Joseph Wolk - VP, IR Alex Gorsky - Chairman & CEO Dominic Caruso - EVP & CFO.

Glenn Novarro - RBC Capital Markets Mike Weinstein - JPMorgan Jami Rubin - Goldman Sachs Matt Miksic - UBS Larry Biegelsen - Wells Fargo David Lewis - Morgan Stanley Vamil Divan - Credit Suisse Tony Butler - Guggenheim Partners Danielle Antalffy - Leerink Partners Rick Wise - Stifel Bob Hopkins - Bank of America Merrill Lynch Damien Conover - MorningStar.

Good morning and welcome to Johnson & Johnson’s Second Quarter 2017 Earnings Conference Call. All participants will be in listen-only mode until the question-and-answer session of the conference. This call is being recorded. If anyone has any objections, you may disconnect at this time.

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

Hello. This is Joe Wolk, Vice President of Investor Relations. Welcome to the review of Johnson & Johnson’s business results for the second quarter of 2017. I am pleased to be accompanied on the webcast by Alex Gorsky, Chairman and Chief Executive Officer and Dominic Caruso, Executive Vice President and Chief Financial Officer.

Thank you for joining us today. As you've likely already seen in today's press release and accompanying materials, our results for the second quarter reflected strong adjusted earnings per share growth.

Sales performance in the quarter highlights the strength of new products across all three segments as well as the positive contribution from recent acquisitions.

Although there were some anticipated, nonoperational offsets to reported sales growth in the quarter, which we'll address during the call, we believe the business is poised to accelerate sales growth in the second half of 2017. A few logistics before we get into the details.

This review is being made available via webcast accessible through the Investor Relations section of Johnson & Johnson's website at investor.jnj.com. There you can find additional materials including today's presentation and accompanying schedules. Please note that this morning's presentation includes forward-looking statements.

We encourage you to review the cautionary statement regarding such statements included in today's presentation as well as the company's Form 10K, which identifies certain factors that could cause the company's actual results to differ materially from those projected.

Our SEC filings, including our 2016 Form 10-K, along with reconciliations of the non-GAAP financial measures utilized for today's discussion to the most comparable GAAP measure are available at investor.jnj.com.

A number of the products and compounds discussed today are being developed in collaboration with strategic partners or licensed from other companies. This slide acknowledges those relationships.

After prepared remarks from Alex and Dominic, we will open up the discussion to address questions you may have regarding the performance in the quarter with the outlook for the balance of 2017. We anticipate today's webcast to last approximately 90 minutes. Now on to recap the quarter's results.

Worldwide sales were $18.8 billion for the second quarter of 2017 up 1.9% versus the second quarter of 2016. On an operational basis, sales were up 2.9% as currency had a negative impact of 1%. In the U.S., operational sales growth was 1.6% and regions outside the U.S. achieved operational growth of 4.4%.

The effect of currency exchange rates negatively impacted our reported OUS sales by 2.1 points. Excluding the net impact of acquisitions and divestitures, operational sales growth was 0.5% worldwide. I will provide this same reference for each segment.

With respect to earnings for the quarter, net earnings were $3.8 billion and diluted earnings per share were $1.40 versus $1.43 a year ago.

Excluding amortization expense and special items for both periods, adjusted net earnings for the current quarter were $5 billion and adjusted diluted earnings per share were $1.83 representing increases of 3.1% and 5.2% respectively compared to the second quarter of 2016. On an operational basis, adjusted diluted earnings grew 6.9%.

Dominic will provide further detail regarding earnings in his remarks. Beginning with consumer, I'll now comment on segment sales performance for the quarter with the intent of building upon the slides being presented.

Unless otherwise stated, percentages quoted exclude the impact of currency translation and therefore represent operational sales change in comparison to the second quarter of 2016. Worldwide consumer segment sales grew 2.3% to $3.5 billion.

Excluding the net impact of acquisitions and divestitures, total adjusted operational sales declined 0.8% worldwide. Similar to the first quarter of 2017, although to a lesser extent, sales performance across some of our consumer franchises were negatively impacted by category slowdown.

Additionally, there were a few distinct items that impeded worldwide consumer segment sales growth collectively by more than 1.5% worldwide. For example, in India, the implementation of a national goods and services tax, resulted in some market disruption, which negatively impacted growth by approximately one-half point.

You may also recall in last year second quarter, we commented to an inventory build in preparation for an IT systems conversion. This negatively impacted sales growth comparisons by a little more than one half point in the current quarter.

Switching to specific platforms, the beauty franchise includes acquisitions, which contributed approximately 12 points of growth, the most impactful being Vogue. Worldwide Vogue sales totaled $94 million for the quarter and on a pro forma basis, is estimated to have grown high single digits.

The worldwide beauty market is estimated to have grown approximately 2.5 point in the quarter. NEUTROGENA grew 3.4% bolstered by strong performance of sun protection products. The OTC franchise grew 2.1%. Adult and children's TYLENOL market share continued to gain with adult TYLENOL benefiting from strong uptake of the rapid release launch.

ZYRTEC grew over 17% worldwide; however, approximately two thirds of that growth was the result of inventory restocking at distributors in the U.S. attributable to later allergy season. Concluding the consumer segment, oral care sales were impacted by the market contracting versus the second quarter of 2016 by approximately 1%.

Worldwide market share is slightly up from the first quarter, but flat to the second quarter of 2016. Regarding our pharmaceutical segment, worldwide sales grew 1% to $8.6 billion. Excluding the net impact of acquisitions and divestitures, operational adjusted sales growth was 0.5%.

As we discussed in the second quarter of 2016 and reiterated on the first quarter call earlier this year, favorable prior period price adjustments or gross to net, contributed approximately $340 million to the second quarter 2016 results in the U.S.

This is a comparative headwind for the second quarter 2017 growth rate of approximately four points, which when added would take the worldwide pharmaceutical growth to approximately 5%. While these adjustments occurred across the entire U.S. pharmaceutical portfolio, the most pronounced impacts occurred in REMICADE, PROCRIT, STELARA and SIMPONI.

In oncology, DARZALEX continued its strong performance as the brand continues to experience strong adoption across all lines of therapy with share leadership in line 4 plus and strong uptake in lines 2 and 3 pursuant to the approvals of dose indications late last year. OUS trend was evident in many Euro countries most notably Germany and France.

IMBRUVICA continues to gain share across all indications globally and based on first quarter data, the CLL market in the US is estimated to have grown approximately 20%. Negative ZYTIGA growth in the U.S.

was largely the result of higher utilization of independent patient assistance foundations, a dynamic that has carried over from the prior two quarters. In immunology, the U.S. market is estimated to have grown approximately 8%. STELARA in the U.S.

gained 1.4 points of market share in the total immunology market versus the second quarter of 2016, driven by the strong adoption for the newer Crohn's disease indication. REMICADE in the U.S.

after considering the 2016 prior period price adjustment mentioned earlier, declined a little more than 5%, which is below the 10% to 15% we projected earlier in the year for 2017. SIMPONI, SIMPONI ARIA in the U.S. when accounting for the 2016 prior period price adjustment also referenced earlier, grew approximately 4%.

In neuroscience, our paliperidone palmitate long-acting injectable portfolio achieved strong results in all major regions due to increasing market share for TRINZA and SUSTENNA. CONCERTA in the U.S. experienced negative impact from the reentry of generic competition late last year.

Within the cardiovascular metabolic therapeutic area, XARELTO's total prescription market share was up more than two points versus one year ago as Warfarin continues to decline in favor of branded products. Similar to last quarter, for preferred access physicians, we are experiencing higher discounting in managed care and government channels.

A favorable return reserve adjustment in the second quarter of 2016 impacted comparative growth for the second quarter of 2017 by approximately three points. INVOKANA, INVOKAMET net sales in the U.S. declined due to increasing discounts for managed care contracting and higher utilization in the Medicaid channel.

Finally, the pulmonary hypertension products reflect the sales in the quarter since the Actelion acquisition closed on June 16. Many of you have asked for historical data prior to Johnson & Johnson's ownership of these assets to reflect in your financial models.

So, at this time we've provided an unaudited schedule of sales for this business on our website. I'll now turn to the Medical Device segment. Worldwide Medical Devices sales were $6.7 billion growing 5.9%. Excluding the net impact of acquisitions and divestitures, adjusted operational sales growth was 1.1% worldwide.

The vision care business was strong on all fronts. Contact lenses grew above market at approximately 7% worldwide as new products namely OASYS 1-Day and variants of the DEFINE lens continue to be well received in the market.

There is $25 million under the label of other, reflecting the inclusion of the recently acquired Consumer Eye Health Products from Abbott. That transaction closed February 27. So, this is the first full quarter we are reporting for that as well as the Vision Surgical business.

To help put the surgical performance into context, on a pro forma basis, worldwide surgical grew more than 10% based on cataract lens strength. Our hospital medical devices business had approximately one half less selling day OUS as compared to the same period a year ago negatively impacting worldwide growth by approximately 80 basis points.

For those in the audience who are updating their models, the impact of selling days for the balance of the year will be nominal. Within hospital medical device platforms, Electrophysiology grew approximately 15% worldwide as atrial fibrillation procedures continue to grow, estimated at 13% for the quarter.

Strong adoption of newer product offerings such as SMARTTOUCH Sensing Force in ablation and advanced catheters continued. Within the Advanced Surgery category, Endocutters and Energy grew 3% and 4% respectively.

Endocutter growth was driven by performance in EMEA and China, while Energy growth includes 480 basis points of growth from the Megadyne acquisition. Biosurgical's growth of 5% was the result of strength in China across all platforms and growth of the U.S. market.

The decline in specialty surgery business was driven by share loss in the aesthetics and infection protection businesses. Within Orthopedics, growth in Hips was driven by continued uptake of the primary stem platform, partially offset by competitive pressures in Asia Pacific region. Knee performance was driven by growth in the U.S.

market and a continued uptake of ATTUNE partially offset by declines in ASPAC related to competitor pressure and pricing. Trauma, including sales from the acquisition of Biomedical Enterprises, which positively impacted growth by 20 basis points, grew approximately 2% driven by the continued uptake of TFNA. Solid growth in the U.S.

market and strength in EMEA particularly U.K., Germany and Italy. Finally, continued share loss in our spine business was principally due to portfolio gaps and was partially offset by strength in sports medicine and power tools.

Pricing pressure continued across the major categories in orthopedics, but was partially offset by favorable mix in knees, trauma and spine. For the quarter, price net of mix in Hips was negative 2.6%, Knees positive 0.3%, positive 2% in Trauma and negative 2.3% in Spine.

That concludes the segment sales highlights for Johnson & Johnson's 2017 second quarter. For your reference, here is a slide summarizing the many notable events that occurred during the second quarter. I'm now pleased to turn the call over to Alex Gorsky..

Thank you, Joe and thank you all for joining our call and webcast today. I'm pleased to be here to discuss our performance for the first half of 2017 as well as update you on our outlook and expectations for the remainder of the year.

There have been a number of significant events in the first half of the year including completing the acquisitions of our new Surgical Vision business as well as Actelion. A few weeks ago, we also shared with you our pharmaceutical R&D strategy and pipeline of transformational medicines at our Business Review Meeting.

These events all illustrate how we continue to invest for strong long-term sustainable growth and as Joe outlined for you this morning, we are very pleased with the earnings-per-share results we delivered, which exceeded your consensus estimates and our businesses have largely continued to deliver sales results in line with expectations.

Dominic will take you through a bit more detail in a few minutes regarding our performance and outlook will impact our guidance moving forward, but we're optimistic that the investments we made and strategies we put in place can continue to build the momentum we need to accelerate our growth in the second half of the year.

First and most importantly, I'm proud of how the commitment to our credo continues to be upheld by our more than 130,000 employees around the world. You can find many examples of how we're living into our credo in our recently released Help for Humanity Report.

Holding ourself accountable to the important responsibilities highlighted in our credo, unites us and guides us in achieving our mission. As we look at the external environment and potential impacts on our business, there are a few topics that I am often asked to comment on that have been areas of interest in recent weeks.

First in terms of our interactions with the US Administration, we're pleased that senior officials are continuing to listen to business leaders, when considering the impacts of legislation and we'll continue to participate in these conversations as well as those with other world leaders to make sure our voices are heard on these vital issues.

In fact, I'm here in Washington DC today meeting with U.S. and global leaders driving forward discussions on the important issues impacting healthcare today. On the topic of Healthcare Reform, we continue to support initiatives that expand access to affordable healthcare and improve long-term sustainability of the U.S. healthcare system.

We've been monitoring the ongoing development of the AHCA with great interest and think that as our political leaders bring the new healthcare bills through Congress, it is important that they consider how these efforts will ensure stability within the system, while enhancing the competitive market and fostering continued innovation for new treatments and cures.

In terms of the potential Executive Order on pharmaceutical pricing, we understand the concern about the cost of healthcare and believe we have a responsibility to ensure our products are both assessable and representative of the outcomes and value they deliver.

We recognize the important role pharmaceutical drugs play in improving healthcare outcomes. We know these medicines represent only about 15% of overall healthcare spending as they also represent a critical component of effectiveness and efficiency in the healthcare system.

As we note in our 2017 Janssen US Transparency Report, we've maintained a responsible approach to pharmaceutical pricing, generally limiting our aggregate annual price increase to single-digit percentages below those of our competitive set.

We'll continue working with all our stakeholders to ensure sustainable future for America's healthcare ecosystem.

Finally, while we remain optimistic that there are opportunities from modernization of the corporate tax code in the near future, we'll continue to monitor any developments or progress as Congress prioritizes this among other pressing needs.

As we said before, we believe fundamental elements of our current tax system are outdated and disadvantaged U.S. companies against our international competitors who have reduced tax rates, domestic-only taxation and have incentives for innovation and investments.

We look forward to continuing our work with government officials, our customers and other stakeholders to ensure we're doing our part to provide differentiated, value-based and accessible healthcare to people around the world.

Regardless of the outcome of these discussions, we will continue to engage with global leaders and be a leading voice advocating for the stakeholders in our credo. As we evaluate how we are and will be positioned in the markets in which we compete, we continue to actively manage our portfolio of businesses.

We see external innovation and acquisitions or licensing deals as equally important to our growth strategy as our internal innovation programs.

While we continue to make progress on our rich pipelines across our three business segments in the first half of this year, we've also closed eight acquisitions or licensing deals including Actelion and AMO and as we announced in January, we're continuing to work on strategic options for our medical device diabetes franchise.

As we evaluate each of our businesses, we always want to ensure they are good strategic fit, that they're addressing unmet patient needs, that they are contributing to our overall growth and financial strength. One of those investments that we expect to augment our future growth is our acquisition of Actelion.

We're excited to expand our already strong portfolio with leading differentiated end-market medicines including OPSUMIT, UPTRAVI and TRACLEER and promising late stage products that will help patients suffering from pulmonary arterial hypertension and other serious illnesses. We see great opportunities with this business.

Starting with the treatment of the disease itself, addressing PAH earlier, producing better outcomes and expanding into new patient populations. For the existing medications, we want to explore how combination therapies can improve patient outcomes.

For the business itself, we want to expand its global footprint and when you look at the clinical development, regulatory and commercial skills at our Janssen Organization, we believe there are significant opportunities to create value for both the Actelion business and Johnson & Johnson.

Beyond the value we will deliver to patients and the growth we'll realize in our business, we're very excited to welcome the talented employees from Actelion. They are a great cultural fit with the Johnson & Johnson family of companies as they value innovation, patient centricity, collaboration and the very best science.

We feel the Actelion business has already been and will continue to be a great addition to our pharmaceutical portfolio.

Across our Pharmaceutical business, we continue to deliver life-saving and life-changing therapies to patients around the world with an incredible pipeline of more than 10 new blockbuster products to launch or file for regulatory approval in the next five years, each with greater than $1 billion in peak year sales potential.

We hope you're all able to either join us in person or on our webcast for our Pharmaceutical Business Review in May and if you weren’t able to attend live, I encourage you to review the replay available on our website.

Our strong and talented Janssen leadership team outlined our strategy for growth and innovation in pharmaceuticals and provide a great insight into our robust pipeline.

I am not only proud of the impactful cures and treatments our Pharmaceutical business is delivering to patients around the world, but our R&D investments are projected to deliver more value than ever before and the potential value of our pipeline is greater than it has ever been.

As we look at the near-term opportunities in this business, in addition to Actelion we're continuing to increase our penetration in markets such as anticoagulants, psoriasis and long-acting antipsychotics.

We'll continue to build on the recent launch successes of DARZALEX, IMBRUVICA and line extensions such as STELARA for Crohn's disease and with the early approval of TREMFYA as we've just announced last week and the anticipated regulatory approval for sirukumab later this year, we look forward to further expanding our immunology portfolio.

These two medicines represent important enhancements to our immunology portfolio, adding to our leading in-market brands like STELARA and SIMPONI as well as REMICADE. Physicians have a strong preference for REMICADE versus biosimilars and we enjoy a strong access position in the U.S.

We'll continue to compete in the market and defend our IP against biosimilars to launch at risk in the U.S. Overall, we expect our immunology business will continue to grow in 2017 and we expect to maintain our leadership in this segment.

In our Medical Device business, in the second quarter, we continue to have areas of above-market growth like Electrophysiology and Vision Care for both contact lens and surgical businesses based on our internal estimates.

Areas where we're growing with the market like Biosurgery, Wound Closure and Hips and there are also areas where we know we still need to do better as is the case with Spine, anti and our aesthetics products.

We are continuing to actively manage our portfolio, focusing on transitioning our business in higher growth areas with large unmet needs as you've seen through many of our recent acquisitions and strategic partnerships across our medical device portfolio, including our Surgical Vision Care business, Interventional Spine, Megadyne and Energy, Torax Medical and General Surgery and Neuravi in the neurovascular category.

To the work we put into restructure and focus in our Hospital Medical Device business, we're on track to accelerate our number of major product launches with new products like our THERMOCOOL SMARTTOUCH SF Catheter.

We're going to market with novel commercial models such as our recently announced Care Advantage Collaboration with Medical University of South Carolina to reduce infection risks and we're filling key portfolio gaps that we expect will provide growth in 2017 and beyond.

As the most comprehensive medical devices company in the world, we remain confident that we are well positioned to serve a market that continues to consolidate by providing a simplified customer experience, progressive contracting and innovative solutions and developing innovations and capabilities and improve patient outcomes and deliver value to the healthcare market.

In our Consumer business, we have a world-class portfolio of iconic mega brands that are professionally endorsed and we continue to believe we're playing in large structurally attractive markets despite some recent lagging category growth that Dominic will comment on later.

As with Medical Devices, there are areas that are performing well like Beauty and OTC where we continue to see strong results. We know we have work to do in other areas such as our Baby Franchise whereas we previously discussed we're working to revitalize and relaunch key products.

We're also leveraging our scale in global footprint with a strong portfolio of local brands in emerging markets, which will serve as an entry point for further expansion across our enterprise.

Additionally, we expect to further accelerate our growth through our recent acquisitions in the beauty franchise, OGX and NeoStrata and the light therapy products now in our Neutrogena business and we expect some of these products are new to our portfolio along with some of our recently launched innovations such as Neutrogena Hydro Boost and Tylenol Rapid Release to drive growth in the second half of this year.

Overall, we continue to make very good progress on all of our near-term priorities as well as continue to invest in advance our long-term growth drivers.

Our shareholder return for the first six months of the year of 16.3% continues our trend of topping most major indices over the last 3, 5, 10 and 20 years and for all the reasons you just heard me share about the opportunities across each of our businesses, we are well-positioned to accelerate our growth through the end of 2017 and beyond.

And now Dominic Caruso will share a little more insight on our results for this quarter and provide some additional commentary about our guidance for the remainder of the year, Dominic?.

Thanks Alex and good morning, everyone. I'll begin my remarks with a few comments on second-quarter results, which will be followed by comments regarding some changes to our guidance for you to consider as you update your models.

We are very pleased with our adjusted earnings per share growth of 5.2% for the second quarter, which exceeded the mean of the analyst estimates on FirstCall. Overall sales results and our operating performance were largely in line with your estimates.

We continue to expect an acceleration in our sales and earnings growth in the second half of the year, which I will provide further insights into later in my remarks and of course we are extremely pleased to have closed the acquisition of Actelion and I'd like to add my welcome to the Actelion employees joining Johnson & Johnson.

I will now turn to our consolidated statement of earnings for the second quarter of 2017. As Joe described, our operational sales growth this quarter was 2.9% and excluding the impact of acquisitions and divestitures it was 0.5%.

As many you have modeled and as we've discussed previously, this quarter's results were impacted by prior period positive adjustments we recorded in the second quarter of 2016 for reserves set aside for discounts and rebates to various payers such as managed Medicaid.

Adjusting for that and excluding acquisitions and divestitures, operational growth was 2.4%. If you will direct your attention to the box section of the schedule, you will see we have provided our earnings adjusted to exclude intangible amortization expense and special items.

As referenced in the table of non-GAAP measures, the 2017 second-quarter net earnings were adjusted to exclude intangible asset amortization expense and special items of $1.2 billion on an after-tax basis, which consisted primarily of the following.

Intangible asset amortization expense of approximately $375 million, litigation expenses of approximately $350 million, Actelion acquisition-related cost of approximately $200 million and impairment charge of approximate $125 million related to the previously disclosed process of seeking strategic alternatives for our diabetes business and a charge for the continuing restructuring of our hospital Medical Device business of approximately $100 million.

Our adjusted earnings per share is therefore $1.83, adjusted EPS on a constant currency basis was $1.86 or up 6.9% over the prior year. Now let's take a few moments to talk about the other items on the statement of earnings.

Cost of goods sold increased by 200 basis points, primarily due to the inclusion of amortization expense from our recent acquisitions. Excluding the impact of amortization expense for our both periods, cost of goods sold was 27.9% or 60 basis points higher than the prior year mostly due to transactional currency and product mix.

Selling, marketing and administrative expenses were flat as compared to the second quarter of 2016. Our investment in research and development as a percent of sales was 12.1% consistent with the prior year. Interest expense net of interest income was a net expense of $122 million, which was slightly higher than last year.

Other income and expense was a net expense of $588 million in the second quarter compared to a net expense of $557 million in the same period last year. Excluding special items recorded in this line, other income and expense was a net gain of $373 million compared to a net gain of $119 million in the prior-year period.

Reflecting completion of certain asset sales, which were included in our annual guidance, I will provide an update on this activity during my guidance comments. Excluding special items, the effective tax rate was 20.2% compared to 19.2% in the same period last year.

This rate is consistent with our expectations as a component of the full year effective tax rate. Turning to the next slide, I will now review adjusted income before tax by segment.

In the second quarter of 2017, our adjusted income before tax for the enterprise, improved 80 basis points versus the second quarter of 2016 due to favorability in other income and expense. Looking at the adjusted pretax income by segment, Medical Devices at 30.4% is higher than the previous year, primarily due to SG&A cost efficiencies.

Pharmaceutical margins improved by 40 basis points to 44.5%, driven by other income items and consumer margins improved to 20.5% primarily due to SG&A cost efficiencies as well as some other income. Now I will provide some guidance for you to consider as you refine your models for 2017.

As expected, with the close of Actelion in June at the end of the second quarter we had approximately $22 billion of net debt, which consisted of approximately $13 billion of cash and marketable securities and approximately $35 billion of debt. Also of note we have now completed our $10 billion stock repurchase program.

Therefore, for purposes of your models and assuming no other significant uses of cash, I suggest you consider modeling net interest expense of between $600 million and $700 million 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, divestitures, asset sales and write-offs.

As you know, one of our business priorities is to actively manage our portfolio to maximize value creation. Our ongoing reviews suggest we currently have more opportunity to divest some nonstrategic businesses, which will result in higher other income gains.

While some of this may result in higher EPS, as we've done many times before, most recently in 2015, we intend to redeploy most of those gains back into the business to enhance our long-term growth prospects.

Considering this we would be comfortable with your models for 2017 reflecting net other income and expense, excluding special items as a net gain ranging from approximately $1.6 billion to $1.8 billion, an increase over our previous guidance.

In regard to pretax operating margin, you may recall at the start of the year, we guided that this would remain flat to slightly improved. As we expect investment levels to further increase in the second half of the year, we now expect that we will maintain or possibly see a slight decrease in our adjusted pretax operating margin for the full year.

This of course is offset by the higher divestiture gains I just mentioned. And now a word on taxes. Our guidance today does not include any assumptions about potential tax reform measures. Our effective tax rate guidance for 2017 excluding special items is 19% to 20% consistent with our previous guidance.

Now turning to sales and earnings, our sales guidance for 2017 does not anticipate any impact from generic competition this year for ZYTIGA, RISPERDAL CONSTA, PROCRIT, TREVICTA and INVEGA SUSTENNA. As we've 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 2017 with the impact that current exchange rates could have on the translation of those results.

As I mentioned earlier, we continue to expect an acceleration of our operational sales growth in the second half of the year. Across the enterprise, the second half acquisitions in 2016 as well as the major acquisitions of Actelion and Medical Optics completed earlier this year, all remain on track to slightly ahead of our original projections.

Despite some moving parts, our outlook for pharmaceuticals remains optimistic as to the back-half acceleration, especially when considering easier year-over-year comparisons in the third and fourth quarters. Also, we expect that the positive factors of the earlier launch of TREMFYA and a more modern erosion of the U.S.

Remicade business versus original projections will help offset the higher discounting we are experiencing.

In Hospital Medical Devices, our restructuring initiatives continue to progress and as we stated previously, we expect that the contribution from new products will accelerate in the back half of this year and in Vision Care, our strong growth is expected to continue.

In Consumer as you heard from Alex and Joe, although slightly improved in the second quarter, the broader market continued to experience lagging category growth. We still expect new product launches in consumer to have a meaningful positive impact on second-half growth and we will increase investment to support these launches.

However, these new product offerings are likely launching into weaker markets. So naturally, that positive impact will be mitigated to some extent. The impact from the weaker macroeconomic dynamics in consumer is now estimated to continue through the balance of the year longer than we had previously expected.

Considering all of this, we are updating our operational sales guidance for the year. Previously we guided to a range of 5.8% to 6.8%. Our new operational sales guidance is now 5.5% to 6%. This translates to sales for 2017 of approximately $75.9 billion to $76.2 billion on a constant currency basis.

Although we are not predicting the impact of currency movements using the euro as of last week at a blended rate of $1.11, the negative impact of foreign currency translation would be approximate 10 basis points, a much lower negative impact than our previous guidance, plus under this scenario, we expect reported sales growth in the range of 5.4% to 5.9% for total expected level of reported sales of approximately $75.8 billion to $76.1 billion, which is higher than our previous guidance.

Now turning to earnings, we expect adjusted EPS to be in the range between $7.17 to $7.27 per share on a constant currency basis, reflecting an operational or constant currency growth rate of 7% to 8%, a midpoint increase of $0.03 over our April adjusted EPS guidance.

If currency exchange rates for all of 2017 were to remain where they were as of last week, then our reported adjusted EPS will be negatively impacted by $0.05 due to currency movements. This is a smaller negative impact than our previous guidance.

Therefore, we would be comfortable with our reported adjusted EPS ranging from $7.12 to $7.22 per share or our growth rate of between 6% and 7%.

In closing we remain optimistic that we will see accelerated growth in the second half of 2017 and in summary, we are expecting operational sales growth of 5.5% to 6% for the year, our operational adjusted EPS growth and our guidance remains strong in the range of 7% to 8% consistent with our goal of growing earnings faster than sales and our businesses are continuing to invest while also delivering on our near-term priorities.

Now I'd like to turn things back to Joe to open up the Q&A portion of the call, Joe?.

Great. Thank you, Dominick. We will now move into our Q&A session.

Manny, can you please provide instructions for those on the line wishing to ask a question?.

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

Hi. Good morning, guys..

Good morning, Glenn..

Thanks for taking the question. Let me start on the pharmaceutical side, so we continue to see pricing pressure in XARELTO and INVOKANA and we understand both drugs are in competitive categories.

But is there a light at the end of the tunnel to these two drugs based on less pricing pressure in the back end of the year, so that specifically on those two drugs and then more broadly Alex, maybe talk about what you're seeing in pricing in terms of pricing pressure across the franchises? Thank you..

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

That is correct. Yes, thank you..

I think it's two very different stories between XARELTO and INVOKANA and while there's always a secular backdrop here, I think of pricing pressure in many of these areas in the Pharma business.

In the case of INVOKANA of course we've seen a significant impact based upon the relabeling issue and even prior to that we've seen a lot obviously a competitive pressure around pricing. And just given the incidence of Type II diabetes and the pressure on systems, we feel that the competition frankly exemplify that.

If you look at XARELTO however, we continue to be encouraged by the ongoing stream of really positive data. Our very strong managed care, account management capabilities.

And so, we feel optimistic about the future of XARELTO and while there will undoubtedly be pricing pressure, we think that by continuing to differentiate the brand with strong clinical information, strong value information, as well as frankly there is execution in the field, that we'll be well positioned going forward..

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

Glen in general, we would say is that in the specialty areas, particularly in areas whether it's IMBRUVICA, whether it's DARZALEX where you're literally adding months, years of life to patients and really making significant differences in terms of outcomes, we're seeing less pricing pressure, versus the categories where you have very large patient populations, very large incidents, used more in a primary care setting.

And so, we definitely see that in both cases.

We think that our account management and our reimbursement teams globally are doing a very good job of making sure that stakeholders particularly our payers understand not only the benefits, but frankly the difference in overall outcomes and economic value that the drugs represent, but I think overall, those have been our major observations..

Hey Glenn, I might add as well, with the more competitive dynamic in some of the primary care drugs, you do have elevated discount levels that raise the statutory rebates as well.

So, things like Medicaid, the rebates are going to be a little bit greater in those areas and then under the Affordable Care Act, you had a few states opt in to expand their Medicaid. I think it was Louisiana, Indiana and Pennsylvania, So that's having a minor impact as well. That's correct..

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

Good morning, everybody..

Hi Mike..

I am making in a couple here. So, let me touch on a few. So, number one, I was hoping you could comment on STELARA. It's probably one of the top products that the street seems to have a debate on the outlook going forward.

And I think the expectation is that psoriasis uses to climb as well Crohn's sees uptake in this quarter STELARA exceeded the street's expectations with some of your commentary pointing to a strong Crohn's launch.

So, can you talk about the outlook for STELARA and how you size the Crohn's opportunity and how you view it going forward? The second question is hope you can give us an update on the ZYTIGA ITR decision for the core 38 patent? I think originally you were expecting that we would hear something by the end of May, we haven’t.

So, we would like your expectation as to when we could hear something? And then last one, hope you can give us an update on the diabetes business and where that process stands, thanks?.

Hey Mike, thank you very much and you did sneak there, but let me start with the first one. Look, we remain very positive about the overall opportunity in psoriasis. It just starts with the patient population, the unmet medical need. We believe it's only about 25% to 30% of the patients in that category are actually on some of the newer agents.

So that in and of itself, represents a significant opportunity. We know that there are shifts from therapy, from one therapy to another and then when you really look at the strong data that we have and by the way, we're really excited with the recent approval just last week at TREMFYA as well that that gives us a big opportunity.

And as we've been talking about now for quite some time, we really are trying to look at our immunology portfolio, not just a product by product accounting so to speak and with that, we think with TREMFYA -- STELARA, certainly we saw rapid uptake in psoriasis now in Crohn's.

But if we look at the data with TREMFYA physically competitively, what we have versus Humira, we think that represents a very significant opportunity going forward.

While at the same time, you take a drug like STELARA in Crohn's, again high prevalence, a lot of unmet medical need, very strong data that's going to allow us to continue to grow STELARA we think at a very significant rate going forward.

So, it does represent again a portfolio approach and we think that's why we're especially well-prepared to manage through the Remicade Biosimilars, but also continue to expand our overall immunology portfolio. I'll let Joe you pick up on ZYTIGA and then I'll come back for diabetes..

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

And Mike, as we talk about Type 2 diabetes, look obviously an area where there is a lot of unmet medical need, but at the same time an area where there's a lot of competition among SGLT2 let alone other therapeutic options in that category. There's still a lot of good news about the Canvas Trial when you really look into the data.

At the same time, the recent labeling change has also impacted along with just the overall competitive environment. So, this remains an area where we're very interested. We want to make sure the patients continue to have options as well as physicians, but we also recognize the competitive nature of the category..

Hey Mike, I might just add that you may be referring to the diabetes Medical Device franchises as well and there you saw we took an impairment charges just as largely related to the Animas Pump business, not the overall blood glucose sponsoring business, which is of course the larger portion of the business.

And our efforts to review various strategic alternatives are still progressing, moving along just fine, but nothing to report on that front yet..

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

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

No. We hear you fine Jami..

Okay. Great. Good. Thank you.

So, I just wanted to get some clarification on the guidance raise and the revenue raise and trying to better understand where that's coming from? It seems based on our math and Dominic I want you to correct me if I am wrong that the additional $500 million or so, $500 million to $600 million or so in asset sales is adding $0.15 to your EPS.

But then when I look at your previous guidance, it looks like you are only raising the guidance by $0.10.

So, what is happening? What is the offset to that that $0.05? And then secondly on revenues, FX will be less of a hit than what you anticipated adding $600 million in benefit, but taking the midpoint of your previous guidance that was only about $200 million.

So again, what is the claiming the difference? Why are revenues going up more just given your competence in a stronger back half and a less challenging FX environment. Thanks very much..

Sure Jami. So, let me take it in the order of EPS and other income first and then revenue. So, in the area of other income and expense, you're right, we did raise that guidance roughly $500 million.

We don't expect all of that to flow to the bottom line because as we commented in my earlier remarks, we expect as we always have done in the past, whenever we have portfolio shifts to reinvest some of those gains back into the business with respect to new product launches, R&D investments and the like.

So, you may recall that we also commented that our operating profit margin instead of maintaining or slightly improving, would maintain or slightly decline. So, the vast majority of the other income raise is going to be reinvested in product launches and R&D and therefore operating profit margin before other income and expense will decline.

So that's the offset. You had rightly so commented on the $0.10 raise in EPS, little over 65% of that is currency related. So, we saw benefits to revenue from currency. We'll see benefits to EPS from currency and the balance's operating performance some of which from OI&E line and none from the tax line.

So hopefully that explains or reconciles for you that distinction and then with revenue, yes currency will have a more favorable impact of roughly $600 million due to a less negative impact of currency, but we did tighten up our range on operational or constant currency sales a little bit, lower that midpoint just a bit and we talked about earlier what we see in the back half of the year, although acceleration will take place across all three businesses.

In the consumer business, we're seeing some much weaker markets and some macroeconomic conditions particularly in China and India. So, we've adjusted our expectations although they will increase revenues in the back half, consumer is going to face some lingering market deceleration versus the prior year.

So hopefully that reconciles those two points for you as well..

It does.

Can I just follow-up with REMICADE?.

Sure..

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

Okay. Well let me tell you what we're seeing so far is that you saw Remicade was down about 14%, but the significant impact to that was this prior period adjustment issue for rebate reserve that we discussed. So, excluding that, Remicade's only down about 5%.

That 5% down has some impact of price, some minor impact of share erosion and we see some conversion of Remicade in Crohn's disease to STELARA in Crohn's disease part of Mike Weinstein's earlier question of why STELARA is doing so well is a conversion over from REMICADE patients in Crohn's.

So roughly 5% decline is much lower than I think us and any of you had expected for erosion of Remicade, which we all targeted to be somewhere between 10% and 15%. So, we haven’t seen much impact now. We don't know when the new biosimilar from Samsung will launch.

It may launch later this year and in terms of what the impact that might have, I think that all depends on the degree to which they discount that product and significance of which they discount that product. But I would say largely for this year, we have our contracting in place with all the managed care organizations.

So, we feel pretty good that REMICADE erosion overall even with the entrance of a new biosimilar will be less than we previously expected. Next question..

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

Thanks, and good morning. thanks for taking our question and I would say we are getting a pretty strong echo here from our end anyway. So just a follow-up if I could on the Pharma business and then I wanted an additional follow-up on device trends.

But first on Pharma we would be interested in any additional color you could share on some of the key drivers and forthcoming drivers here in the back half for example you have seen very strong first half in DARZALEX.

Maybe where are we and maybe in terms of some of the extended indication what kind of ramp might we expect towards this $1 billion TREMFYA opportunity and any transitional adjustment to the Actelion DH business. Those are the odds and ends for us to consider as we put together our back-half estimates and one have follow-up for devices if 1 could..

Sure Matt. This is Alex. Look we remain very optimistic about Pharma in the second half of the year and we continue to see really strong uptake both with DARZALEX and the various multiple myeloma indications earlier utilization.

In IMBRUVICA, in lymphoma, again with all the different datasets that we have going out, we continue to see very nice uptake there. We mentioned earlier the strong performance of STELARA, I think up over 23% for the quarter, a lot of that in Crohn's.

The other area that we've been really pleased with that is showing growth I believe at around 13% 14% is our long-acting anti-psychotics TRINZA in particular. We've continued to see uptake go well there.

The Actelion integration thus far has gone very well under leadership of both Paul and Joaquin, teams are working I think very smoothly together and as alluded to earlier, Actelion overall is meeting and/or slightly exceeding some of our expectations.

We're certainly putting in a big premium on minimizing or eliminating any disruption and in fact looking for ways to grow these areas and appropriately, but in even higher growth rate as we indicated earlier in some of my comments.

And then when you compound that with the launch of TREMFYA in our Immunology Group and the lapping of some of the earlier PPA's that we're talking about, I think give us confidence in the back end.

And then of course if we go one step further out and you combine that with some of the new data sets that we expect in the back end of the year and as we head into early '18 around Esketamine and the transform data, Thalidomide in prostate cancer, a continuing stream of data with DARZALEX, its first line multiple myeloma and IMBRUVICA first line in the obese CL and then the COMPASS data with Xarelto, we think that again all these will be reinforcing the great profiles of these compounds and provide even additional sources for growth..

Got it. That's very helpful Alex thanks and then on devices, understanding that you're addressing some of the competitive gaps as you mentioned that you have in spine and the different kind of business there is a lot of competitors there now you're one of the market leaders.

If we look at ortho and general surgery it seems like the trends into Q2 here were on the margin just slightly more favorable potentially and I wanted to get just your thoughts qualitatively on the tone of those businesses, the trends in price or whether any qualitative comments you would make just on what you see here sequentially from Q1 to Q2?.

Yeah Matt, thanks. Look we think the core businesses in our ortho, excuse me in our broader hospital Medical Device Group, we think continue to show good performance and we mentioned earlier EP was up around 14%. The launch of the SMARTTOUCH catheter continues to go very well.

Our Vision Care business in particular showed really strong growth and again even with the transition, the acquisition with AMO you're seeing over 7.5% growth in our contact lens business, which when you think about the job that that team has done, Ashley McAvoy and the rest of her group over the past several years, competitively the launching of new products, the OASYS ASTIG lens that is in the launch phase as we speak and now augmented with the surgical business and Tom Frinzi and his team are doing a really nice job on coming on board.

I just had a chance to visit those businesses. They're doing particularly well. If we look across surgery, even in wound closure, we saw growth of about 3%. Energy and Endomech are in the 3%, 4%, 5% range. You have to keep in mind that we did have an impact from selling days where we don't anticipate that we're seeing major share shifts.

We're seeing some movement, but overall, I think we are quite competent. We do have some areas that frankly we need to do a better job in such as aesthetics and ENT that we mentioned.

Spine certainly, we're focusing a lot and we're more optimistic at the back end of the year based upon some additional Viper line extensions that we're coming out with as well as an expandable cage. And if you look at core orthopedic such as Hips and Knees if you look -- particularly at the U.S. business, we saw Hip grow over 5% in the U.S.

business and if you also add on for our selling days, we think we're doing very well gaining share of the Stem along with the anterior approach. It create a nice opportunity. The ATTUNE rollout, again if we adjust for selling days, we're seeing good performance. We're going to have some additional launches in the back end of the year for that platform.

And in sports also put in a really good quarter as well based upon some more recent introduction and we think trauma overall, we're in line. The TFNA launch continues to go well.

So, we certainly have areas where we should and we need to do better, but we've also got a lot of core platforms in that group that are performing with a very solid performance overall..

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

Good morning, guys. Thanks for taking the question. Hey Dominic I wanted to understand the guidance in the acceleration in the second half of this year, a little bit better on the last call in the first call you had an organic underlying sales growth of 3% to 3.5% in 2017.

Based on my math, it looks like that's about 2.7% today based on the reduction that you talked about earlier, that would imply by my math about 4.5% growth in the second half versus about 2.3% in the first half if you adjust for the PPA.

Hopefully you can follow along with me, but I'm trying to understand that and in Pharma, Dominic it looks like the first half grew about 4.5% once you adjust for the gross to net adjustment.

Are you expecting that type of growth in the second half? In other words, the acceleration is more just about moving past the gross-to-net adjustment or could you actually do better than the 4.5% underlying in the first half and I just have one quick follow up for you Dominic..

Sure. Well Larry, I think your math is pretty straight on. If you exclude acquisition divestitures and this purchase price adjustment that we've spoken to at length, first half is about 2.4% and on a similar analysis for the full-year, underlying growth might be about 3.2%ish. So, 4% back half of the year versus 2.4% first half of the year.

All three of our business segments are expected to accelerate growth.

Pharma will benefit not only from the easier comps from the first half to the second-half, but obviously we talked about the things that Alex mentioned earlier with lower erosion for Remicade, uptake from the launch of TREMFYA, better performance in STELARA as well as XARELTO despite some setbacks in pricing for INVOKANA.

So overall, we think Pharma will continue to accelerate and medical devices and consumer are expected to accelerate as well, primarily driven of the fact that most of the launches in both of those business are planned for the second half of the year.

We've already seen some launch of course in the Vision Care business, but in the base hospital Medical Device business a number of new launches as well as easier comps because of no impact of a lower selling day in the back half.

In Consumer, as I mentioned earlier, although they will accelerate new product launches, we're excited about the markets there are somewhat softer and some economic trends in China and India are impacting our expectation there.

So somewhat muted for the back half versus our previous expectations, but overall the acceleration to about 4% growth for the second half of the year, excluding acquisition divestitures and this purchase price adjustment is about right..

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

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

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

Good morning..

Good morning..

I just wanted to start with a strategic question for you and then a quick follow-up. So, it start out with consumer, there is a general concerns out there in the consumer industry about brand risk whether it be Amazon or Millennials.

How are you feeling about the durability of sort of key consumer franchises and I know the consumer still remains the smallest piece of corporate profit.

Do you still think that's the appropriate mix and I had a quick follow-up?.

Look we still remain very bullish long-term on the brands that we currently have and a lot of it David gets to the fact that our brands are rooted in science. And I think a key differentiator for our OTCs but as well as our beauty franchise, oral care is the strong science that we have behind all these different areas.

And then that of course helps translate in a very strong brand images and while we have seen some recent slowdowns in some of the markets as Dominic mentioned earlier, we think at the end of the day we're still going to need products to fill all the channels and having great innovation and innovative products is going to be essential.

As far as our overall mix as we said in the past, look we don't have a particular algorithm. We look at opportunities as they present themselves in each way or in each different sector. We think we made some pretty significant investments last year in consumer at Vogue.

I just had a chance to go down and visit that group and again when you look at the rate, the pace of their innovation and our ability now to globalize that platform, we're quite excited about it and to expand it into other areas outside of hair care. So, we still think consumer represents a very solid opportunity going forward..

Okay. Very helpful. Maybe I'll just stick with strategic there for a second. Dominic, you mentioned further assets, maybe it was Alex, further opportunities for asset divestiture to drive other income and then Alex in your commentary in devices I sensed you specified certain markets that you haven't talked about before.

So maybe just help us understand two markets struck out for me. What's the strategic commitment to the aesthetics business? It seems like kind of an undersized business for J&J we could go either way. And then you mentioned ENT in this call, which I thought was sort of interesting.

Is that an area where you could be interested in expanding through acquisition? Thanks so much..

Yeah, thanks David. Look, if you look over the past few years, I think our esthetic business had done a very nice job of actually improving the performance. There's recently been a broader dynamic with some of the side effects seen that have tempered the growth in that market. So, it's one where we're going to continue to watch very closely.

ENT has been one frankly of competitiveness, but our team has done a nice job of addressing that. We're in the midst of some launch as we speak and so we'll be watching that obviously closely in the back half of this year and as we head into early '18..

Great. Next question Manny..

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

Great. Thanks very much for taking my question. So, one, just following up on the earlier question around pricing, can you just break out how much of your U.S.

growth quarter was driven by price versus how much came from volume? And then my second question relates to the COMPASS Data, which you mentioned one of the key events for the second half of the year.

I think we're just trying to get a better sense to I think it was trying to give a sense of the -- how you think about the potential impact there given that there is three arms of that study, which stopped early.

How does you think about as we hear the results in a few weeks here, how much more important is that if you see a benefit from the group withdrawal to only rest of the group or is there Ortho is added on therapy and if you maybe just give color on how you think about that, thank you?.

Sure. So Vamil with respect to price, if you look at our entire business it's a little bit I guess messy because of the prior period price adjustments, but let's take those out of the mix for this discussion. If you look our domestic form price was down about 2% overall and on the entire business was down about 8% overall.

Worldwide price was similar to that as well. So, a little bit better volume than price this particular quarter. And then with respect to COMPASS, what I would say there is largely around the patient population, the expansion of the entire Explorer Program.

So, with CAD and PAD, we obviously have the chance to expand the market by about 10 to 12 million patients here in the U.S. What we're currently indicated for is about seven to eight million patients. So, you can see significant opportunity and if you take the entire Explorer Program, it has the potential to be 30 to 35 million additional patient.

So, it's a matter of market expansion. We don't believe that our competition has anywhere near as robust a clinical development program as we do for all of those indications that we're seeking and so we seem to be in pretty good position. We continue to take share from Warfarin.

So, we were up as we said in the earlier comments more than 2% in terms of total market share versus this time last year. .

Okay. All right. Thank you..

You're welcome. Next question Manny..

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

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

Thanks Tony. No, look we're spending a lot of time doing is making sure that we're educating lawmakers with facts regarding the overall healthcare system as well as obviously the important role that pharmaceutical and medical devices as well as consumers ultimately play.

And as you heard my earlier remarks as relates to Pharma it's making sure that we understand that it is about 15% of healthcare. We think it's a really important part of healthcare when you look at overall benefits, making sure that they understand the intricacies of the system as you heard in earlier comments, it is complex.

And so, we think it's very important to be constantly taking them through the data, the information so that ultimately, we can have the most informants policy decisions..

Thanks very much for that and then Joe or Dominic, just two brief product related questions. One and for INVOKANA I recognize the relabeling effect and managed Medicaid rebates, but did you find that the total category did grow despite those effects because sometimes they can bleed to the entire category.

And second, does your full year earnings guidance Dominic include the opt in R&D expense that would be included for a door shift from Actelion. Thanks very much..

Sure Tony. Let me take the second question.

Yes, consistent with our previous guidance update, which we provided last quarter to include Actelion we've maintained the assumption in that guidance and as you update guidance that we would exercise our option with respect to Idorsia product that we have the rights to we're optimistic to see those results and discuss those results with the FDA and that option is not exercisable until we complete those particular steps.

But of course, we're expecting that we will complete those steps in a favorable manner. So, our guidance does in fact impact include that extra R&D expense associated with opting in on that particular product.

Joe?.

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

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

Hi. Good morning, guys. Thanks so much for taking the question.

I just had a higher level question for you Alex or Dominic as we just think about your calling for growth acceleration in the second half of the year, but as we move into 2018 how do we think about the sustainability of that for its acceleration profile, particularly since you should have increasing competition on the REMICADE side of things.

And I believe in 2018 as I see it goes off patent, but please remine me is that's the case.

There is something within the underlying growth trends in some of the other businesses that could sustain this growth acceleration trajectory or how should we be thinking about that?.

Yeah Danielle, thanks for the question.

So obviously we expect that the growth acceleration in the back half of 2017 will create some momentum going into 2018 of course, right because the majority of that growth acceleration in both Hospital Medical Devices and Consumer have to do with new product launches and we expect that that momentum will carry over into 2018.

You're right, there are some puts and takes with respect to some competition as well as patent expiration issues like ZYTIGA, which you just mentioned, but remember the overall farm portfolio remains strong.

Joe talked about the COMPASS data with Xarelto and IMBRUVICA and DARZALEX continuing to move upward in an upward trend and gaining share with more data and obviously the entire immunology portfolio now is bolstered by the earlier launch of guselkumab or TREMFYA and so that's exciting and able to propel growth further.

So, we expect that although there may be some puts and takes, we're not prepared to talk about guidance. Now for 2018 we expect that momentum to continue..

Yeah Danielle, what I would add to that are a couple things. One is I think it really starts with the unmet need that exists among our core platforms. So, if you look at penetration rates in areas for example in our pharmaceutical group, in areas like psoriasis, Crohn's disease, you're seeing treatment rates of only 20% to 30%.

If you take a look at even treatment with next-generation anticoagulants, you're only around 50%. If you look at antipsychotics, long-acting antipsychotics, thereto you're looking at in the vicinity much smaller below 20%. So, we think that there is just a lot of unserved need in each of those categories it's going to allow for growth.

Secondly, when you look at the data stream that we have coming out across all these platforms, again whether it's XARELTO, whether it's a continued launch uptake of TRINZA, the great date for STELARA in Crohn's disease, the TREMFYA launch we think that's going to add momentum.

And then you compound that with the Actelion acquisition, the reasons why we believe that we can reach more patients and generate additional growth, it gives us a lot of confidence in our Pharma group for growth potential going forward.

And then certainly we'll be in the events that you mentioned, but underlined that's why we're going to be launching 10 new brand between now and 2021. We think we have $1 billion potential, several of them with over $3 billion and $4 billion potential.

A long list of other line extensions I think 50, a of which we think have about $0.5 billion potential and so that's our Pharma group and our Medical Device Group, we mentioned more than 12 launch that we have in the back end of the year combined with some of the other work that we've done around making us more effective, more efficient.

And then you compound that with some of the acquisitions that we've done, really in each of our major platforms over the last 12 months and project that going forward. Things like AMO, things like the expandable cage in spine, Megadyne that I mentioned earlier, we think that also provides us a very solid opportunity for growth going forward.

Then of course in consumer, we're very excited about the Vogue acquisition, about neo-strata combined with -- we're very confident that we will see positive trends going forward. So again overall, we think that the rest of 2017 and 2018 while we're not providing any guidance, represents a great opportunity for J&J..

Thanks Danielle, next question..

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

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

I appreciate it, thank you..

Yeah the short answer on that Rick is we are quite excited about our Computerized Surgery program. Everything up to this point in time is on track. We're continuing to make really good progress. We had outlined earlier there are reasons for excitement.

We think that there's an opportunity there not to just actually improve the surgery itself, bring data to bear in the operating room, having much more flexibility and modularity in the system that we would introduce.

And of course, we think that also offers a great opportunity for the rest of our surgical care business as part of an entire system and offering. So, it's on track but what I would tell you is stay tuned.

We're obviously not going to provide too much information on that right now given the competitive environment but we still remain very committed to that program..

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

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

Hi thanks very much for taking the questions. Just two quick ones.

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

Yeah, thanks a lot Bob, but overall if we look at emerging markets performance for this quarter, we saw a growth of around 4%. Sequentially it was a little bit slower, but again it was a couple of things. One, we mentioned earlier consumer, we had issues with the demonetization and some lingering policy issues as it related to our consumer business.

We saw some competitive issues in China, but overall for example, our Medical Device business was up over 10%. So, we saw strong investment in China, excuse me, total emerging markets, we saw that kind of growth. We've got to get through some of these policy issues in India related to demonetization.

There's some in the way that OTC in Pharma drugs are being distributed that we've got to get through in China. The other markets can be impacted frankly at their economies to a certain degree by how reliant they are on petroleum.

But overall for the next several years we think emerging markets in particular brick represent a significant opportunity other than those things that I just mentioned. I don't think we've seen significant issues that would affect our outlook..

Great. And then just as a follow-up, you mentioned earlier about the changing guidance related to potential divestitures and incremental $500 million gains.

I was just wondering if there is any more color there? Are these potential divestitures, several smaller deals, is it one bigger one, is it more device, more consumer, more Pharma, just any more color on those in which would be helpful, thank you..

Yeah Bob, let me provide as much color as I can without obviously jeopardizing potential value we expect to get from these additional divestitures. So, they're not of any major consequence.

So, the ones that are of major consequence which haven't yet closed for example, the Codman Neurosurgery business that's still on track to close this year that was in our original guidance, that's one of the most significant of the group, but not an additional divestiture although we hope that that will actually close at a bit higher value than we previously estimated.

The rest are across multiple businesses, I would call them smaller brands, I'll call them not of any major consequence and we'll have to see whether we can get the right value for those assets before we actually execute on them, but that's our plan for them for the remaining part of this year.

But not any more detail and I'm sure you can appreciate that..

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

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

Great. Good morning. Thanks for taking the question. I just had a question on ZYTIGA and just wanted to follow-up on the higher utilization by the Independent Patient Assistance Foundation. I know it started in the first quarter and continuing into the second quarter here.

I was just wondering if you could give us an update on why that is continuing and why is prostate cancer one of the focus points for these particular groups? And then second question was wondering if you could also give us an update on your outlook for the amortization expense for the rest of the year.

I know it's going to be increasing with the closure of the Actelion deal, thank you..

So, thanks for the question Damien. With respect to the Patient Assistance Foundation, as we stated previously, those are independent foundations. So, they really do operate distinct from Johnson & Johnson. So, our insights and data around that is very, very limited.

What I can say with respect to ZYTIGA is it actually goes back to probably the fourth quarter of last year where we saw a significant bump Bob and we've got some statistics that suggest our prescriptions for ZYTIGA last year this time that ran through the foundation, we're about 4% of total prescriptions.

Now they're up to about 15%, but the good news is we've seen a leveling off. So, in the last couple quarters where we've commented to this impact, it's been around that 13%, 14%, 15% level.

So, we think there's a leveling off as to why these are more utilized and maybe some other foundations that's probably related to some funding that went dark for some other foundations, but again that's pure speculation on our part because these Patients Foundation Assistance programs are run independently from Johnson & Johnson..

Yeah Damien, earlier I gave you some after-tax impacts of intangible amortization expense that are in this year's earnings, were adjusted from this year's earnings to arrive at our adjusted earnings. The pretax number so far just for the second quarter was $480 million and the pretax number in the same quarter of last year was $326 million.

The largest impact of that increase is obviously the AMO acquisition because of course we had a full quarter's worth of amortization there and only couple weeks worth of amortization of Actelion.

So, going forward, the Actelion acquisition will add substantially to the amortization expense, but as you know our practice is consistent with all those in our industries to exclude that from our adjusted earnings because it's obviously a non-cash impact. So hopefully that helps you model going forward..

Great. Thank you..

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

Thank you, everyone for making time to be on the call this morning and I want to end where we began with a few thank you.

First of all, to really thank all the associates at Johnson & Johnson for their ongoing commitment to our credo, to being competitive and ultimately to producing the results that we just had a chance to review with you this morning. And also, a big thank you to all of you for your continued trust and confidence in Johnson & Johnson.

We look forward to updating you at upcoming calls as we work our way through 2017 and with that I'll close the call and look forward to speaking with all of you again soon. Thank you..

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