Good morning. And welcome to Johnson & Johnson’s First Quarter 2015 Earnings Conference Call. All participants will be able to listen-only until the question-and-answer session of the conference. This call is being recorded. If anyone has any objections, you may disconnect at this time. [Operator Instructions] I would now like to turn the conference call over to Johnson & Johnson. You may begin.

Good morning and welcome. I’m Louise Mehrotra, Vice President of Investor Relations for Johnson & Johnson and it is my pleasure this morning to review our business results for first quarter of 2015. Joining me on the call today is Dominic Caruso, Vice President, Finance and Chief Financial Officer. A few logistics before we get into the details. This review is being made available via webcast accessible through the Investor Relations section of the Johnson & Johnson website at investor.jnj.com. I’ll begin by briefly reviewing first quarter for the corporation and for our three business segments. Then Dominic will provide some additional commentary on the business, review the income statement and provide guidance for 2015. We will then open the call to your questions. We expect the call to last approximately one hour. Included with the press release that was issued earlier this morning is the schedule of sales for key products and/or businesses to facilitate updating your models. These schedules are available on the Johnson & Johnson website, as is the press release. Please note, we will be using a presentation to complement today’s commentary. The presentation is also available on our website. Before we begin, let me remind you that some of the statements made during this review are or maybe considered forward-looking statements. The 10-K for the fiscal year 2014 and the Company’s subsequent filings identify certain factors that could cause the Company’s actual results to differ materially from those projected in any forward-looking 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. Our SEC filings including the 10-K are available through the Company and on our website. During the review, non-GAAP financial measures are used to provide information pertinent to ongoing…

Thank you, Louise and good morning everyone. We are very pleased with our strong start to 2015 and I believe we are well positioned for continued growth in this dynamic healthcare environment. At Johnson & Johnson we continue to make very good progress on our near term priorities as well as our long term growth drivers which we discussed during our January call. I’ll take the next few minutes to highlight some key developments we’ve made to advance our business as well as some key points regarding our results for the quarter and then I’ll provide some updates to our guidance for you to consider in refining your models for 2015. During the quarter we had several key developments across our business. We received new approvals for IMBRUVICA, PREZCOBIX and VELCADE in our pharmaceutical business and also added a new anti-thrombin antibody to our early stage development pipeline through the acquisition of XO1 Limited which we announced last month. We also continued expanding our efforts to combat major global public health challenges through collaborations with government organization and others in the industry to search for new solutions to stand the threats posed by dementia and Ebola. In much more in-depth preview of the outstanding work our pharmaceutical business is doing will be provided at our upcoming pharmaceutical business review meeting on May 20th which will take place in New Brunswick, New Jersey. In Medical devices in line with our priority to accelerate growth through innovation we announced in March definitive agreement to collaborate with Google Life Sciences to advance development of a surgical robotics program which we see as an important step in our commitment to advancing surgical care around the world. Finally we continued making disciplined decisions regarding the management of our enterprise portfolio and completed our divestiture of…

Thank you, Dominic. And Andrea, could you please provide the instructions for the Q&A session.

[Operator Instructions] Your first question comes from Mike Weinstein with JPMorgan.

Good morning, Mike.

Hi, Mike.

Good morning. Thanks guys taking my questions. So Dominic, the first question you'll probably going to have is the FX headwind obviously has gotten worse over the course of the last few months, and you reflected that in the guidance. You're helping manage through 2015 with the gains from NUCYNTA and Cordis, but that won't help you for 2016. So we're a long ways away from there, but obviously the question is, can you grow earnings in 2016 after the gains you'll be taking in 2015, assuming the dollar holds at least?

Sure. Mike, it’s a good question and let assume the dollar holds and there isn't further currency headwinds. Yes, we did purposely offset some of the OLYSIO income we saw in 2014 with now this benefit from the divestitures that we talked about and are very transparent about in 2015. I would say, with a business of our size $70 billion to $75 billion in sales, we actively manage our portfolio and we would expect that we would continue to do so and as we talked about before, look at the businesses that we expect to not be in and make the right portfolio choices and take the size of actions and that will further enable us to refocus our resources in the right areas. So I think, although I can't predict the level of other income we would have in 2016, I wouldn't expect the drop off so dramatically. And secondly, as I mentioned our sales growth is accelerating, our business has been managed well by all of our business leaders around the world. So I'd expect continued sales growth and increase profitability from those sales as we move forward. So, more to come and we'll obviously keep you posted throughout the year.

Okay. Let me ask two kind of balance sheet, capital allocation questions and one, you and I discussed this a few weeks ago in our call, but I know lot of you like questions on the back of the press reports on Pharmacyclics and Abbey's acquisition there and JNJ's potential involvement. So I won't ask you to comment on JNJ's involvement, but can you talk about the companies thinking about larger M&A particularly in the pharmaceutical space, but really across portfolio, the appetite for larger M&A at this point. And then, second, I'd be interested just in your comment on the back the GE activity on Friday. As you're aware, GE is part of its move to slim down to being more of a pure industrial company to offset some of that dilution announced that they were going to repatriate $36 billion in cash that was sitting outside the U.S. to fund the stock buyback, that doesn't help your discussions with the Washington about getting the holiday or more meaningful change in tax laws to allow you guys to access that cash. So, with GE being this very high profile and U.S. multinational repatriating all this cash, does it change your thinking at all about how you're managing your cash balance all of which sits outside the U.S? Thanks.

Okay. Mike. There's a lot there. So let me start with the first half which was about, I think the appetite for large acquisitions and I won't comment on rumours or speculation about our involvement in the Pharmacyclics. I think just to take a step back our capital allocation policy remains the same and we have for a long time emphasize dividends as the first use of our capital and we believe that's the most enduring return to shareholders and we've demonstrated over now 52 consecutive years of increase in dividend. And then, it was up to me and others in our business, we'd invest all of the remaining free cash flow and value creating acquisitions whether they were large or small. I think the key point here is the transaction value creating regardless of its size, so our appetite doesn't really change in terms of whether or not an acquisition is large or small our view of acquisition is being value creating has to do with the disciplined approach we take to evaluate an acquisition and whether its large or small we're not going to overpay for an asset. Typically, large acquisitions are difficult to generate value from because either over valued by the market or significant premiums required or the asset is already substantially mature enough where you can add much to it. But I would not necessarily read into any of our discussions or actions as being necessarily adverse or favorable towards any size particular size or transaction. And it's true that over the long period of time the majority of our transactions have been below $1 billion actually, but we've done as you know with the transaction and important strategic moves that are significant on the $20 billion range. So hopefully that provides you some insight there. On the repatriation question, we're still firm believers that the ultimate conclusion here is a much more competitive corporate tax system in the U.S. I can't speak for what GE did but this not alter our view that its currently uneconomical to repatriate those earnings at such a high corporate tax burden and we'd much rather see our government move in the direction of lowering that tax burden for corporation, getting that cash back to the U.S and invested more appropriate without the burden of this extra tax spike, but I can't comment on why or whether we would do something similar as to what GE did.

Thanks, Dominic. It’s very helpful.

Thank you. Next question please.

Your next question comes from Vamil Divan with Credit Suisse.

Yes. Thanks so much for taking the questions, just a couple on the pharma side here. One you mentioned as we run guidance and how you're thinking about 2015 with PROCRIT and other products. Just any thoughts by biosimilar REMICADE in the U.S. and is that anyway factored into your thinking for the rest of this year? And then, on the oncology side, one area we hear a lot of focus on for lot of companies is immuno-oncology and I just wondering if you share any thoughts, I know you have your pharma business everyday [ph] coming up little bit here, but any thoughts you can share with that as you kind of ready for these big oncology meeting, you're focus on getting more involved on the immuno-oncology side? Thanks.

Sure, Vamil, well, our guidance for 2015 does not assume any biosimilar competition in the U.S. We remained confident in the strength of our patents and obviously we're pursuing all available avenues to protect our intellectual property, but we're not expecting biosimilar competition 2015 in the guidance that I provided. In terms of oncology and immuno-oncology in particular our teams have done very, very good work here in the next generation of immuno-oncology and I think it’s a best to save any further comment to the experts and you'll hear from them and see them in action on May 20. And I encourage you all to hear what they have to say, I think you'll find it very exciting.

Okay. Thank you. Next question please.

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

Good morning. Thanks for taking the question. I hope you can hear me okay, I'm on the cell phone.

Yes, we can, Larry.

Great. Let me start off with first, it was good to see the acceleration in the consumer segment, I thinking it was about 4.7% organic growth. Dominic, can you talk about how sustainable that is?

Sure, Larry. Well, thanks for pointing it out. We're very pleased with the consumer businesses progress over the last several years actually and now we're seeing that progress result in higher sales levels, for couple of reasons. I think overall the market is healthier in consumer spending is what we see. We also have made important innovations in that consumer healthcare particular in skincare and we see skincare doing really well and we continue to invest behind it. And then finally we made great progress in the OTC business in terms of resolving and remediating the issues around the consent decree. We're complete with all of those particular actions, although we still need to wait for final FDA certification, but now that allows us to more freely ship product from those plans. We can do so on a consistent basis. We're happy to see that was those products hit the shelves they go quickly, we're happy to see that we're able to replenish the shelves in a more consistent basis. So, we believe consumers are off to a great start in 2015 and we're expecting more continued positive results from the business going forward.

Thanks, Dominic. On the Q4 call you said you'd expected consumer and devices to both accelerate in 2015. And as you noted we saw consumer accelerated in the first quarter, but we didn't see devices accelerate. So, do you still expect devices to accelerate in 2015 and if so what drives that? Thanks for taking the questions.

Yes. Thanks, Larry. Thanks for the question. Well, let's take a minute to just put the medical device results for the quarter in perspective, of course, negatively impacted by the divestitures and as we said about 1.3% growth without that. But underlying that there's a few issues there that I think is important to point out. One is we existed the women's health business recently. We also have seen these, the negative impact of the price reset in the Vision Care business, so that's a drag quite frankly year-over-year, and also the continue headwinds that we faced in our diabetes business as to pricing. When you exclude those factors and you sort of normalize, but what's really happening in the underlying business, it's growing at approximate 3% or about equal to the market. Now, going forward the medical device business as we describe last year in the medical device day has a number of new product launches 30 new product that we're expecting the launch by 2016, some of them have already began the launch. So, we're very optimistic about the fact that the medical device business will return to grow especially ones we lap some of these comparisons and also we see the benefits of the new products that we're launching. So we're very excited about the future.

Thanks for taking the questions.

You're welcome. Next question please.

Jami Rubin with Goldman Sachs.

Good morning Jami.

Good morning. Couple of questions for you Dominic, just back on the REMICADE biosimilar potential, can you just update us on what's happening with the patent, because the last we saw the U.S. PTO issued a rejection on your September 2018 composition of matter patent and just if you could remind us what the appeals process looks like, could Celltrion launch at risk since you lost the patent, the composition of matter. How does that work? And then, one probably, do you have long-dated patents around REMICADE that you can assert using the 351(k) pathway. And then my second question relates to utilization. I think in the last quarter or two you talk about two straight quarters of improved U.S. utilization. Are you seeing that continue into the first quarter? And then last question, and apologies for the nitpickiness of this, but I'm just trying to understand my math. You had talked about an additional $500 million in one-time gains from sales. That to me looks like $0.14 but you talked about $0.10 combined with -- which was a combination of the one-time gain plus operational benefits, so, just curious what I'm missing. Thanks very much.

Okay, okay Jami. Thanks for the questions. So let me start with…

I'm sorry, they are too many but I had to get them all-in.

That's okay. You got them all in. I'll try my best to answer them all. And we'll take them in the same order. So the REMICADE Biosimilar patent situation is what you asked about. So let me just give a perspective on that. Yes, it's true that the U.S. Patent Office has issued what is referred to as a final rejection. But under the process in the U.S. Patent Office, the word final is not exactly what Layman or I would consider as final. So there are number of steps that can still occur after that final rejection and in fact one of those steps includes our response to that final rejection which we filed just yesterday. Then that filing then is reviewed by the Patent Office and we would expect to hear back from them in the next 30 to 60 days and depending on that response we then have another avenue of appeal which if the current position of the Patent Offices remains the same we have another appeal process which could take another 12 months or so to prosecute with the Patent Office and then after that even if there is an adverse ruling after that there's another decision to the Court of Appeals in the federal circuit court that we could appeal for which would take another 12 to 18 months. So first of all, as I said earlier, we're very confident in the strength of our patents and we intent to pursue all the available avenues for appeal and we're doing so including our response just yesterday to what was previously described by you as the final. But it's not final as I've just described. On whether Celltrion will launch at risk it’s a question for them. I really can't comment what they might do.…

Yes. Thank you very much.

Next question please.

Glenn Novarro with RBC Capital Markets.

Good morning, Glenn.

Hi, good morning, guys. Wanted to start with a question on spine, Louise, in your prepared remarks you talked about, I believe it was in the U.S., competition and pricing challenge for the negative U.S. spine number in the quarter. Can you talk to us about what the challenges you're facing? Is it from the smaller players taking share? And can you describe to us the pricing pressure, and how that compared to the fourth quarter? And then I had a follow-up on robotics.

Okay. So going forward because we have some movement between price and mix when a new products goes up, annualizes itself, I'm going to start giving people only price and mix on the U.S. price changes, okay. So, in the first quarter we had a 5% decline price and mix in the U.S. in spine and that compared to about 4% in the fourth quarter of 2014. And regarding the competitive there is new products coming out with our competition and as Dominic mentioned we have a number of new products coming from ourselves as well. So it's just more of timing and we expect it to pickup throughout the year.

And just as a follow-up, the pricing little worse for you guys here in the first quarter, do you have any commentary why that may have happened, does it just more about your mix and your new product cadence?

Its lot to do with the mix, Glenn, yes.

I think generally Glenn, price has been negative in this marketplace in orthopedics now for several quarters and we're just seeing that trend continue. We just saw it recently as well.

Okay, and just on the competition side, like I said. You can look at two-thirds of the market, and it's you and Medtronic. So is the pressure really coming from that other third, some of the younger upstart companies?

I'm just going to take a look at the share data and then I will – if you have another question, go ahead and ask that and I'll just take a look at the share and see where it's going then.

And then, I just wanted to follow-up on your robotics commentary. So, you recently announced collaboration with Google. Can you talk about the timing of when you may have a robot that could enter the market? Is this two or three years out, longer or shorter? Any commentary on the time frame would be helpful?

Yes. Sure, Glenn. Well, so one thing I would say, this is a continuation of what we discussed at the MD&D business review day a year ago. So we had mentioned that we were working on our own robotics program internally. We've now obviously partnered with Google to gain their expertise in technology and visualization and in robotics and I think that's going to provide us some acceleration to the plans we were already anticipating. We're already in the market for robotics in terms of our particular – in terms of particular procedures where our Ethicon products are used at the end of the robot, at the actually procedure end of the robot. So we'll continue to do that. We would expect this collaboration would take – I would say several years for us to come to the market with the new type of robotic surgery that we think we'll dramatically revolutionize surgery. So, I think it will take some time to do that, but we're accelerating our efforts there and I'd say it’s a couple of years away.

Okay. Glenn, I just checked, it is the smaller players that appeared to be taking share.

Okay.

Next question, please.

Thanks, Dominic.

You're welcome.

You're next question comes from David Lewis with Morgan Stanley.

Good morning, David.

Hi, good morning. Just Dominic, one quick nit for you, and then a couple pharmaceutical questions as well, just as we see a step up in gross margins, Dominic, in the first quarter from the fourth quarter, we didn't see that in this particular quarter. Was anything driving that in particular?

Yes, David, I mentioned in my prepared remarks that the main issue with gross margin this quarter versus last year and also versus the fourth quarter I should have said, that has to do with currency impact. So it's just – even though we hedge most of our manufacturing foreign currency commitments; they do roll over from year-over-year and quarter-to-quarter so this particular quarter I could sort of reflect on it and say it’s essentially all currency impacts.

Okay. It’s very helpful and then two quick questions on pharma. The first is on REMICADE outside the U.S. there was a little bit of softness. It wasn’t clear from prepared remarks whether that reflected inventory issues or some stocking element or increasing competition. And then secondarily and INVOKANA a very strong number the two elements I wanted to get your views on. The first is, it does appear in some of the data INVOKANA is beginning to accelerate its year related to certain specific competitors. And the second question was just given these increasing concerns on DPV IV [ph] drug class, could we see a positive class effect? Are you expecting one for the SGL2s? Thank you.

Yes well with REMICADE OUS as Louise mentioned we saw these are shipments that we make to our partner Merck for their territories outside the U.S. and as you know many of those territories we have seen the loss of exclusivity so biosimilars have entered those markets. So the primary reason is basically lower shipments to our partner as they plan for the balance of the year, anything else you could add to that Louise.

Yeah so if you will recall about a year ago we made some changes to our supply chain which caused the some of the export sales that we recorded in the U.S. we actually recorded in the international. So you really have to add those two together to get a clear picture of what’s going on there. If you take a look at them together it’s down about 2%. We had very strong sales in Canada and then that was offset by some the distributor sales being down due to the weakening of the euro and also market pressures because of the biosimilars and they did have an inventory build with our distributors. So there’s a number of compounding factors that are going on there. So you really need to take a look at it in total.

And then with INVOKANA we are very pleased obviously with the performance of INVOKANA and with INVOKAMET in particular because as you know you know many patients take these SGLT2s in combination with Metformin so that product is doing well. Whether or not this is a class effect for SGLT2 I think we have a particular benefit and strong SGLT2 and the benefit that we have here is of course the lower HbA1c levels, lower weight gain etcetera so the product is getting very very good acceptance and it’s now you know exceeding all the other SGLT2 that have recently come to the market by significant margins and gaining market share despite increased competition.

And so our commercial payers we have about 75% coverage at Tier 2 and the Part D we have about 85% coverage added here to which is the lowest tier for our brand. And so we are doing very very well in the reimbursement front and we are gaining share in all the categories. You know the end work share sequentially, it’s a 11.8 in the first quarter and that’s up from 10.3, so nice growth there and even more impressive is the primary care going from 3.6 to 4.3 and primary care is about 60% of that market, so it’s really impressive results.

Great. Thank you very much.

You’re welcome. Next question please?

Thank you. Your next question comes from Rick Wise with Stifel.

Good morning, Rick.

Good morning, Dominic and Louise how are you doing? Let me start off Dominic with surgical care and speciality surgeries specifically you know both business has been pretty flat for a few quarter here. It’s not surprising in median surgical care but speciality surgery, can you – you were saying volumes are picking up and that we have not seen it yet. Is this lagging or it’s been accelerated competitive issues, just give us some more color if you could. Thank you.

So within the speciality surgery area we have a number of businesses put in there. So if you but you could take a look at the core businesses of biologics and energy, biologics is up 7% worldwide, energy is up 4% worldwide and if you look at the OUS for biologics its up 11% and OUS is up 5%. So a clearance in there which is causing some depression of the numbers, Mentor is in there as well what Mentor is doing well. So but if you really take a look at the two cores, they are doing very well.

Yeah, I think that’s well said Louise. Biosurgicals in particular is doing very very well and Energy is with the launch of new products is gaining momentum. I think we’ll see it in future quarters quite frankly as these products have just recently launched, but there is some noise in the other segments, but the overall core business is doing very well Rick.

Okay. And turning to diabetes you highlighted that ANIMAS have strong double digit growth is this all VIBE and moving past the negative price cuts and just and may be talk – give a little more color again on VIBE the roll out where you are and you have highlighted the 3-Day Wearable Patch as a possibility, where does that stand? Thanks.

Sure. Well Rick it is primarily due to the VIBE business. So VIBE was launched OUS last year and continue to pick up a lot of volume, did extremely well OUS and was just launched in the U.S. recently and we’re seeing some very very good uptick on VIBE and we’re very very pleased by that new insulin pump it’s doing very very well taking share and growing and with the with what we saw happening OUS certainly bodes well for the uptick of that product in the U.S. In terms of the Wearable Patch Pump that’s probably a couple of years out still, obviously we need to scale up manufacturing complete some additional work on that. A few of us were just there recently visiting our diabetes business and all plans are in shape there, they are moving forward with all the manufacturing that needs to be done, so we are very excited that will come in the market but it’s probably you know by – but not before 2016 I would say.

Okay, just a quick follow up on the VIBE. Are you getting to taking you are sure are you converting your existing customers or is it taking competitive share?

Yes from what we saw the data we saw shows us that we are taking competitive share you know from the major player in the marketplace.

Yes with the very strong growth rates we had we would have to be taking share. Next question please?

Thank you. Your next question comes from Josh Jenning with Cowen & Company.

Good morning, Josh.

Good morning, thanks so much for taking the question. Just wanted to start Dominic if you would just on the strategy behind the quarters divestiture it seemed like it was an underperforming unit, but just you know throughout last year some of your commentary now it’s a commentary seem that you were looking to get bigger in cardiology not smaller. Can you give us just a little more color on that acquisition and also just your outlook for the cardiology spaces and your comfort level of having a relatively standalone BioSense Webster division?

Yes, well it’s a great question, Josh. We’ve been very consistent with our approach to divestitures and Alex has many times if we are not neither number one or number two in the market or we don’t see a pathway of being number one, number two in the markets through technology and the appropriate amount of investment or for example if its not otherwise complementary to our business and it should be a candidate for divestiture. So as you pointed out we obviously did not divest the BioSense Webster piece of the Cordis business, that’s very very promising. Business is doing extremely well; new innovations come in the market etcetera. So we are pleased with being in the cardiovascular device space where innovation is rewarded and whether significant unmet need that we can actually address the main reason for exiting the Cordis business is it generally has become from our vantage point the commodity business and it will be in our view better managed in the hands of others and I think Cardinal is going to do just a great job with that business.

Thanks for that and then just the follow up on operating margins in the quarter. You know only 50 basis point ahead year-over-year despite release your headwind and affects. Can you help us think about sort of apples-to-apples ex-HCV [ph] in terms of the operating margin performance and then how we should think about operating margins year-over-year 2015 over 2014? Thanks a lot.

Yes well the first quarter there was some impact for OLYSIO but obviously OLYSIO grew throughout 2014 so we’ll see that operating margin decline more pronounced in future quarters obviously and that’s all in our guidance. The guidance we provided shows that if I mean we didn’t give you a specific operating margin but you walk through the P&L as you update your models you’ll see that the pre tax operating profit margin is probably going to go down about 150 basis points and that’s primarily 120 basis points due to the OLYSIO net OLYSIO because remember we invested some of those gains last year. And that of course is what I referred to earlier that were offsetting with the decisions that we’ve made about the portfolio we think these are the right decisions to make at the right time, they also come at a time when we can offset this decline in operating profit margin. Hopefully that’s clear now Josh.

Thanks so much.

Yes. Thank you.

And we’ll take one more question.

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

Good morning, Jason.

Good morning, thanks for taking the questions, just a couple of quick ones. On consumer, in terms of the consent decree, third party has blessed the facilities. You're now waiting for the FDA. When it's officially lifted, can you give us an idea as to the potential impact on the business if any and specifically as it relates to margins which still look like the down in the low double digit?

Sure, Jason well it is true that we’ve completed our work and we have outside party that sort of verifies what we completed and prepares their report and then the FDA has to come in and certify. But even after the FDA certifies remember that we still will operate under the consent decree for a 5-year period, that’s what the law requires. Now during that 5-year period we’ll continue to make improvements etcetera but and I would say generally speaking the consumer business has done a very nice job mapping out the fact that gross margins and overall margins in that business should improve overtime while at the same time we’re investing behind the products that we are launching. So I would say we’ll see continued improvements in margins, I wouldn’t view them as dramatic in the short term but continued steady progress and improvements in that business which we are very pleased with.

Thank you very much. So some final comments from Dominic.

Okay, thanks everyone, and thanks, Louise. So as I noted earlier we are very pleased with our strong start to 2015 and I would just like to take a moment and recognize and thank all of our associates around the world for their extraordinary achievements and dedication to the success of Johnson & Johnson and thank you all for your time this morning. I look forward to updating you on our progress throughout the year. And finally just a reminder, that we will be conducting a review for the investment community of our pharmaceutical business on May 20th in New Brunswick and I obviously look forward to seeing you all there. So have a great day. Thank you.