers in OTC categories like cold and flu, by sharing insights and developing ways to reduce complexity for consumers and drive visibility for our offerings.

In our U.S., OTC business, we continue making good progress in restoring brands to the shelves, delivering above market growth and continue to meet each of our obligations under the consent decree. While we still have work to do, our goal is to ensure all of our U.S., OTC products are available every time a consumer is reaching for them.

And I’m confident that we are on a good path to meet that goal. Turning now to our pharmaceutical business and as results show the current business is very strong, driven by new innovative products that are clearly addressing the unmet medical needs of patients worldwide and the future is bright with the continued advancement in our pipeline.

By any measure, our performance has been outstanding in this segment and we are leading the industry on numerous fronts. Clinical through commercial and later this morning you’ll hear more from Paul and Joaquin, who I am pleased to have joining us on the call later today.

You’ll recall that in the late 2000s, our pharmaceutical business faced significant patent expirations as products worth roughly $8 billion went off patent. We have to rethink that business model and really focused on areas where we could make a difference.

We needed to streamline our organization and made tough choices to gain efficiencies and reduce headcount in developed markets by nearly 25%. But through our diversified business model, with consumer and MD&D continuing to grow during this time, we were able to continue to invest in our pharma business.

We are also continuing to invest in R&D in our five therapeutic areas at approximately 20% to 21% of sales and we have put those dollars to work with plan to file more than 10 new drugs and 25 line extensions between 2013 and 2017.

Additionally, we are complementing that investment with smaller scale acquisitions and early stage licensing agreements surfaced through our innovation centers. For Johnson & Johnson, this model has been an excellent source of value creation.

And I am delighted that Paul Stoffels, Joaquin Duato are joining the call today to provide an update on their tremendous work. A little over a year ago, we created the Johnson & Johnson Research and Development Management Committee led by Paul.

This group brings together the senior most R&D leaders across Johnson & Johnson to foster cross-sector collaboration and deliver transformational new medicines and medical devices.

Under Paul’s excellent leadership our enterprise R&D leaders are harnessing our deep internal expertise and platform capabilities throughout the organization to develop customer focused solutions that combine our capabilities and expertise across our portfolios.

And the commercial pharmaceutical strategies led by Joaquin, are delivering outstanding results in very competitive global markets where we’re continuing to gain share and we’re also securing reimbursement and access at accelerated rates.

The teams they have put in place have positioned us for continued success for many years to come in our pharmaceutical sector. I am please now to turn the call over to Paul and Joaquin..

Thank you, Alex, and good morning everyone. Paul and I are delighted to speak to you today about our continued success at our pharmaceutical group. When we look at the pharmaceuticals market, we’re very optimistic about the future with an estimated 4.5% growth anticipated through 2017.

While we recognized we’ll continue to experience headwinds, we also see numerous positive drivers, including changing demographics and substantial unmet medical needs. As a result, there is significant opportunity to improve the lives of patients by bringing transformational medical innovations to the market.

As Louise mentioned, we’re reporting 21.1% operational growth in the second quarter of 2014. This is our 17th consecutive quarter of growth including the six consecutive quarters in double-digits. Without our hepatitis C products, our growth in the last quarter was 10.5%.

I am often asked, Joaquin, is this just a lucky run or is there something more to it.

After facing significant challenges in the early 2000, we made a number of strategic changes to our business including building key development manufacturing market access and commercial competencies and focusing our innovation to produce a consistent stream of differentiated new products.

These changes are directly responsible for the success we’re seeing now and we believe position us to continue to succeed in the future. Specifically with our focus on the five strategic priorities that you see on this slide, I will speak to you about the first two of these priorities and then hand off to Paul to cover the remaining three.

When we look at our commercial performance, the first thing to note is that our success is global. We are the fastest growing top 10 global pharmaceutical company in the U.S., Europe, and Japan by a significant margin. Key to the success has been both the sales of our core growth products and the sales of new products.

Regarding our core growth products, you can see that REMICADE, VELCADE, and PREZISTA all continue to deliver strong growth. 2013 REMICADE sales were 6.7 billion, which were 9% higher than 2012. In the second quarter of this year, sales grew at 8.7%. This is a product that has been in the market since 1998.

VELCADE remains a backbone of multiple myeloma treatment, delivering 6.2% growth in the second quarter. Finally PREZISTA is the number one HIV protease inhibitor in the U.S. and Europe and we’re pleased to note the recent approval in Canada of PREZCOBIX, our fixed dose combination with Gilead’s cobicistat with a file for approval also in the U.S.

and in Europe. We have achieved remarkable success with our new products. As you can see on the left, worldwide sales of new products launched since 2009 have already generated $5.9 billion of revenue this year and represent nearly 40% of our second quarter sales.

In the United States alone, our cumulative sales of new products launched since 2009 is more than our next two closest competitors combined. I would now like to spend a few minutes speaking about the specific products that have driven this performance. ZYTIGA is the most successful oral oncology launch in history.

It is now approved for the treatment of metastatic castrate resistant prostate cancer in more than 90 countries. And the metastatic castration sensitive registration trial is on track. As you can see ZYTIGA continues to hold significant market share in U.S., gaining 1.2 points versus the first quarter this year.

Worldwide, we generated second quarter sales of $562 million, representing more than 40% growth year-over-year. Nearly 60% of the sales in the quarter were outside the U.S.

As for B-cell malignancies in the last year we launched our oral oncology drug IMBRUVICA, developed in collaboration with Pharmacyclics with a worldwide license agreement for a 50-50 profit split. IMBRUVICA is launched in the U.S.

for the treatment of chronic lymphocytic leukemia and for the treatment of mantle cell lymphoma in patients who have received at least one prior therapy. Both indications are based on an overall response rate and improvement in survival or disease related symptoms has not yet been established.

Moving forward, we’re pursuing a global regulatory strategy for IMBRUVICA in all major markets with European MCL and CLL decisions expected later this year. IMBRUVICA has been investigated in a number of global chemical trials across potential indications. In immunology, we are proud to note Janssen was the number one company in total U.S.

sales in 2013. This was of course driven by REMICADE, which I mentioned earlier and by STELARA and SIMPONI. STELARA is the fastest growing biologic in psoriasis in major markets, including number one new-to-brand share in the U.S.

This is in large part due to STELARA, key psoriasis and Psoriatic Arthritis approvals and because we are able to demonstrate the five year safety and efficacy of STELARA through real-world trials and registry data.

For SIMPONI its ulcerative colitis indication is approved in 43 countries and I’m pleased to note that the IV formulation for rheumatoid arthritis has launched in the U.S. and in Canada. Both of these products have seen robust growth this quarter more than 40% and 60% respectively.

Turning to XARELTO, we have established a highly competitive position in the U.S. with six FDA approved indications and more than 1.6 million patients treated. XARELTO is a number one novel, oral anticoagulant among U.S cardiologists.

This is impart due to the fact that XARELTO has broad market access with more than 90% coverage of insured patients and the lowest co-pay of any branded novel anti-coagulant. And also because XARELTO offers a strong customer value proposition with once a day dosing convenience.

As a result, we are reporting strong sales of $361 million in the second quarter, up more than 90% year-over-year. In the last quarter alone, we saw a sequential growth greater than 13%. Another example of our innovation is INVOKANA, our SGLT2 inhibitor we launched recently in collaboration with our Diabetes Care franchise.

INVOKANA is a once daily medication offering improved glycemic control, reduction in body weight and reduction in systolic blood pressure. These are all extremely important factors in the treatment of type 2 diabetes. INVOKANA is approved in 45 countries and our fixed dose combination with metformin, VOKANAMET is approved in Europe.

We expect the FDA decision for this fixed dose combination in the third quarter. This year alone we have had seven major launches of INVOKANA and have received key reimbursement approvals in the U.K., Switzerland and the Netherlands. As you can see, we are number one in new-to-brand share among U.S. endocrinologist in a very competitive landscape.

As Louise mentioned, INVOKANA contributed more than 2.5 points to the U.S. pharmaceutical growth rate. In schizophrenia, we continue to provide medicines and solutions to improve patient care. In the U.S. we are pleased to note that the FDA granted priority review of INVEGA SUSTENNA One Month for schizoaffective disorder with a PDUFA date in November.

We also recently leveraged a first of its kind real-world clinical trial with INVEGA SUSTENNA to support the filing of a sNDA. It includes data for the label demonstrating significant delayed time to relapse in schizophrenia compared to oral antipsychotics.

The chart on the right shows the strong launch performance of INVEGA SUSTENNA outperforming Abilify Maintena which in the second quarter resulted in sales of $394 million, representing a 34.4% growth year-over-year. The last example I will discuss is our recently launched hepatitis C treatment with brand names OLYSIO, GALEXOS and SOVRIAD.

We continue to see significant market potential in the hepatitis C area and estimate nearly 97% of the infected population in G7 countries remains untreated. As you are aware interferon free treatment options represent a significant advance for patients.

OLYSIO is approved for the use in interferon free treatment in combination with other medicinal products in Europe in genotype 1 or 4 patients who are interferon ineligible or intolerant. In the U.S.

the FDA granted priority review of our sNDA based on the COSMOS trial data for the use of OLYSIO with sofosbuvir, currently marketed at Sovaldi by Gilead with a PDUFA date of November the 6. In-line with the AASLD and IDSA guidelines, we have seen very strong adoption in the first half of this year with second quarter sales totaling $831 million.

Moving forward we recognize there will be increased competitive activity with the entrance of new interferon treatment options beginning later this year and thus we expect the current run rate is unlikely to continue into 2015. We are planning studies to evaluate simeprevir with other agents to offer physicians and patients increased flexibility.

Turning now to emerging markets, our strategy is focused on a strong innovative brand growth through targeted capability building and novel access models. In particular, we are harnessing innovation. One example of this is the opening of our Shanghai Innovation Center expected in October this year.

We’re also improving local manufacturing capacity by building factories such as our state-of-the-art facility in Xi'an, China and through technology transfer to local organizations.

Finally, we’re pioneering new business models through public-private partnerships, leveraging the strength of our Johnson & Johnson organization to improve access to our medicines. As you can see, we have had remarkable global success. This success is the direct result of a strategic choices and changes that we made to our business years ago.

Going forward, we’re focused on two critical success factors to maintain our momentum. First, we will continue to leverage our world class capabilities in clinical development, regulatory manufacturing, market access and commercial, to promote the ongoing success of our new products.

In total, six of these products have each sold more than $ 1 billion in the last four quarters and two more are on track to reach this threshold. As you saw on the previous slide, several have robust growth rates of 40%, 60% and even 90%.

Second, we are deeply committed to sustaining long-term growth and Paul will now tell you more about how our total emphasis on innovation has built a strong pipeline of transformational products that we believe will catalyze the next wave of growth for our business.

Paul?.

Thank you Joaquin and good morning everyone. It is my pleasure today to discuss with you our pharmaceutical R&D strategy which is focused on delivering transformational medical innovation and create the cycle of success that positions us for continued growth in the future. Our vision to enter R&D strategy has not changed.

As a leading healthcare company, we believe that by focusing on transformational innovation, medical need and differentiation, we can make a significant difference in the world and build a sustainable growing business.

We have some of the world’s leading scientific and medical experts who bring deep insights to select and prioritize the best science, internal or external, to tackle those diseases.

We have established unparalleled global development capabilities and have set industry benchmark for timelines for filing submissions and productivity and also for speed to market.

We launched 14 new products in the past five years in major markets around the world, including three new molecular entities or NMEs that we launched since our pharmaceutical’s update in May last year; OLYSIO, IMBRUVICA and SYLVANT, that strategy is delivering.

In the last update at a Pharmaceutical Analyst Day last May, we told you that we anticipated to filing more than 10 potential NMEs and more than 25 significant line extensions between 2013 and 2017. We are on track to deliver.

Since last May, in addition to launching three new products, we have received 20 additional approvals for line extensions in major markets.

The significant line extensions approved are SIMPONI for ulcerative colitis, SIMPONI ARIA for rheumatoid arthritis in the U.S., IMBRUVICA for previously treated CLL, VELCADE for multiple myeloma retreatment combination therapy and transplant, OLYSIO for treatment of experienced patients, STELARA for psoriatic arthritis and VOKANAME fixed dose combination with metformin immediately release formulation for type 2 diabetes in Europe.

Our winning formula has been consistent. First, we believe in focus. We focused on the few key disease areas where we can really make a difference and we prioritize our investments in those areas. The disease area focus has allowed us to attract the world’s leading scientists and medical experts and build a great depth of expertise in those areas.

Second, our experts select and source the best science and technology through our own internal research or by accessing the best science externally through partnerships, collaborations, licensing and acquisitions. Third, we leverage the present scale of our global development organization.

Our global capabilities have allowed us to simultaneously develop, file and launch drugs across the globe with industry-leading efficiency, quality and success rates. And finally, one of our key success factors has been our ability to accelerate cycle times and achieve industry-leading timelines for regulatory submissions.

I will focus on each of these success factors next. Our focus on innovation is a critical aspect of the strategy.

We focus our research in five therapeutic areas and within those areas we focus on specific disease areas where there is a high unmet need, where there is transformational science that we can leverage and where we have deep expertise and capabilities that we can bring to bear.

Today, we’re focused on 18 disease areas and in each of these areas we have leading expertise and know-how to select the best science thereby increasing the probability of success. We have also entered into the exciting area of immuno-oncology where there is promising new signs and has established several collaborations.

This slide shows our entire end-to-end strategy on one page. Build a rigorous approach to sourcing innovation, to global development, and the key characteristics of a strategy that sets us apart.

In addition to the deep internal expertise within our therapeutic areas, we have strong research capabilities in biomarkers and world-class capabilities in our centers of excellence in small molecules, bio-technology, vaccines and diagnostics. We complement this with external innovation.

We access early innovation to our J&J innovation centers in London, Boston, San Francisco and Shanghai. Today we have over 100 projects in discovery and about 50 NMEs in early development. In addition, we have more than 300 collaborations externally and over 50 companies located in our incubator.

To access innovation in the early development stage, we leverage venture capital to invest in exciting growth opportunities, explore new areas and accelerate assets.

In late-stage, we access innovation via traditional licensing, partnerships and acquisition example of which include our recent deals with Genmab on multiple myeloma, with Aragon on prostate cancer, with ViiV Healthcare on HIV and with Vertex on influenza A. As I mentioned, we have world-class global development capabilities.

We have built strong medical and scientific teams with disease area, clinical and regulatory expertise. We are increasing the value of our R&D portfolio by optimizing outputs, time, cost and quality. Our 24x7 development operations, speed-to-market and global execution make us a partner of choice in the industry.

These capabilities along with our market access and launch excellence, represent some of our key strengths and differentiators. They have enabled us to simultaneously file and launch our products globally, generate compelling value evidence and deliver successful launches of our products in multiple markets.

And the flexibility and commercialization models with partners and our ability to collaborate and leverage our strength and capabilities, enable us to achieve industry-leading success and growth. A deep understanding of the innovation landscape is key to our ability to source innovation.

Our experts define an innovation strategy, conduct a holistic scan of the innovation landscape and prioritize all accessible opportunities, internal or external to select the best assets. Here you see a bulls eye chart of the innovation landscape for B-cell malignancy.

The inner circles represent later stage products and the outer circles the early stage preclinical products. We take this rigorous approach to evaluating and sourcing innovation in each of the disease areas. Our development organization continues to deliver.

We have a flexible R&D operations engine which can pivot from execution of mega trials to execution of trials for rare diseases and today is supporting about 75,000 patients across 400 clinical studies annually. These capabilities have accelerated our speeds to market.

They have enabled a successful execution of notable comprehensive and large clinical programs which are outcomes-based and use adaptive study designs. We have round the world, round the clock capabilities in all aspects of the clinical development and a critical path culture that enables the speed while maintaining quality.

Our fourth critical success factor has been our ability to accelerate cycle time. Because of our focus on medical need and differentiation, of the last 10 new NMEs we launched, five received priority review status. In addition, we received breakthrough designation for five indications with three of our products.

Today, average cycle time from database to submission is about two months better than industry median making us the leader in time to submission. These capabilities have enabled us to have industry-leading NME success rate with fastest cycle times.

Compared to our competitors, we have a higher development success rate resulting in more NME approvals per year. Looking to the future, we have an exciting pipeline. On the left you see the three NME approvals since May 2013 and the number of significant line extensions approved since last May.

In the middle you can see some of our key NMEs which are under clinical investigation as potential treatment for key unmet needs in a variety of areas.

Daratumumab, the first anti-CD38 monoclonal antibody for treatment of patients with multiple myeloma, a compound with breakthrough status which we licensed from Genmab; ARN-509, an androgen receptor inhibitor for pre-metastatic prostate cancer which came to us from the acquisition of Aragon; FGFR kinase inhibitors for solid tumors discovered in a collaboration with Astex Pharmaceuticals; Sirukumab, the first anti-IL-6 therapy for patients with RA and other autoimmune diseases; Guselkumab, the first anti-IL-23 antibody for psoriasis and potentially other autoimmune diseases; Fulranumab, an anti-NGF antibody for osteoarthritic pain licensed from Amgen; and Esketamine, the first NMDA antagonist for patients with treatment-resistant depression also with breakthrough designation.

And VX-787, a first-in-class influenza A specific oral polymerase inhibitor, a compound we recently licensed from Vertex. We also have a number of key line extensions in development including for key products such as XARELTO and INVOKANA.

We have Paliperidone Palmitate three-month formulation, the first three-month long-acting injectable treatment for patients with schizophrenia. And ibrutinib the first BTK inhibitor oncology drug for the treatment of several B-cell malignancies. Our people are driven by a sense of purpose to care for the world.

At times we develop a product just because it is a right thing to do. We have the privilege to serve in health care and we also have a responsibility. One example of this is SIRTURO the first therapy with novel mechanism of action against TB approved by the FDA in more than 40 years.

SIRTURO is now approved in U.S., Europe, Russia and Korea and the file is under review in seven other countries. We have established multiple product development partnerships and through our agreement with the Global Drug Facility, we are making SIRTURO available to critically ill patients in 130 countries.

We also established a collaboration with the International Partnership for Microbicides for the development of TMC120 for prevention of transmission of HIV, which is now in large scale clinical testing.

We are providing access to products by not enforcing patents on PREZISTA in Sub-Saharan Africa and least developed countries and by licensing of HIV products to generic producers. And finally to a vaccine unit, we also make critical vaccines available to children around the world and we’re developing new vaccines for polio and HIV.

In summary, we are in an extraordinary cycle of success. We have world-class commercial capabilities driving our growth. Our accelerated emerging market performance is sustaining a momentum. Our focus on innovation, medical need and differentiation sets us up to deliver future growth.

We have a leading R&D pipeline with differentiated therapies addressing major unmet needs in significant markets. Our innovation is delivering growth and our growth is sustaining our ability to invest in innovation. We believe our business is well positioned to succeed for the long-term. Thank you and now, let me turn it back to Alex..

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

Thanks, Alex, and good morning everyone. As you’ve heard on the call, we’re very pleased with our progress and strong results thus far in 2014 and we’re well positioned for continued growth in this dynamic health care environment.

I’ll take the next few minutes to review our financial performance in the second quarter as well as the recently completed OCD divestiture. I will then provide guidance for you to consider in refining your models for the balance of the year.

Turning to the next slide, you can see our condensed consolidated statement of earnings for the second quarter of 2014. Please direct your attention to the box section of the schedule where we have provided earnings adjusted to exclude special items.

We are pleased to report adjusted net earnings of $4.8 billion in the quarter which was up 11.3% over the second quarter of 2013. And adjusted earnings per share of $1.66 versus $1.48 a year ago, up 12.2%, which exceeded the mean of the analyst estimates as published by First Call.

These results were driven by strong operational sales growth of 9%, primarily from our recently launched pharmaceutical products including hepatitis C treatment OLYSIO or SOVRIAD which is the brand name in Japan.

The net impact of our hepatitis C products including OLYSIO, SOVRIAD and INCIVO contributed approximately 4% to the worldwide operational sales growth. As referenced in the table of non-GAAP measures, the 2014 second quarter net earnings were adjusted to exclude certain charges for the following special items.

Cost associated with the continued integration of Synthes and additional reserves for litigation expenses. Now let’s take a few moments to talk about the other items on the statement of earnings. I am pleased to point out that we saw a very good operating performance this quarter.

Overall, our pretax operating margin increased 230 basis points and a major driver of that increase came from sales of OLYSIO. Cost of goods sold was 30 basis points higher than a same period last year, primarily due to pricing dynamics and the impact of the devaluation of the Japanese yen partly offset by positive mix of the business.

Selling, marketing and administrative expenses were 200 basis points lower as compared with the second quarter of 2013, due to the growth of new products in our pharmaceutical business and overall good management of cost primarily in our MD&D business.

Our investment in research and development as a percent of sales was down compared with the prior year, primarily due to timing of various R&D programs, as we expect to continue to make important investments for the future. Interest expense net of interest income of approximately $100 million was slightly higher than prior year.

Other expenses net of other income was $226 million in the quarter compared to $172 million in the same period of last year.

Now excluding the special items that were included in this line item, other expenses net of other income was actually a net gain of $194 million compared to a net gain of $394 million as prior year reflected the gain we recognized on the sale of our shares in Elan Corporation.

This year, the net gain reflects the divestiture of our K-Y brand partly offset by some asset write-downs. Excluding special items, the effective tax rate was 21.1% compared to 20% in the same period last year, due primarily to geographic mix of the results in each period.

Early in the third quarter, we completed the divestiture of Ortho-Clinical Diagnostics to the Carlyle Group for approximately $4 billion subject to customary adjustments. On an after-tax basis and we will record a net gain of approximately $1 billion which we will treat as a special item in the third quarter results.

Since we will no longer recognize sales or earnings from this business going forward, we plan to buy back shares with the cash proceeds to mitigate the EPS impact on future earnings. Now I will provide some guidance for you to consider as you refine your models for 2014.

Before we discuss sales and earnings, I will first give some guidance on items we know are difficult for you to forecast; beginning with cash and interest income and expense.

At the end of the quarter, we had approximately $14.5 billion of net cash, which consists of approximately $31.6 billion of cash and marketable securities and approximately $17.1 billion of debt.

For purposes of your models assuming no major acquisitions or other major uses of cash, I suggest you consider modeling net interest expense between $400 million and $500 million which is consistent with our previous guidance.

Regarding other income and expense, as a reminder this is the account where we record royalty income as well as gains and losses arising from such items as litigation, investments by our development corporation as well as divestitures, asset sales and write-offs.

We would be comfortable with your models for 2014 reflecting other income and expense excluding special items as a net gain, ranging from approximately $450 million to $550 million, which is lower than our previous guidance.

And now a word on taxes; our guidance for 2014 anticipates that the R&D tax credit will be renewed by congress, although that has not yet occurred. We would be comfortable with your models reflecting an effective tax rate for 2014 excluding special items of approximately 19% to 20%.

If the R&D tax credit is not approved, it will negatively impact the tax rate by approximately 0.5%. As always, we will continue to pursue opportunities in this area to improve upon this rate throughout the year. Now turning to guidance on sales and earnings.

As we have done for several years, our guidance will be based first on a constant currency basis reflecting our results from operations. This is the way we manage our business and we believe this provides a good understanding of the underlying performance of our business.

We will also provide an estimate of our sales and EPS results for 2014 with the impact that current exchange rates could have on the translation of those results. Our sales and earnings guidance for 2014 takes into account several assumptions that I highlighted to you in April.

For sales, our assumptions remains consistent from earlier guidance that PROCRIT will not have biosimilar competition in 2014 and for INVEGA SUSTENNA and RISPERDAL CONSTA, we do not anticipate generic entries for these products this year.

Further, our guidance now reflects the divestitures of OCD and the net incremental sales of our hepatitis C products. Considering the factors I just noted, we would be comfortable with your models reflecting an operational sales increase on a constant currency basis between 4.5% and 5.5% for the year.

This would result in sales for 2014, again on a constant currency basis, for approximately $74.5 billion to $75.3 billion which is lower than our previous guidance, reflecting the net impact of the adjustment for the divestiture of OCD and incremental hepatitis C product sales.

Our underlying operational growth in 2014 guidance excluding the hepatitis C products and OCD for the full year is approximately 4%. As you know we are anticipating that OLYSIO will face significant competition from new hepatitis C products later in the year, the full impact of which is difficult for us to predict at this point.

And while we’re not providing guidance for 2015, this will certainly pose a headwind next year.

We’re also not predicting the impact of currency movements but to give you an idea of the potential impact on sales, if currency exchange rates were to remain where they were as of last week for the balance of the year then our sales growth rate would decrease by nearly 0.5%; plus under this scenario we would expect reported sales growth to range between 4% and 5% for a total expected level of reported sales between approximately $74.1 billion to $74.9 billion, which is lower than our previous guidance, again now adjusted for OCD and hepatitis C products as noted earlier.

Moving on to earnings; there are factors to note about foreign currency fluctuations that impact real economic transactions as opposed to only translation. As we have discussed in the past, the devaluation of the Japanese Yen versus the U.S.

Dollar is expected to have a negative impact on 2014 gross margins of approximately 60 basis points or negative impact to EPS of approximately $0.11. As a reminder, our guidance does not include the impact of an official devaluation of the Venezuelan Bolivar or any other currency.

Our 2014 guidance reflects the strong performance we saw in the second quarter. The second half impact of the divestiture of OCD, a lower level of net gains at other income and expenses and our plan to continue investing in future growth.

Given those factors, we suggest that you consider full year 2014 EPS estimates, excluding the impact of special items of between $5.80 and $5.87 per share on an operational or constant currency basis.

Again while we are not predicting the impact of currency movements, to give you an idea of the potential impact on EPS of currency exchange rates would have remained where they were as of last week for the balance of the year then our reported EPS excluding special items would be positively impacted by approximately $0.05 per share due to exchange rate fluctuations.

We therefore suggest that you model our reported EPS excluding special items in the range between $5.85 and $5.92 per share or a growth rate of 6% to 7%; this is higher than our previous guidance. And as a reminder, our earnings include intangible amortization of $1.4 billion on a before tax basis or an impact of approximately $0.38 on EPS.

As you update your models for the guidance I just provided, you will see that we do expect that our pre-tax operating margins will show a stronger improvement in 2014 over 2013 levels than we previously expected.

This is due to the strong performance of our business primarily driven by new product launches including the significant benefit from OLYSIO this year. In summary, we are very pleased with our strong results through the midpoint.

Our strong performance in the second quarter has allowed us to offset the negative earnings impact that will occur in the second half of this year from the recently completed divestiture of the OCD business.

Although we expect to see lower other income and expense gains and along with our intent to invest in future growth, we are very comfortable with an overall increase in our earnings guidance. And now I’d like to turn things back over to Louise for that Q&A portion of the meeting.

Louise?.

Thank you, Dominic.

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

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

Good morning. Quickly for Alex and then also for Joaquin or Paul. Alex I’m going straight from M&A for you, but for big picture I just might kind of your view on GDP growth in developed markets. It sounds like in Medtech we’re seeing a bit of a disconnect maybe in consumer as well, it is a growing to your GDP, we’ll be improving.

What's your view in the near-term and long-term that the correlation may improve or get better as you look at your forecast?.

Yes. Matt, this is Alex. Thanks a lot for the question. As you know trying to predict these things out of the future is always a bit of a challenge.

But as we’re experiencing right now and as we discussed earlier in the discussion, we’re seeing hospital utilization rates specifically admission, surgical procedures, lab procedures and even primary care physician visits, they remained somewhat subdued. And we’ve seen this trend for several quarters now.

Long-term of course we see the offset to that in demographics, increasing middle class increasing access to care under the Affordable Care Act as drivers for us.

So we remained optimistic because we don’t think that there is a fundamental reason for the underlying demand or disease rights to change, but that's not something that we’re certainly watching. If we look across to Europe, we continue to see some challenge in areas.

But overall, we would say that the impact in Europe has moderated somewhat and we continue to see good solid growth in the developing markets. I mean overall we had about 10% growth on an annual basis so far in BRIC and we expect that to continue into the future as well. So, I mean I think that's the way we’re thinking about it right now.

But it’s certainly something that we’re going to continue to watch closely..

Thanks Alex. And a quick one for Paul or Joaquin, you gave us a lot of data on the pharma, the pipeline in the near-term, can you just say broadly on the R&D because you’re still spending a lot of money as a percent of sales even though the overall pharma growth has accelerated.

Can you say of the five therapeutic areas is oncology and immunology getting the lion’s share of that in the current run rate?.

Yes absolutely.

Especially oncology is getting the lion share of that, we have several new director oncology therapeutics; Daratumumab, ARN-509, ibrutinib with all of the line extensions, as well as now immuno-oncology where we have several collaborations and a lot of internal research ongoing, as well as efforts in biomarkers in establishing diagnostic biomarkers approach to get to a much better patient outcome.

So that is definitely the largest. As well as immunology where we still continue to focus on several new products; Guselkumab and we have also there a number of new oral therapies in development. So, those two continue to be the focus of the organization with significant resources..

Thanks Paul..

Next question please?.

Your next question comes from Michael Weinstein with JP Morgan..

Dominic, I just want to start with the quarter and with the guidance revision I think one of the questions people have is why didn’t J&J raise guidance by more than they do at this point.

So I wonder maybe we could spend a minute on that, but the quarter itself was $0.11 above this rate consensus you raised by $0.05 in the low-end, $0.02 in the high-end and you’re observing $0.05 of dilution from OCD, it looks like each of them, the other income gain assumed for the year by the $0.04, anything else that I am missing there and maybe just want to comment on the decision to raise guidance which you did?.

Yes, sure Mike, thanks. Just a couple of points, I mean we did of course exceed street estimates for the quarter by $0.11.

As you know, we don’t provide quarterly guidance, we provide annual guidance, and when we spoke to the investment community last quarter we were confident that our strong operating results would help absorb the OCD dilution in the back half of the year within the range we have previously provided.

So let me just walk down the items that you’ve mentioned. We did exceed analyst estimates by about $0.11. Almost half of that will be used of course to offset the OCD lower earnings in the back half of the year. As you pointed out, other income and expense gains will be lower than we expected this year. That’s another $0.03 or $ 0.04.

Currency was a minor adjustment. If you look at our overall guidance, we therefore after absorbing this $0.11 that we just described, we do think that overall guidance is up about four pennies. If we think about the midpoint of our guidance, last time it was about 585 the mid-point now it is about 589.

So we feel good that despite this reconciliation that you just walked through, the business will continue to perform well and therefore we are comfortable raising the guidance for the balance of the year..

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

Can you update us or your thoughts on that topic?.

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

Michael Weinstein - JP Morgan:.

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

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

Thanks Joaquin..

Thank you, next question please..

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

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

Sure, Derrick. Well, overall, including the negative impact of the Japanese Yen to gross margins which was said was about 60 basis points for the year. Obviously, we saw most of that in the second quarter. The overall pre-tax operating margin improved about 230 basis points despite that headwind.

And I would say about two thirds of that improvement is attributable to OLYSIO. That’s how we frame it..

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

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

Okay, thanks. And then a specific pharma product question. I was wondering if you could comment on the impact of biosimilar competition to REMICADE. So next year in the European markets, the major European market, should start seeing some biosimilar competition.

What are your expectations there? Maybe you could talk a little bit about what you were seeing in these few markets where you are already seeing that biosimilar entrant? And then in the U.S., one of the competitors has talked about filing for a biosimilar REMICADE before the end of this year with potential FDA approval for next year.

And I was wondering if you could kind of talk about how secure you feel about your IP position in the U.S.

for REMICADE?.

Thanks for the question. And the biosimilars area is something that we watch very closely. As you know, biosimilars are not identical to their innate or medicines and therefore the contingency in which they will prescribe will be different than the situation we have in a small molecule.

At the same time, developing and manufacturing and commercializing biosimilars has different costs. I mean they need to prepare a full clinical dossier and manufacturing biologics is an expensive and complex process. And commercializing them will have also additional cost. So we expect biosimilars to behave as lower cost brands.

And from that perspective, biosimilars wouldn’t have the type of impacting erosion that you see with generic and small molecules. A good example of that is what happened with Epoetin Alfa in Europe.

We lost the patent years ago and we remained a leading Epoetin Alfa product in Europe despite of the biosimilar that had been launched, now what is our part in landscape today, you refer to the U.S. in our two key markets in the U.S., our patent would expire in September 18 and in our key European as present 80% of European sales in February 15.

Our strategy regarding biosimilar remained the same.

We are going to clearly work with the regulatory authorities to ensure patient safety in this area as far as the conditions in which these products have to be developed and have to be prescribed that include naming, which we think it’s important, that includes to what extent indications should not be extrapolated and that includes also obviously interchangeability, so that’s the first point that we’re working globally in order to ensure patient safety.

The second point is that we have an extensive safety real-world evidence database with regards to REMICADE, it’s been used already prescribing 2 million patients, it was launched in 1998 and we believe that is a factor that this is we consider when they prescribe.

And the third one is that we continue to invest in immunology as Paul described, we think there is a still unmet medical needs there and we’re going to work in different mechanic or fractions such anti-IL-6 or anti-IL-23 in order to try to address these unmet medical needs.

So that’s our strategy and now impact so far of biosimilars in the countries that have been launched like Korea or some European countries in which we are not patent protected. The impact has been very-very limited and the price erosion has also been limited.

The discount in which these products have been launched averaged about 25% to the branded price, so that’s the situation today as far as the biosimilar to REMICADE. With regard to your question of the U.S.

and the patent of REMICADE in the U.S., we feel very strong about the strength of patents and we continue confirm that our patent as we see today will expire in September 18..

Thank you. Next question please..

Your next question comes from Larry Biegelsen with Wells Fargo..

Two for Alex, so Alex, this is one of the best quarters you posted in many-many years I think.

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

Sure, Larry. Thanks a lot for the question. As we articulated back in January, we see that longer term the overall healthcare market growing somewhere in the rate of 3% to 5% and we definitely try to manage for the long-term, and so while quarter-to-quarter, year-to-year we may see some fluctuations.

We think generally speaking as we put in all the ups and downs going forward that’s probably a pretty reasonable estimate in consistent with what a lot of surveys would show. Our goal is that we want to always exceed the market growth i.e., we want to be bringing new innovations to market, we want to be competitive in the way we gain share.

So we always aspire and shoot to exceed what the market growth is, and we said in terms of our overall profitability and bottom line performance that a company of our size and our of our scale should consistently strive to grow our bottom line at or slightly faster than our top.

So that’s really our long term strategy, but as you’ve acknowledged at the beginning of the question, we’re very proud the performance that we’re posting as of now.

And certainly it’s led by our pharmaceutical group that really by any measure has done exceedingly well starting by bringing a lot of great new therapies that were helping patients, but also driving our business.

But I also think if you look across the balance of business, our consumer as we noted while up 3.5 operationally, if we netted out for divestitures growing at almost 6%, and if you look at the strength of some of underlying brands skin care, baby care, North America OTCs, all very solid high single digits taking share across the boards that we’re pleased with that.

And even in our MD&D while clearly we a few areas that had been challenged such as the pricing in the diabetes market, the OCD divestiture, and some investments we’re making in other areas we think if we net out for divestitures in some of those extremes, we’re probably up at about 2% with clearly a path to growth faster going forward.

So that’s the way we see it over all Larry..

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

Sure, and thank you. Larry, as you think back to about three years ago when we announced the Synthes acquisition I think 2.5 to 3 years, part of the strategy rationale that we made at that time was that we, we definitely saw consolidation in the future simply because of the number of different participants you had in the market.

The pressures that we expected going forward and as a result of that we believe proactively sought out and conducted the Synthes acquisition, which we’re pleased with the way that it’s going, and we have achieved our sales as well as our margin, goals that we have set for ourselves along the way and in fact I think, after the last couple of years of going through disruption which you would anticipate in a merger of that size, I think now we’re really poised for solid growth going forward.

And so, what I would say is at that time we had predicted to that in fact it would happen, I think the other aspect, of course, we looked at areas like our cardiovascular business and drug alluding stands. And we saw a lot of market pressure ahead both in terms of volume and pricing.

We therefore made a difficult decision to access that market, but nonetheless we think that that was the right decision to make base upon the overall dynamics. So, if we look at ourselves today, we think we’re clearly the broadest medical device company.

We think we’re well positioned, particularly when you consider areas like general surgery, like orthopedics we have not only brought, but also deep offerings that gives us solid market positions across the number of different platforms.

We realized that in cardiovascular we’re subscale, we have a very strong EP business that’s growing at 14% we also estimate innovations but by continuing frankly to monitor and watch that market as we see what happens in some of those segments. We don’t think it’s a bad place to be. And certainly we’ll continue to evaluate our options going forward..

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

Good morning. One for you Alex, just on your conversation around emerging markets; I appreciate all the additional color and the update.

I was curious given the traditional strategies for penetrating this market and I’d say over the last several years are you still evolving whether it’s promotion and penetration with diagnostic for commercializing prior generation or lower costs. Therapeutic that might fit better to these markets.

The local innovation approach or what sales team like comes if (ph) -- like a customization approach as you look at some of these emerging middle markets, I’d love to understand a little bit more about how that’s going and maybe when we’ll start to see some of the fruit of those efforts? And then I have one follow-up..

Sure. Matt, look as you know what I think that there been several phases to growth in emerging markets and I think historically we have taken a lot of our technology from the developed markets and we’ve basically appealed to the higher segments in the emerging markets.

And obviously try to adapt those products based upon the commercial model, the distribution system that exists in that particular area.

But more and more we’ve realized that our approach is and sometimes actually the unmet medical need is different and so developing the underlying capability or product acquisition, developments and commercialization unique to that entity is something that we’re focusing on.

So that’s a major driver behind our innovation center that we focused in Shanghai. We do have R&D centers in both Shanghai and Beijing. I think we’re still in the earlier phases of some of the projects that we have coming out of those, but clearly it’s our goal to develop a much more customized approach for those particular markets.

That being said, we still think that there is good opportunity in some of the premium segments across all three of our sectors. So we’ll continue to work those very hard as well..

Great, and then as it may be a little off script here but either its Louise or Dominic, I'd love to understand one of the comments you mentioned on your orthopedic market and your knee business, pricing pressure I think you mentioned in the market softness.

Given that you had introduced the rotating platform version of Atune this spring and it seemed like that’s the business that should be firing on at least most cylinders.

Can you give us any more colors as to why it came up flat and what we can expect going forward?.

Yes, Matt, this is Alex again. Let me take a shot at that first and then Louise can certainly add any colors necessary. But as you know we’re one of the first companies to report in this space.

So it’s always a challenge to predict exactly how everyone is going to come in, but as we look at our business we think that we’re maintaining share or slightly growing, what we’ve seen is somewhat of a more cyclical trend towards particular knee procedures, we think shifting more to the back end of the year.

And if you think about last year and a very robust growth that we saw in Q4 about some of the ways now the patients have a greater responsibility providing their co-payments upfront with the procedures, but that does result in more of a second half of the year affect than early in the year.

Again, let me put the caveat in but we can’t say that was certainly, because we’re coming out early on the reporting, we’re going to watch it closely but from what we’re hearing from our people in the field. We don’t think that there is significant share shifts taking place.

We continue to get really good feedback on the Atune as it continues to be rolled out. And as you can see from the performance of our hips up 5%, trauma up 7%, you know the core of our business and our teams, we believe are performing well. So that’s our position at this point in time..

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

Our next question comes from Josh Jennings with Cowen & Co..

Hi, good morning and thanks for taking the questions. Just first for Dominic, you commented two thirds of the 230 basis points of margin expansion a quarter was contributed by OLYSIO, it means about 75 basis points to 80 basis points from the rest of the business.

But can you just comment on relative contributions from the pharma medical device unit and consumer units was each a contributor? And then how should we think about our operating margins for the device unit excluding Ortho-Clinical, how much improvement can we expect post divesture going forward?.

Yes, sure Josh. Well obviously the pharmaceutical business that drove most of our growth this quarter is our best performing business in margin, so obviously they are major contributor. The other two businesses also contributed, I mentioned the lower cost in the MD&D business in particular.

I think going forward, it’s difficult to predict for each business because as we develop our plans, we will balance off investment opportunities for each business with appropriate, whether the R&D programs or product launches et cetera. So I can’t give you a specific as to what to expect from each for the business going forward.

But for MD&D, the margins ex-OCD should definitely improve, because that was a business that had margins lower than our overall MD&D business..

Great, thanks.

And Louise, sorry if I missed this, but did you comp the growth of the spine unit and then can you download us on pricing mix for spine in the quarter?.

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

Okay, next question please..

Thanks a lot..

Our next question comes from Rick Wise with Stifel..

From a point of optimization, you obviously have made a lot of moves here with acquisitions since you took over acquisitions and divestitures.

And I assume you’re going to continue to optimize and refine the portfolio but is there a lot more to come, are you down to a near term, how should we be thinking about it?.

Hey, Rick thanks a lot for the question. Rick, we’re going to continue to stay very active, particularly where we see great areas of unmet medical need where we think we can contribute and really bring value to the marketplace. I think there are opportunities across all of our segments.

We’ve been active as Paul noted earlier in some of the partnerships, in development programs that we’ve been able to bring together in our pharmaceutical group. And we think if there, our agnostic approach of internal versus external sourcing is actually really have been a driver.

At the end of the day, we went at that science and I think clearly we are seeing the results of that approach with the success that we’re experiencing. But we are certainly not slowing down, we continue to be very active particularly in the five therapeutic areas where we are targeting.

I think if you look across MD&D, there too, we continue to see opportunities. As I mentioned earlier, given our decision several years ago in cardiovascular, we’re going to continue to watch that area very close to augment potentially onto our EEP business, which has done very well.

And we continue to look for other ways in orthopedics as well as in global surgery. Again, where we see great technology that’s either a complimentary fit, has platform potential or may give us an opportunity for vertical integration. And in our consumer segment, another area that we’re very committed to, here too, we see opportunities.

We think that we’ve done a very nice job over the past several years of focusing on really what are the key growth opportunities that we have in that segment, and as a result, we’ve done several smaller divestures. We think that’s allowed us to be more focused, more effective, more efficient.

But here too, we certainly see opportunities to gain additional scale across different areas of that portfolio. So we’ll remain active, but I think in a strategic level, that’s the way that we are currently thinking about it..

Thank you for that. Just a follow-up question on diabetes. Diabetes particularly in U.S. remains challenged, but it was a little less challenged this quarter expected.

Are we close to a turning point, when do you think that we get back to even if you will on that and maybe can you follow-up with a little discussion about the vibe rollout, when will we see the full O-U.S. launch and where are you in the U.S. with filings and launch? Thank you very much..

Yes, a couple of things. One is, we remain committed to the diabetes space and I think as you know, the significant I think it was 72% price reduction took place in the United States occurred in the first half of the year, so we do expect to be lapping that.

If we look at the underlying dynamics of the market, I’d like to commend our team because we continue to see very good performance in SMDG both in the U.S. as well as outside. Also with our insulin pump business, Animas, we’ve seen proving performance.

We do have Viario under review by the FDA, I don’t believe we’re projecting an approval time at this point, but we certainly think that that's going to offer a nice addition for patients as well as for physicians. And the other important dynamic, Rick is that our diabetes business has also been involved in launch of INVOKANA.

And when you consider the strong relationships that we’ve had for a number of years with the endocrinologists, part of our early success with INVOKANA has been because of the way we’ve been able to bring a broader more comprehensive offering to those specialists and frankly that's better for patients that's better for the physicians and better for our business..

Next question please?.

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

Two questions; one, how should we be thinking about OLYSIO trends in 2015, it looks like OLYSIO probably this year is going to sum around $2 billion. Should we think next year closer to $1 billion, I know you’re talking about a decline I’m just trying to get a sense of how we should model the decline for 2015 that's my first question.

And then second, SG&A came in as a ratio well below our expectations, I’m sorry, way better than our expectations. We’re thinking SG&A ratio somewhere in the 29% to 30% in the quarter it came in at 28%. I don’t think that's a realistic run rate, so maybe help us think about SG&A spend for the rest of the year? Thanks..

Yes, Glenn. Let me comment a little bit on OLYSIO then ask Joaquin to comment as well. Obviously you saw an uptick in OLYSIO sales in the second quarter compared to the first quarter. We had $800 million in the second quarter. And we noted that we expect competition coming soon at the latter part of the year.

So obviously for the second half of the year, we will have competition for OLYSIO that we did not have in the first two quarters. So in terms of modeling, we do expect that the current run rate is not really a sustainable run rate going forward.

Joaquin anything else to add to that?.

Not really to what you mentioned was big competition coming in and different fee regiments coming into the market in the later part of this year. So it sounds like that the current run rate is going to continue. That said we see OLYSIO a very relevant player in hepatitis C moving forward too.

And we continue to invest in different clinical trials and clinical data to prove additional flexibility for patients and physicians.

Paul described before that the study that we are doing in Phase III with 12 and 8 weeks in cirrhotic and non-cirrhotic patients in combination with sofosbuvir and we plan to continue to do different studies with different treatment regiments to add additional flexibility.

Paul?.

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

Hey Glenn, just to follow-up on your question about SG&A, we don’t give line specific guidance, but it is true that this particular quarter we saw 200 basis point improvement in SG&A compared to last year. And most of the 230 basis point improvement in pre-tax operating margin was a result of that.

And I mentioned earlier that that was also two-thirds driven by OLYSIO. So I think this quarter is a relative low SG&A quarter relatively speaking, but it is an area that we constantly strive to keep an eye on because quite frankly we’d rather invest more in R&D.

So if we can spend more in R&D and get more productive R&D investment, we would look to offset that with some lower SG&A spend going forward..

Thank you. Next question please..

Okay. Thank you..

Next question please?.

Our next question comes from Bruce Nudell with Credit Suisse..

Thanks for taking my question. I have some pharma-directed questions taking advantage of Paul and Joaquin’s presence. I know you guys talk about your commercial execution and I know you spend a lot of money modeling complex markets like the prostate market.

Could you just comment briefly with regards to any particular hurdles you anticipate with Aragon 509 as it may be difficult to show mortality benefit in a short trial? And secondly how bigger that market be if you the combined prostate market when you are able to penetrate in the prostate, the pre-metastatic, but high risk category? That's my first question.

Thanks..

So let me start with the size of the market and may be a good example is how ZYTIGA is doing today. About 60% of the ZYTIGA sales today are already in the pre-chemotherapy setting.

Now how big the non-metastatic setting is going to be because as you know we started the trial with ARN-509 in patients with high rising PSAs and noted metastatic is going to be bigger and mostly likely we’ll have a longer duration of treatment.

It’s difficult for me to give you an exact dimension of that market, but it will be certainly bigger in terms of the number of patients and the duration of therapy than the metastatic market in each marketing where there is a significant unmet medical need and we are pleased to see that we have been the first in starting a Phase III trial in that legal setting..

Paul Stoffels:.

:.

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

That’s a great question. We are very mainly pleased with the launch of INVOKANA. As Alex mentioned, it’s been the most successful launch in type 2 diabetes since JANUVIA. And we’re now the leading oral anti-diabetic in type 2 among U.S. endocrinologists. The combination of metformin is a very relevant one.

The most relevant combination we have that combination approved in Europe with the name of VOKANAMET and we’re expecting a response from the FDA with the PDUFA date in August. So we think it’s going to be an important element for physicians and we’ll have a significant impact in our business moving forward..

Next question please?.

Your next question comes from David Lewis of Morgan Stanley..

So, two good questions. First, Alex, I wanted to give you an opportunity maybe to break a tie (ph) here. At the Analyst Day, we heard two messages in MD&D, at least we did.

In the morning we heard from a lot of your non-orthopedic segments that there was not significant benefit to scale, and in the afternoon we heard a totally different message from Michelle which is that scale really does matter and do you think scale is going to be a driver of share, can you talk a little bit about your breadth and depth in MD&D? And I wondered if you just help us out your view on scale driving share in medical devices, what is that view and why you think we heard different messages from some of your senior business leaders in the morning sessions versus the afternoon sessions just surely focused on orthopedics?.

Well, David, I am not sure that the messages were that inconsistent overall. And the way that I would answer that is we do believe scale and size and depth and breadth is going to be important across MD&D. And that has to do with evolving customers right now.

I mean when you think about the healthcare landscape going forward whether it’s hospital systems in the United States whether it’s governments in Europe or in the developing markets, we see the opportunity for broader partnerships to be something that customers are both wanting and something that we can definitely provide.

Now I think there is not just one flavor, I think it depends on the system, it depends on the specific customer as to what kind of partnership they may want to have, and I think there could be certain opportunities where a customer might look, might desire to look just across the orthopedics portfolio or perhaps the general surgery area to doing a different kind of partnership or other systems who might be a bit more mature might look for something broader across the entire portfolio.

So I think that’s likely the difference in messaging that you’ve heard between some of our global surgery and orthopedics, but overall we do think that we see that as a long-term dynamic and something that will be important and frankly one where we’re positioned very well..

Okay, thank you, Alex, and maybe just a follow-up for Dominic. Dominic just given the strength you’ve seen in the first half of the year specifically OLYSIO.

I guess, we’re a little surprised that there hasn’t been sort of more aggressive reinvestment of that upside, is that, what we’re probably going to see here in the back half of 2014, as you think about next year as we head into this year many investors are focused that if there was going to be in OCD related dilution you would offset that with probably more aggressive buyback activity.

As we head into ’15 is it likely we see a more aggressive buyback activity to offset some of the OLYSIO headwind? Thank you..

So couple of comments on the impact of OCD, for this year the OLYSIO benefit does in fact help us absorb the lack of OCD earnings in the back half of the year plus we’re investing in the back half of the year.

So our margins overall will not be as significant as you saw in the second quarter because we do intend to invest in the back half of the year for future growth while still overall providing higher earnings that we previously estimated.

The share buyback that we talked about regarding the proceeds of the OCD, divestiture we will do that but that – we’ll see that impact in ’15 of course because the ability to have an impact of a share buyback this late in the year in ’14 is very small but that will help us offset the dilution in ’15, David..

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

Your next question comes from Kristen Stewart with Deutsche Bank..

Thanks for taking the question. One for Alex and a follow-up for Dominic.

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

Kristen, thanks a lot for your question, and let me first of all compliment our EP business and the cardiovascular group for the performance this past year.

I believe now we’ve got over 10 consecutive quarters of double-digit growth and when you think of the new technologies like Cardo and others, it’s resulted in great, frankly advancements for patients as well as great growth opportunities for our business. And I would answer your question saying yes, we remain committed to cardiovascular.

That being said, we know that we have to be very thoughtful about where we are going to compete and how we might expand our position in that particular market. So as you said, we are doing a watchful waiting.

At this point, we continue to watch the other segments, new technologies as they come in seeing what kind of opportunity they may present and we think we will be well positioned going forward based upon how those dynamics evolve..

Perfect. And for Dominic, I was wondering could you just talk a little bit about the pricing and Louise has mentioned surgery.

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

Yes, sure. I’ll let Louise give specifics on orthopedics pricing, but we did see a continual trend by the way, it’s not really new, a continual trend of negative pricing across the medical device space in orthopedics in surgery.

We’ve also seen various competitive pricing dynamics even in the vision care business and we’re comparing this now to last year. So we do see increased competitive pricing dynamics and the market is looking for a lower pricing of products.

And in orthopedics in particular this quarter we saw it, and Louise if you have in particular the impact for orthopedics..

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

And trauma?.

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

Okay, thank you..

Okay. Final question please..

Our final question comes from James Rubin of Goldman Sachs..

Hi, Dominic. Congrats on the quarter and thanks for the taking the questions. Couple of quick ones. The first with regard to the Synthes tender and trauma.

Can you just help us understand the dynamics behind winning these large tenders and specifically, can they be replicated in other regions? And then how do you prevent these large tenders from being driven by price. .

Yes, thanks Jay. Again building on the earlier question, we do think this is an opportunity where our breadth and scale is helpful particularly when customers are prepared to deal with a broader offering and this case we are able to provide it.

We have definitely benefitted from that and we expect that to continue and other areas of the market continue to transform.

And I think regarding how do you keep that from becoming just a pricing issue, I think it has to do with one of the level of innovation that you are bringing forward; two, what’s the overall partnership and solution that you are building with that particular customer that we think would be instrumental in helping us keep good solid growth going forward..

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

So thank you very much everybody and I hope you all agree and as you can see that the diversified business and strategy that we define in our strategic framework that we discussed with you earlier are in fact delivering very strong financial strategic and operational performance and will continue to be the basis to fuel our growth going forward.

I couldn’t be prouder the people of Johnson & Johnson and a big difference they make in living up to the mission of our credo, it’s on behalf of the billions of patients and consumers we serve around the world each day. We are very proud to have the honor and privilege of doing that.

So I want to thank you all for joining us this morning and I wish you all a great rest of the day..

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