JOHNSON & JOHNSON (JNJ) Earnings Report: Q4 2015 ...

CompanyName:Johnson&JohnsonCompanyTicker:JNJSector:HealthCareIndustry:Drugs

EventDescription:Q42015EarningsCallMarketCapasofEventDate:282.98BPriceasofEventDate:104.44

©2014TheStreet,Inc.Al l R ightsReserved Page1of27

JOHNSON&JOHNSON(JNJ)EarningsReport:Q42015ConferenceCallTranscriptThefollowingJOHNSON&JOHNSONconferencecalltookplaceonJanuary26,2016,08:30AMET.Thisisatranscriptofthatearningscall:

CompanyPart icipants

LouiseMehrotra;Johnson&Johnson;VPofIRAlexGorsky;Johnson&Johnson;Chairman&CEODominicCaruso;Johnson&Johnson;CFO

OtherPart icipants

MikeWeinstein;JPMorgan;AnalystGlennNovarro;RBC;AnalystMattMiksic;UBS;AnalystLarryBiegelsen;WellsFargo;AnalystJamiRubin;GoldmanSachs;AnalystVamilDivan;CreditSuisse;AnalystKristenStewart;DeutscheBank;AnalystBobHopkins;BofAMerrillLynch;AnalystJoshJennings;Cowen;AnalystDavidLewis;MorganStanley;Analyst

MANAGEMENTDISCUSSIONSECTION

Operator :

WelcometoJohnson&Johnson'sfourth-quarter2015earningsconferencecall.

(OperatorInstructions)

Thiscallisbeingrecorded.Ifanyonehasanyobjections,youmaydisconnectatthistime.

(OperatorInstructions)

IwouldnowliketoturntheconferencecallovertoJohnson&Johnson.Youmaybegin.

LouiseMehrotra(VPofIR):

Goodmorningandwelcome.IamLouiseMehrotra,VicePresidentofInvestorRelationsforJohnson&Johnson.Itismypleasurethismorningtoreviewourbusinessresultsforthefourthquarterof2015.JoiningmeonthecalltodayareAlexGorsky,ChairmanoftheBoardofDirectorsandChiefExecutiveOfficer;andDominicCaruso,VicePresidentFinanceandChiefFinancialOfficer.

Afewlogisticsbeforewegetintothedetails.Thisreviewisbeingmadeavailableviawebcast,accessiblethroughtheinvestorrelationssectionoftheJohnson&Johnsonwebsiteatinvestorjnj.com.

IwillbeginbybrieflyreviewingresultsfortheCorporationandforourthreebusinesssegments.Followingmyremarks,Alexwillcommenton2015resultsandprovideastrategicoutlookfortheCompany.Then




Dominicwillprovidesomeadditionalcommentaryonthebusiness,reviewtheincomestatement,andprovideguidancefor2016.

Wewillthenopenthecalltoyourquestions.Weexpectthecalltolastapproximately19minutes.Includedwiththepressreleasethatwasissuedearlierthismorningisthescheduleofsalesforkeyproductsand/orbusinessestofacilitateupdatingyourmodels.TheseschedulesareavailableontheJohnson&Johnsonwebsite,asisthepressrelease.

Pleasenotewewillbeusingapresentationtocomplementtoday'scommentary.Thepresentationisalsoavailableonourwebsite.

Beforewebegin,letmeremindyouthatsomeofthestatementsmadeduringthisreviewareormaybeconsideredforward-lookingstatements.The10kfortheFY14,andtheCompany'ssubsequentfilingsidentifycertainfactorsthatcouldcausetheCompany'sactualresultstodiffermateriallyfromthoseprojectedinanyforward-lookingstatementsmadetoday.TheCompanydoesnotundertaketoupdateanyforward-lookingstatementsasaresultofnewinformationorfutureeventsordevelopments.OurSECfilings,includingthe10K,areavailablethroughtheCompanyandonourwebsite.

Duringthereview,non-GAAPfinancialmeasuresareusedtoprovideinformationpertinenttoongoingbusinessperformance.Thesenon-GAAPfinancialmeasuresshouldnotbeconsideredreplacementsforandshouldbereadtogetherwithGAAPresults.TablesreconcilingthesemeasurestothemostcomparableGAAPmeasuresareavailableintheschedulesaccompanyingthepressreleaseandontheinvestorrelationssectionoftheJohnson&Johnsonwebsite.

Anumberoftheproductsandcompoundsdiscussedtodayarebeingdevelopedincollaborationwithstrategicpartnersorlicensefromothercompanies.Thisslideliststheacknowledgementofthoserelationshipsnototherwisereferencedintoday'spresentations.

NowIwouldliketoreviewourresultsforthefourthquarterof2015.Worldwidesalestocustomerswere$17.8billionforthefourthquarterof2015,down2.4%versusfourthquarterof2014.Onanoperationalbasis,saleswereup4.4%,andcurrencyhadanegativeimpactof6.8%.

IntheUS,saleswereup8%.InregionsoutsidetheUS,ouroperationalgrowthwas1.2%,whiletheeffectofcurrencyexchangeratesnegativelyimpactedourreportedresultsby12.9%.Onanoperationalbasis,theWesternhemisphere,excludingtheUS,grew2.8%,whiletheAsia-PacificAfricaregiongrew0.9%,andEuropegrew0.8%.

GrowthinallregionswasnegativelyimpactedbythedivestitureoftheCordisbusinesswithEurope,LatinAmericaandCanadaalsonegativelyimpactedbyhepatitisCcompetition.ExcludingthenetimpactofacquisitionsanddivestituresandhepatitisCsales,underlyingoperationalgrowthwas7.8%worldwide,13.4%intheUSand2.9%outsidetheUS.

Iwouldliketopointoutthatour2015fiscalyearincludedanadditionalweek.Sincethisweekoccurredduringaholidayperiod,wedidnotachieveafullweekofsales.However,wedidhaveafewmoreshippingdays.Theseadditionalshippingdaysaddedapproximately4pointstothequarterlysalesgrowthrateand1pointtotheannualgrowthrate.

TheadditionalsalesweremoreheavilyskewedtotheUS.Whilethesefewshippingdaysaddedtosales,wealsohadafullweek'sworthofoperatingcosts;therefore,thebottom-lineimpactwasnegligible.

Turningnowtoearnings,netearningswere$3.2billionanddilutedearningspersharewere$1.15versus$0.89ayearago.Asreferencedinthetablesreconcilingnon-GAAPmeasures,2015fourthquarternetearningswereadjustedtoexcludeafter-taxamortizationexpenseof$220million,andanetchargeof




$608millionforafter-taxspecialitems.

2014fourthquarternetearningswereadjustedtoexcludeafter-taxamortizationexpenseof$275millionandachargeofapproximately$1.1billionforafter-taxspecialitems.Dominicwilldiscussspecialitemsinhisremarks.

Excludingamortizationexpenseandspecialitemsforbothperiods,adjustednetearningsforthecurrentquarterwere$4billion,andadjustedearningspersharewere$1.44,representingincreasesof4%and5.1%respectivelyascomparedtothesameperiodin2014.Currencytranslationsignificantlyimpactednetearnings.Onanoperationalbasis,adjusteddilutedearningspersharegrew12.4%.

Nowturningtothefinancialhighlightsforthefullyearof2015.Consolidatedsalestocustomersfortheyearof2015were$70.1billion,adecreaseof5.7%ascomparedtothesameperiodayearago.Onanannualbasis,salesgrew1.8%operationallyandcurrencyhadanegativeimpactof7.5%.ExcludingthenetimpactofacquisitionsanddivestituresandhepatitisCsales,underlyingoperationalgrowthwasapproximately6.5%worldwide,10.6%intheUSand3%outsidetheUS.

Turningnowtoearnings,2015annualnetearningswere$15.4billionanddilutedearningspersharewere$5.48.Fortheyear2015,adjustednetearningswere$17.4billionandadjustedearningspersharewere$6.20,down4.8%and3%respectivelyversusthe2014results.Onanoperationalbasis,adjusteddilutedearningspersharegrew5.8%Estimatedfreecashflowfortheyearwasstrongat$15.9billion,up$1.1billionversus2014.

Turningnowtoquarterlybusinesssegmenthighlights,pleasenotepercentagesquotedrepresentoperationalsaleschangesincomparisontothefourthquarterof2014,unlessotherwisestatedandthereforeexcludetheimpactofcurrencytranslation.Iwillbeginwiththeconsumersegment.Worldwideconsumersegmentsalesof$3.3billionincreased1.8%withUSsalesdown4.9%,whileoutsidetheUSsalesgrew5.5%.

Excludingthenetimpactofacquisitionsanddivestitures,underlyinggrowthwasapproximately4.7%worldwide,1.7%intheUSand6.3%outsidetheUS.GrowthwasdrivenbyworldwideOTCandoralcare,aswellaswomen'shealthoutsidetheUS.

OTCsalesresultsintheUSweredrivenbyZyrtecandproductrelaunchesfordigestivehealthproducts.Stronggrowthforanalgesicswaspartiallyoffsetbytimingofinventorybuildsasnotedinthethirdquarterandaslowerstarttothefluseason.IntheUS,adultanalgesicmarketsharewasapproximately13.5%,upfromapproximately11.5%ayearago,whileUSpediatricsharewasapproximately45.5%,upfromapproximately42%ayearago.

ResultsoutsidetheUSweredrivenbystrongsalesofupperrespiratoryproductsandtherelaunchofanti-smokingproducts.Strongsalesmomentum,drivenbysuccessfulmarketingcampaignsandgeographicexpansionfornewproducts,droveresultsforListerineinoralcareandinwomen'shealthproductsoutsidetheUS.

Movingnowtoourpharmaceuticalsegment.Worldwidesalesof$8.1billionincreased6.5%withUSsalesup12.7%andsalesoutsidetheUSdown0.9%.CompetitorsinhepatitisCsignificantlyimpactedsalesresults.ExcludingsalesofourhepatitisCproducts,OLYSIOandINCIVO,aswellastheimpactofacquisitionsanddivestitures,underlyinggrowthwasapproximately11.1%worldwideand21%intheUS.

SalesoutsidetheUSdeclinedapproximately0.2%withstronggrowthofnewandcoreproductsoffsetprimarilybylowersalesofREMICADEandSIMPONItoourdistributionpartner.ImportantcontributorstogrowthwereSTELARA,INVOKANAINVOKAMET,IMBRUVICA,INVEGASUSTENNAandXEPLION,XareltoandUSsalesofREMICADE.STELARAachievedstronggrowthacrossallthemajorregions,drivenbyrobust




marketgrowthandincreasedpenetrationwiththepsoriaticarthritisindication.

StrongmomentumandmarketsharedroveresultsforINVOKANAINVOKAMET.IntheUS,INVOKANAINVOKAMETachieved6.5%totalprescriptionshare,orTRx,withinthedefinedmarketoftypeIIdiabetes,excludinginsulinandmetformin,upfrom4.2%lastyear.TRxwithendocrinologistswas12.8%forthequarterand5.8%inprimarycare.

StrongpatientuptakewithdemonstratedefficacydroveresultsforIMBRUVICAintheUS.IMBRUVICAistheleaderinbothnewandtotalpatientregimentshareinsecondlineCLLandMCL.

OutsidetheUS,resultsweredrivenprimarilybyEuropewithstrongpatientuptakeandsharemomentum.IMBRUVICAisnowapprovedinover60countries.

Asanupdateonouroncologypipeline,wereceivedFDAapprovalforDARZALEXinNovember.DARZALEXisofftoarobuststartwithstrongunderlyingmarketdemand.

INVEGASUSTENNAorXEPLIONachievedstrongresultsinallmajorregions,primarilyduetoincreasedmarketshareandthelaunchearlierthisyearofINVEGATRINZA.ContinuedsharegrowthdroveXareltosalesresultswithTRxforthequarterintheUSanticoagulantmarketof16.1%,upnearly1.5pointsfromayearago.Xareltoisbroadlyreimbursedwithapproximately95%ofcommercialandMedicarePartDpatientscoveredatthelowestbrandedproductco-pay.

REMICADEintheUSbenefitedfromstrongmarketgrowth,partiallyoffsetbylowermarketshare.REMICADE'sUSexportsalesandinternationalsaleswerenegativelyimpactedbylowerdistributionpartnersalesduetotheweakeningoftheeuroandalossofexclusivityinEurope,partiallyoffsetbyahigherinventoryreductionoflastyear.StrongresultswereachievedintheWesternhemisphere,excludingtheUS.

Iwillnowreviewthemedicaldevicessegmentresults.Asareminder,weannouncedlastweekthatwewilluseanewformatforthereportingofsalesinthemedicaldevicessegmentandweprovidedhistoricalsalesresultsinthenewformatatthattime.Thehistoricalsalesareavailableonourwebsite.

Worldwidemedicaldevicessegmentsalesof$6.4billionincreased3.4%.USsalesincreased6.7%,whilesalesoutsidetheUSincreased0.6%.Excludingthenetimpactofacquisitionsanddivestitures,underlyinggrowthwasapproximately5.8%worldwide,withtheUSup8%andgrowthof3.9%outsidetheUS.Growthwasdrivenbysurgery,orthopedics,electrophysiologyandvisioncare,partiallyoffsetbythedivestitureoftheCordisbusiness.

Growthinoursurgerybusinesswasdrivenbystrongresultsfortheadvancedproductswithendocuttersgrowthof15%,biosurgical'sgrowthof9%andenergygrowthof5%.Inaddition,ASPand[mental]productsinourspecialtyproductsmadesignificantcontributionstosalesinthequarter.

Marketgrowth,additionalsellingdaysandnewproductsdrovestrongresultsfortheUSorthopedicsbusiness.Pricingpressurecontinuedacrossthemajorcategories,partiallyoffsetbypositivemixfortraumaandspineproducts.

Thesuccessfulintroductioninearly2015oftheTFNANailingSystemintrauma,thesuccessoftheATTUNEplatforminknees,ourprimarystemplatforminhips,andORTHOVISC/MONOVISCINspineorothermadeimportantcontributionstotheresults.OrthopedicsalesoutsidetheUSwerenegativelyimpactedbyresultsinChinaduetosofterdemandandareductionininventory.Spine,otherandtraumawerethecategoriesmostimpacted.

Ourelectrophysiologybusinessgrew19%worldwideduetostrongmarketgrowth,complementedbythesuccessoftheTHERMACOOLSMARTTOUCHCatheter.Visioncareresultsweredrivenbyverystrong




growthintheUSduetotheintroductionofnewproducts,aswellasthetradeinventorybuild.

ThatconcludesthesegmenthighlightsforJohnson&Johnson'sfourthquarterof2015.Foryourreference,thereweresomenotabledevelopmentsinthefourthquarterwhichwehavesummarizedonthisslidetoassistasyoudevelopyourmodels.Lastlytoassistyouinupdatingyourmodelsforthefullyearof2015,onourwebsiteyouwillfindannualsaleshighlightsbysegment.

ItisnowmypleasuretoturnthecallovertoAlexGorsky.Alex?

AlexGorsky(Chairman&CEO):

Thankyou,Louise.LetmestartbysayinghowoptimisticandconfidentIamasweenter2016.Wehadastrongfinishto2015,andwithourhealthybalancesheetwearewell-positionedtocontinuetoinvestforfuturegrowth.Ourcorebusinessisverystrongandweexpectanumberofadditionalnewproductsandlineextensionsinthecomingyear.

Asweenter2016,welookforwardto,first,continuedgrowthofcoreproductsacrossoursegments.Next,arichnear-termpipelineinourpharmaceuticalsegment;positivemomentuminourconsumersegmentwithafullportfoliosofOTCsbackonthemarket;settingastrongfoundationforsustainablegrowthwiththeboldactionswe'retakinginourmedicaldevicessegment;andcontinuedfinancialstrengthandstrongfreecashflowstoreturncapitaltoshareholdersandtakedisciplinedanddecisiveactionsregardingM&Athatcontributetosustainablegrowthandlong-termvaluecreation.

Iwillsharemorespecificsinmydiscussionwithyoutodayaboutthehealthcareenvironment,our2015resultsandwhywearesooptimisticandconfidentaboutthefuturefortheenterpriseineachofourbusinesssegments.Butwiththatasabackdrop,IwouldliketobeginwhereIalwaysdobytalkingaboutourcredo.

OurcredoisthebeginningofeverythingatJohnson&Johnson.ItguidesallofourdecisionsandIbelieveitsetsusapart.

ThisyearisJohnson&Johnson's130thyear.Thinkofthatforamoment.130yearsofworkingtobalanceourmissionofhelpingpeopleeverywherelivelonger,healthierandhappierlives.AndIamproudtoseetheemployeesofJohnson&Johnsonaroundtheworldcontinuingtoupholdtheimperativesofourcredoeverydaythroughbothourphilanthropyinitiatives,asrecentcommitmenttosupportingtheimmediateandongoingneedsofSyrianrefugeesinpartnershipwithSaveTheChildren,aswellasthroughourcommitmentstothehealthcarecommunitywithinvestmentsthatwillacceleratehowweaddressglobalhealthcriseslikeEbola,AIDSandmentalhealth.

YouhaveundoubtedlyheardmesaythatIbelievehealthcareisoneofsociety'sgreatestchallenges.Andthisglobalchallengegrowswithagingpopulations,risingcostinthedevelopedworldandgrowingmiddleclassesinemergingeconomieswhohaveincreasingexpectationsforaccesstoqualitycare.Astheworld'slargestandmostbroadlybasedhealthcarecompany,it'snotjustanopportunityforustohelpmanagethistransformation,itisourresponsibilitytohelpleadthewaytoabetterfuture.

Inthisenvironment,ensuringaccesstoimportantmedicinesandmedicalproceduresremainsakeyobjectiveforus.Asgovernmentofficials,politiciansandotherstakeholdersdebatesignificantissuesaroundtheworld,wearepleasedtoseethathealthcareissuchafocusinthedialogueandwebelieveourgoalsandthoseofpublicpolicymakersarealignedtofindthebestwaystoensurethedeliveryofqualityhealthcareandthebestpatientoutcomesinahighqualityandsustainablemanner.

Inthisdiscussion,it'stheresponsibilityofallstakeholderstoconsidertheeconomicandfinancialimplicationsofhealthcare.Wehavegottolookatthewholepicture:drugs,devices,insurers,hospitals




andgovernments,putthepatientinthecenter,andrewardinnovationsthatdrivebetteroutcomes.HereintheUnitedStates,prescriptiondrugsrepresentapproximately12%oftotalhealthcarecostsandmedicaldevicesrepresentaround6%.

Thesecuresandtreatmentsnotonlyimprovequalityoflifeformany,extendlifeforothers,andcontributetotheproductivityofoursociety,buttheycanalsohelptoreducecaregiverburden,disabilityandhealthcarespendingoverall.Thepromiseofinnovationinhealthcareisgreatandwillremaingreatifwecantakeaholisticapproachtoreformingthehealthcaresystem.

AtJohnson&Johnson,webelieveinthisholisticapproachtohealthcaresolutions.It'svitaltodevelopingthebestinnovations,tomeetingtheneedsofourstakeholders,andtosustainingourlegacyofstrongandconsistentbusinessperformance.Ourconsumermedicaldevicesandpharmaceuticalsegmentsareincreasinglyinterconnectedbusinesses,andwebelievethatbeingbroadlybasedinhealthcarehasbeenandwillcontinuetobeasignificantfactorinJohnson&Johnson'ssuccessasitpositionsuswelltoleadandgrowourbusinesswiththeevolvinghealthcarelandscape.

Ourbroadglobalfootprintenablesustoreachmorepatientsandconsumersinfastdevelopingandchangingmarkets.Infact,Johnson&Johnsonisoperatingin60countriestodayandwearecontinuingtoinvestinimplementingnewoperatingmodels,forgingstrongrelationshipswithlocalgovernmentsandhealthsystemsandfurtheracceleratinggrowththroughstrategicacquisitionsandpartnershipswithlocalcompanies.

Becauseofourbroadbaseacrosshealthcareweareuniquelypositionedtobeapartnerofchoice.Letmejustgooverafewexamples.Withlargehealthsystems,wearetakingmoreofabusiness-to-businessmodeltohelpthemwithinnovativecontractingstrategies,integratedservicesandsolutionsandwithdedicatedcustomerfocusteams.

We'reworkingwithtechnologycompanieslikeGoogle,IBMandAppleforadvancingmedicalinnovationsthroughaninfusionoftechnologythatcanbenefitfromthedeephealthcareexpertiseJohnson&Johnsoncanuniquelyprovide.Wearecontinuingtosupportbiotechandmedtechstartupswhoappreciatethevalueweplacedoninnovationandthereachandbreadthofourfootprintinthehealthcaremarket.

Withpublichealthorganizations,wehaveatremendousopportunitytoaddressthegapsthatremainininnovation,accessanddeliveryofeffectivepreventionandtreatment.We'recollaboratingmorethaneverbeforetomeettheworld'smostpressingpublichealthchallenges.Ourscale,financialflexibilityandbusinessandhealthcareexpertisemakeJohnson&Johnsonakeypartnerforanumberofourstakeholders.OurrelationshipswiththesepartnerswillhelpJohnson&Johnsoncontinuetobealeaderinthefuture.

Applyingourexpertiseindesignthinking,strategicinnovationmodelsandacommitmenttocollaboratingwithallstakeholders,wehavedevelopedanumberofcross-segmentinnovations.Forexample,we'vecreatedtheChinaLungCancerCenter,whichisdevelopingaholisticapproachtotreatlungcancerinChinawherethediseaseisparticularlyprevalent.

We'repioneeringcelltherapyforage-relatedmaculardegeneration,combiningtechnologiesfromPharmaandfromourvisionbusinesstofindawaytoaddressthiscondition.Andweareleveragingcapabilitiesfromourmedicaldevices,Pharmaandconsumerbusinessestotreatobesityanddiabetesinnewways.Infact,almosteveryoneofourprogramscanbenefitfromtheadvantagesofourbroadbase.

Overthepastseveralyears,wehavealsobeenleveragingourscalebydevelopingenterpriseefficienciesandcapabilitiesacrossallofoursectors,targetingasmuchas$1billioninoperationalsavingsby2018tosupportourgrowth.Andwebelieveinnovationthatistakingplacewithinoursupply




chainandqualitysystemsisactuallycreatingacompetitiveadvantageforJohnson&Johnson.

Butthebottomline--well,it'sthebottomline.Andthisbroad-basedstructurehashelpedusdeliverstrong,consistentandsustainablefinancialperformance.Let'sconsidersomeofthenumbers.

First,53consecutiveyearsofdividendincreasesatJohnson&Johnson.Thatmeanswehaveprovidedsteadyevidentincreasessincewefirstputamaninspace.

32yearsofadjustedoperationalearningsgrowth,morethanthreedecades.Overthepast10years,we'vereturnedapproximately70%ofourfreecashflowtoourshareholders.Andtoday,70%ofourrevenuescomefrombrandsthatarenumberoneornumbertwointhemarkets.

Wehave24brandsthatrepresentbillion-dollarplatforms.Ifyouthinkaboutthat,in1999theentireCorporationhadrevenuesof$24billion.Andabout25%ofoursalescomefrombrandslaunchedinthelastfiveyears.That'saresultofconstantlearning,collaborationandinnovation.

Ourcorporatestructure,ourbroadbase,isastrategicchoiceandonethatisgroundedonperformance,notjustourheritage.Weknowithasbeenasignificantdriverinthepastandexpectitwillbemoreimportantinthefuture.Aswehavesaid,weseeglobalhealthcaregrowingat3%to5%overthenextfiveyears,andwehaveaclearobjectivethatJohnson&Johnsonshouldgrowsalesorganicallyatafasterratethanthemarket.

Wealsointendtogrowourearningsfasterthansales.Inaddition,wewillcontinuetocreatevaluethroughstrategicacquisitionsandpartnershipsthatgenerateadditionalgrowth.Allofthiscoupledwithourstrongdividendyield,andyouarelookingataverycompelling,long-termtotalshareholderreturn.

Aspartofourperformance-drivenstrategy,weregularlyreviewthestructureandportfolioofourbusinessestoevaluatehowtheyaredeliveringonourresponsibilitiestothestakeholdersoutlinedinourcredo,meetingevolvinghealthcareneeds,andachievingperformanceexpectations.Johnson&Johnsonhasarigorousanddisciplinedportfolioreviewprogramfocusedoncreatinglong-termshareholdervalueandthisappliestoallourbusinesses.

Wehaveatrackrecordofevolvingourbusinessandtakingdecisiveactionswhennecessarytomeetchangingindustryandconsumerdynamics,andwewillcontinuetodosointhefuture.Weareactivelylookingfortherightopportunitiestocreategreatervalueforourshareholders.Weareseekingcompanieswithamutualdesiretopartner,butwearealsopatient.Wewillonlyactwhenweseetherightvalue-creatingdealattherightpriceandwiththerightpartners.

HistoricallyabouthalfofourgrowthhascomefromM&Aandhalffrominternaldevelopment,whichwefullyexpectedtocontinue.Andwithourstrongbalancesheet,we'vegottheresourcestodojustthat.

Nowletmetakeafewminutestoreviewtheprioritieswelaidoutforyoulastyear.One,wewillcontinuetobefocusedondeliveringonourfinancialandqualitycommitments.Two,inpharmaceuticals,ourobjective,asalways,isconstantinnovation.We'rebuildingonourlaunchexcellenceandcontinuingtodeveloparobustpipelineoftransformationalmedicines.

Inourconsumerbusiness,wepositionedourentireportfoliotofocusonkeygeographies,needstatesandmegabrands.WeareprioritizingandinvestingtoexpandourmarketleadershipinkeyconsumersegmentsinOTC,oralcare,babyandbeauty.And,asyouheardthroughourannouncementlastweek,ourpriorityinmedicaldevicesisacceleratinggrowththroughthestrategicinvestmentsininnovationandbytransformingourgo-to-marketmodels.

Weareconfidenttheseprioritieswilldelivertheresultsyouexpectfromusand,justasimportantly,theresultsthatweexpectfromourselves.Aswehavesaid,we'repleasedwithour2015performance.In2015




wegeneratedsalesof$70.1billion,reflectingstrong,underlyingoperationalgrowthacrossourenterprise.Ourin-marketportfolioinpharmaceuticalsdeliveredstronggrowth.Webuiltpositivemomentuminourconsumersegmentandwejustannouncedboldactionstoaccelerategrowthinourmedicaldevicesegment.

Throughouttheyear,you'veheardfromeachofourbusinesssegmentleadersaboutthestrategiesweputinplacetomeetourcommitments,soIwilltouchonjustafewoftherecentactionswehavetakentoadvancethosestrategies.AsJoaquinDuatolaidoutforyouatourpharmaceuticalsbusinessreviewinMay,ourpharmaceuticalsbusinesshasaclearstrategyfocusedonfivetherapeuticareasofhighunmetmedicalneed,arobustinnovationengineandprovencommercialcapabilities.

Joaquintalkedtoyouabouthowweareinvestinginourfuturewith10newproductsweplantofileby2019,eachwiththepotentialtoexceed$1billioninannualsales.And,infact,wearealreadydeliveringoneofthosepromisingmedicinestothemarketfourmonthsaheadofschedulewiththeUSapprovalforDARZALEX,thefirsthumanmonochromalantibodytobeapprovedanywhereintheworldforpatientswithmultiplemyeloma,whichisofftoaverygoodstart.

Inthenearterm,IknowmanyofyouarekeepinganeyeonpotentialbiosimilarcompetitionintheUnitedStates.Asyouhaveheardussay,biosimilarsarenotgenerics.

Withmorethan2.4millionpeoplehavingbeentreatedwithREMICADEandabout70%ofthecurrentpatientsreceivingsustainedandeffectivetreatment,webelievedoctorswillbereluctanttoswitchthemoffwiththatlevelofsuccess.Andwehaveseenthisplayoutinmanymarketswherebiosimilarshavealreadybeenintroduced.AndwealsohaveapatentforREMICADEthatexpiresinSeptember2018thatwewillobviouslycontinuetovigorouslydefend.

Weconsiderourimmunologyproductspartofanimportantandrobustportfolioforpatients,physiciansandpayers.WhenyouconsiderourcontinuedexpectationsforREMICADE,aswellasthefuturepotentialofproductslikeSTELARAandSIMPONI,andthependingsubmissionsofguselkumabandsirukumab,weareconfidentinourabilitytocontinuedrivingstronggrowthfromourimmunologyportfolio.

Whenyoucombinetheseadvanceswithadditionallineextensionapprovalsexpectedin2016,likethoseforIMBRUVICA,STELARAandINVOKANA,DARZALEX,approvalintheEU,ournear-termpipelineisincrediblyrobust,andmaynotbefullyappreciatedinthemarket.Withthecombinedstrengthofourin-marketportfolioanddeeplate-stagepipeline,weexpecttodeliverabove-industrycompoundaveragegrowththrough2019.

Ourconsumerexpertise,insightandaccessarebecomingincreasinglyvaluabletopayersandprovidersasdemographicandtechnologytrendsinhealthcarearemovingthesystemtowardmoreconsumer-drivendecisionmakingandinsomecasesself-carealternatives.WeseethisasakeydifferentiatorforourCompanyandweareinvestingintechnologiesthathelpusexploitthisexpertiseacrossourbroadbase.JorgeMesquitaandourotherconsumerbusinessleaderswillsharemoredetailsatourconsumerbusinessreviewthisMay.

For2015ourUSOTCbusinesscontinuedtogrowfasterthanthemarketandwe'rehappytoreportthatnearlyallofourOTCproductshavereturnedtoshelvesandweareproudofthequalitysystemimprovementswehaveputintoplace.Ourconsumermedicaldevicebusinesses,theJohnson&JohnsondiabetessolutionscompaniesandJohnson&Johnsonvisioncaremadeprogressin2015toimproveourcompetitiveness.

Bothbusinesses,whichcommandgloballeadershippositionsintheirrespectivecategories,focustheir2015turnaroundsonlaunchingnewproducts,solidifyingtheirbasebusinessesandacceleratinggrowth.Andbothbusinesseshaveregainedorstabilizedmarketshareandmarketleadershipandintroduced




importantnewproductssuchasAnimasVibeandAcuvueOasisOneDaywithHydroluxintheUS.

Inourbroadermedicaldevicebusinesses,lastweekweannouncedastrategicrestructuringinitiativedesignedtodirectlysupportandacceleratethestrategyGaryPrudentlaidoutforyouonourthirdquarterearningscall.Wearereallocatingresourcestopriorityplatformslikeendocutters,knees,traumaandEP,andrecenthistoryshowsthatwhenwedoubledowninanarea,weareabletoacceleratemeaningfulinnovationandoutcomes,aswesawwithourendocuttersportfoliowhichisnowthefastestgrowingplatforminourmedicaldevicessegment.

Additionally,we'remakingproductsontransformingourgo-to-marketmodelslikeourcross-sellingeffortsbetweenEthiconandDePuy'ssynthesjointreconstructioninspine,whichresultedinover600leadsthrough2015.Wearenowco-sellinginover1,200accountsandallsalesteamswillbetrainedcoveringallmarketsbytheendofthefirstquarter.

FinallyourrecentacquisitionofCoherexMedicalintheareaofatrialfibrillationandthesurgicalroboticscollaborationwithVerily,formerlyGoogleLife-Sciences,areexamplesofthetypeoffocusedandstrategicinvestmentsthatyouwillseeusmakemoreofinthefuture.Ourgoalistoreachmorepatients,outperformthemarketsinwhichwecompete,andconsistentlyidentify,buildandacquirenewplatformsforgrowth.Movingforwardinto2016,wewillcontinuetotakeboldbutappropriatestepstoputourmedicaldevicebusinessinthebestpositiontodelivermorevalueforcustomersandforourCompanyandforourshareholders.

Insummary,webelievethatimproveduniversalaccesstoqualityhealthcare,rewardinginnovationandamorevitalcultureofhealth,wellnessandpreventionarethekeystoafuturewherepeoplearehealthierinbusinessesandeconomiesarestronger.Ourbroad-basedexperienceandscaleuniquelypositionsJohnson&Johnsonasaleaderandpartnerofchoiceinthemovementtowardsoutcomesandepisodesofcare-basedapproachesandultimatelyahealthiersociety.We'reoptimisticaboutthefutureopportunitiesinhealthcareandconfidentinthestrengthofourbusiness.

In2016wewillremainfocusedonournear-termprioritiesandcontinuetoadvanceourlonger-termgrowthdrivers,enablingustocontinuedeliveringshareholdervalueyearafteryear.Withtheguidanceofourcredo,wewillcontinuetomeetourresponsibilitiestoallstakeholders.Thathasbeentruefor129yearsofbreakthrough,lifesavinginnovationandweareconfidentJohnson&Johnsoniswell-positionedtocontinuemeetingthoseresponsibilitiesforthenext130years.

Thankyou.IlookforwardtofurtherdialogueduringtheQ&Asession,butfirstIwillturnitovertoDominicCarusowhowilltalkmoreaboutourresultsandexpectationsfor2016.Dominic?

DominicCaruso (CFO):

Thanks,Alex,andgoodmorning,everyone.Asyou'veheardfromAlex,we'reverypleasedwithour2015performance.Webelievewe'vemanagedourbusinesswellandhaveprovidedyouinsightsduringtheyearinatransparentmannerthatallowedallofyoutounderstandourplansandexpectations.

Wefinishedtheyearstrongandwe'recarryingthatmomentuminto2016.Weendedtheyearatthetopendofouroperationalguidancerangeforbothsalesandearnings,andexceededestimatesforearningsaspublishedbyFirstCall.

Turningtothenextslide,youcanseeourcondensedconsolidatedstatementofearningsforthefull-year2015.Iwouldfirstliketoremindyouaboutsomeofthekeyassumptionsinourguidancefor2015.Atthebeginningoftheyear,wediscussedthatwhilewereinvestedsomeoftheprofitabilityfromOLYSIOsales,ourearningsin2014didbenefitbyapproximately$0.20pershareevenafterthoseinvestments,making2015comparisonsto2014resultsmorechallenging.




Additionallycurrencyheadwindsincreasedquitesubstantiallyin2015,negativelyimpactingbothsalesandearningsfor2015byapproximately8%.Giventhoseexpectedheadwinds,lastJanuaryweguidedthatwewoulddeliveroperationalsalesgrowthintherangeof1%to2%.Asyoucansee,whilereportedsalesresultsshowadecreaseof5.7%,onanoperationalbasisweendedupatthehigh-endofourguidancewithoperationalsalesgrowthat1.8%.

Wealsoprovidedyouwithanestimateofourunderlyingoperationalsalesgrowthfor2015,whichexcludedtheimpactofallacquisitionsanddivestitures,aswellastheimpactofhepatitisCsales.Weexpectedthatunderlyingoperationalgrowthwouldbeapproximately6%andweexceededthatestimate,delivering6.5%.

Onearnings,ouradjustedoperationalEPSgrowthinouroriginal2015guidancewasexpectedtorangebetween2.3%and4.7%.Asreportedthismorning,ourEPSof$6.20reflectsoperationalgrowthof5.8%,andisatthetopoftheupdatedEPSguidancerangewegaveinOctober.Andfinally,ouradjustednetincomemarginimprovedto24.9%.

Now,let'stakeafewmomentstotalkaboutcertainitemsonthestatementofearningsforthequarter.Turningtothenextslide,youcanseeourcondensed,consolidatedstatementofearningsforthefourthquarterof2015.Asweexpected,directcomparisonstoourfourthquarterof2014wouldbechallengingduetostrongerOLYSIOsalesthatwebenefitedfromlastyear,aswellasdivestituresincurrencyheadwindsin2015.

Ourresultsonanoperationalbasis,excludingtheimpactofacquisitionsanddivestituresandexcludingtheimpactofhepCsales,wereup7.8%forthequarter.AsLouisenoted,salesdidbenefitfromadditionalshippingdaysinthefourthquarterof2015.

Pleasenowdirectyourattentiontotheboxsectionoftheschedulewherewehaveprovidedearningsadjustedtoexcludespecialitemsandintangibleassetamortizationexpense.Adjustednetearningswere$4billioninthequarter,up4%comparedtothefourthquarterof2014.Andadjustedearningspershareof$1.44versus$1.37ayearagoareup5.1%.AndtheadjustedEPSresultsexceededthemeanoftheannalsestimatesaspublishedbyFirstCall.

Excludingtheimpactoftranslationalcurrency,ouroperationaladjustedEPSwas$1.54,orup12.4%forthefourthquarter.Inthequarter,weincurredintangibleamortizationexpenseof$200milliononanafter-taxbasis,aswellasafter-taxspecialchargesof$600million,whichincludedanexpenseof$400millionrelatedtotherestructuringofourmedicaldevicebusiness,whichweannouncedlastweek,anin-processresearchanddevelopmentchargeof$200million.

Nowlet'stakeafewmomentstotalkabouttheotheritemsonthestatementofearnings.Costofgoodssoldwas30basispointslowerthanthesameperiodlastyear,impactedbychangesinourbusinessandproductmix.Selling,marketingandadministrativeexpenseswere33.1%ofsales.Thisis120basispointshigherthanlastyearaswecontinuedtoinvesttodrivegrowthinourkeybrands.

Ourinvestmentinresearchanddevelopmentasapercentofsaleswas16.1%inthequarter,and170basispointshigherthantheprior-yearaswecontinuedtomakeimportantinvestmentsinourpipelineforfuturegrowth.Infact,inthefourthquarter,weenteredintoimportantnewlicensingagreements,mademilestonepaymentsandincreasedspendingtoadvanceourR&Dportfolio,whichareallpositivedevelopmentsaswecontinuetostrengthenourpipeline.

Interestexpensenetofinterestincomewasslightlylowerreflectinghigherearningsonourinvestments.Otherincomeandexpensewasanetgainof$1.2billioninthequartercomparedtoanetchargeofapproximately$1billioninthesameperiodlastyear.Ofcourse,thislineitemincludesseveralspecialitemsofbothyears.




Excludingthosespecialitems,otherincomeandexpensewasanetgainofapproximately$1.3billion,comparedtoanetgainofapproximately$130millionintheprior-yearperiod.Thisyear'sfourthquarterreflectsthegainonthepreviouslyannounceddivestitureofCordis.

Asareminder,weindicatedthatanygainsfromdivestitureswhicharereflectedintheotherincomeandexpenselinewouldlargelybereinvestedinthebusinessaswellasusedtomitigatethenegativeimpactofcurrencyandalowerlevelofincomein2015fromreducedOLYSIOsalesandthereforeourpretaxoperatingmarginwouldbeexpectedtobelowerin2015versus2014.Andour2015resultsreflectjustthat.Wefundedimportantinvestmentswiththehigherlevelofotherincomethatwillbenefitusgoingforward.

Theadjustedfourth-quartereffectivetaxratefor2015was17.7%.Thiswaslowerthantherateinthepreviousninemonths,duetothepassingoflegislationwhichrenewedtheR&Dtaxcreditandlook-throughprovisions.TheR&Dtaxcreditandlook-throughprovisionswerealwaysincludedinourannualguidance.Theadjustedfull-yeareffectivetaxratefor2015was20.7%,slightlybelowguidance,duetoamixofincomefromhighertolowertaxjurisdictions.

Turningtothenextslide,Iwillnowreviewadjustedincomebeforetaxbysegment.Adjustedincomebeforetaxfortheentireenterpriseimprovedfrom30.7%ofsalesin2014to31.4%ofsalesin2015.Lookingattheadjustedpretaxincomebysegment,medicaldevicesexpanded360basispoints,dueprimarilytothegainassociatedwiththeCordisdivestiture,whilepharmaceuticalmarginscontracted50basispointsduetolowerOLYSIOsalesandincreasedinvestmentsinresearchanddevelopment,partiallyoffsetbythegainearlierintheyearofthedivestitureofNucynta.

Consumermarginscontracted110basispointsduetolowerdivestituregainsin2015versus2014,aswellasimportantinvestmentsforfuturegrowthaswereturnedouriconicconsumerbrandstothemarket.

NowIwillprovidesomeguidanceforyoutoconsiderasyourefineyourmodelsfor2016.BeforeIdiscusssalesandearnings,Iwillfirstgiveyousomeguidanceonitemsweknowmaybedifficulttoforecast.

Iwouldfirstliketoaddressourcashpositionandremindyouaboutourcapitalallocationapproach.Attheendofthequarter,wehadapproximately$18.5billionofnetcash,whichconsistsofapproximately$38.5billionofcashandmarketablesecurities,andapproximately$20billionofdebt.Thisisahigherlevelofcashthanwetypicallyholdand,asAlexsaidearlier,weareactivelylookingfortherightopportunitiestodeploythatcapitaltocreategreatervalueforourshareholders.

Butwearepatient.We'reseekingcompanieswithamutualdesiretopartnerandwewillonlyactwhenweseetherightvalue-creatingdealattherightpricewiththerightpartners.Wehaveatransparentanddisciplinedcapitalallocationstrategythatstartswithdividendstoourshareholders,followedbyvaluecreatingM&A,andthenweconsiderotherproductwaystoreturnvaluetoshareholders,suchassharerepurchaseprograms.

Andduetoourstrongbalancesheet,wehavethefinancialstrengthandflexibilitytoexecuteonallthreeofthesecapitalallocationprioritiessimultaneously.DuringQ42015,weusedapproximately$1billiontorepurchasesharesofourstockinconnectionwithour$10billionsharerepurchaseprogramthatweannouncedinOctober.Althoughwearecontinuingtoevaluateexternalvalue-creatingopportunitiesinlinewiththisstrategy,forpurposesofyourmodels,assumingnomajoracquisitionsorothermajorusesofcash,wesuggestyouconsidermodeling2016netinterestexpenseofbetween$450millionand$550million.

Regardingotherincomeandexpense,asareminder,thisistheaccountwherewerecordroyaltyincome,aswellasgainsandlosses,arisingfromsuchitemsaslitigation,investment-inspireddevelopmentcorporation,aswellasdivestitures,assetsalesandwrite-offs.Wewouldbecomfortablewithyourmodels




for2016reflectingotherincomeandexpense,excludingspecialitems,asanetgainrangingfromapproximately$1.1billionto$1.2+-billion.

Althoughweexpecttohaveasignificantlylowerlevelofotherincomein2016versus2015,ourpretaxoperatingmarginin2016isexpectedtoexpandbymorethan200basispoints.Aswehavediscussedseveraltimesduringtheyear,wecontinuetoevaluateourportfolio,andweexpectedthatanygainsfromdivestitureswouldbelowerthanthelevelwesawin2015.Howeverwealsodiscussedthatwewouldnonethelessimproveonearningsasweseethebenefitsofgoodexpensemanagementandmeaningfulinvestmentswemadein2015.

Andnowawordontaxes.WeareverypleasedthattheR&DtaxcreditwasmadepermanentandapprovedbyCongressthislastyear.Wewouldbecomfortablewithyourmodelsreflectinganeffectivetaxratefor2016,excludingspecialitems,ofapproximately19.5%to20.5%.

Turningtosalesandearningsguidance.Oursalesguidancefor2016assumesnobiosimilarentrantsPROCRITorREMICADEintheUS.WealsodonotanticipategenericcompetitionthisyearforZYTIGA,RISPERDALCONSTA,andINVEGASUSTENNA,but,asexpected,therearegenericentrantsfor--INVEGAand[OrthoTri-Cyclenlow].

Aswehavedoneforseveralyears,ourguidancewillbebasedfirstonaconstant-currencybasisreflectingourresultsfromoperations.Thisisthewaywemanageourbusinessandwebelievethisprovidesagoodunderstandingoftheunderlyingperformanceofourbusiness.WewillalsoprovideanestimateofoursalesandearningsandEPSresultsfor2016withtheimpactthatexchangeratescouldhaveonthetranslationofthoseresults.

Forthefull-year2016,wewouldbecomfortablewithyourmodelsreflectinganoperationalsalesincreaseofbetween2.5%and3.5%fortheyear.Thiswouldresultinsalesfor2016onaconstantcurrencybasisofapproximately$71.9billionto$72.6billion.

Additionally,whilewehavecomparisontohowwedescribedoursalesresultsin2015,our2015operatorsalesgrowth,excludingtheimpactofallacquisitionsanddivestituresandhepCsales,wasapproximately6.5%.Afteradjustingforextrashippingdaysin2015,thatunderlyinggrowthratewasapproximately5.5%in2015.Oursalesguidancefor2016onthesamebasisisexpectedtocontinueatasimilargrowthrateofaround5.5%.

Whiletheeurohasbeenfairlystableoverthelastfewmonths,manyoftheothercurrencieshavebeenvolatile.Althoughwe'renotpredictingtheimpactofcurrencymovements,usingtheeuroat$1.09,ourguidanceforsalesgrowthwoulddecreasebyapproximately1.5%.

Wearewatchingtheothercurrenciescloselyasitisuncertainastohowtheywillsettleoutfortheyear.Ofcourse,wewillupdatethisestimateasweprogressthroughouttheyear.Thus,underthisscenario,wewouldexpectreportedsalestoreflectthechangeintherangeof1%to2%foratotalexpectedlevelofreportedsalesofapproximately$70.8billionto$71.5billion.

Nowturningtoearnings.Acontinuingfactorimpactingearningsguidancefor2016istheimpactofcurrencymovementsontransactions,whichalthoughhedged,isstillsomewhatnegative.Weexpecttransactioncurrencyimpactstonegativelyimpactourgrossmarginbyapproximately60basispointsto80basispointsin2016ascomparedto2015.

WewouldbecomfortablewithadjustedEPSguidanceintherangeof$6.53to$658pershareonaconstantcurrencybasis,reflectingoperationalorconstantcurrencygrowthratesof5%to8%.Again,wearenotpredictingtheimpactofcurrencymovements,buttogiveyouanideaofthepotentialimpactonEPSwiththeeuroat$1.09.




OurreportedadjustedEPSwouldbenegativelyimpactedbyapproximately$0.10pershare.Therefore,ourreportedadjustedEPSwouldrangefrom$6.43to$6.58pershare.Atthisearlystageintheyear,wouldbecomfortablewithyourmodelsreflectingthemidpointofthisrange,which,atapproximately5%,ishigherthancurrentconsensusestimates.

Insummary,asyouupdateyourmodelsfortheguidanceIjustprovided,Iwouldliketomakeafewpoints.Althoughoperationalsalesgrowthisexpectedtorangebetween2.5%and3.5%,wearepleasedtonotewhenexcludingtheimpactofacquisitionsanddivestituresandhepCsales,ouroperationalsalesgrowthisexpectedtobearound5.5%forthefullyear2016.

WithregardstoexpectedEPSgrowthonanoperationalbasis,ouradjustedEPSgrowthguidanceisstrongintherangeof5%to8%.Alsofor2016,pretaxoperatingmarginsareexpectedtoexpandbymorethan200basispointsbasedontheguidanceIjustprovided.Themarginexpansionisdrivenbyacombinationofinvestmentswemadein2015coupledwiththebenefitofdisciplinedexpensemanagementacrosstheenterprise.

Movinginto2016,weareconfidentinthestrengthofourbusiness.Asweexecuteonourgrowthplansandnear-termprioritiesthatAlexlaidoutforyouthismorning,wearewell-positionedwithastrongbalancesheettodeliversolidresultswhilecontinuingtoinvestininnovation,whichwillensureourfuturegrowthandsuccess.Ourgoalremainstogrowoursalesorganicallyataratefasterthanthemarketsinwhichwecompete,growourearningsfasterthansales,andcreatevaluethroughstrategicacquisitionswithpartnershipsthatgenerateadditionalgrowth.Allofthis,coupledwithourstrongdividendyield,providesaverycompellinglong-termshareholderreturn.

FinallybeforeIturnitovertoLouiseforQ&A,justaremindertopleasesavethedateforourconsumerandmedicaldevicebusinessreviewonWednesday,May18.Thankyou.NowbacktoLouise.


Thankyou,Dominic.CouldyoupleasegivetheinstructionsfortheQ&Asession?


CouldyoupleasegivetheinstructionsfortheQ&Asession?

QUESTIONS&ANSWERS

Operator :

(Operatorinstructions)

MikeWeinstein,JPMorgan.


Goodmorning,Mike.

MikeWeinstein (Analyst-JPMorgan):

Goodmorning,everybody.Thankyoufortakingthequestion.

Letmestartwiththemarginexpansionpieceoftheguidance--andthiskindoffitsinwiththeannouncementlastweekontheMD&Dbusiness.Iguessthere'stwopartstothequestion.

SoifIlookatMD&Dandwhereyouendedupwithpre-taxmarginsin2015,theywere35.6%,which.Anyobserverwouldsaythoseareveryhighmargins.




AndfortheoverallCompany,youareguidingto200basispointsplusapretaxmarginimprovement,whichwouldmake2016thebiggestyearmarginexpansioninthelast15.Sotalkaboutthedecisiontobeasaggressiveasyouarebeingin2016onoperatingcosts.

AndfortheMD&Dbusinessinparticular,whyistheconsolidationthatyouarepursuingwithinwhat'scalledthecosttransformationimperativeatthispointintimeandwhyareyoubeingasaggressiveasyou'rebeing?

Thanks.


Thanksforthequestion.Acoupleofthings.Oneisthe2015,asyousaw,wasaheavyinvestmentyearbecausewebenefitedfromthedivestituresandIthinkwewereverytransparentthatwewouldmakeimportantinvestmentsgoinginto2015,andwedidjustthat.In2016wehavealowerlevelofthoseinvestments,consistentwithalowerleveloftheotherincomethatwejustguidedto.Alsoit'simportanttopointoutthatthoseinvestmentswemadein2015,weareseeingthebenefitsofthosealreadyin2016,sowethinktheywerewiseinvestments.

Andfinally,wehavetalkedalotaboutourvariousprogramsofreducingourcoststructureandAlextodaymentionedtheprogramthatweareembarking--thatweembarkedonseveralyearsagothatwillreducecostsby$1billionby2018.Wearewellonourwayinimplementingthatprogramafterseveralyearsofinvestment.In2016,wewillseeayearwheretheactualbenefitsassociatedwiththatprogramoutweighanyincrementalinvestments.Andmaybe,Alex,maybeacommentontheMD&Drestructuringandwhythatisappropriateforustodotoday?


Yes,wedothinkthisistherighttimetobemakingthemoves,butreallyIthinkit'simportanttostepbackandputitinthelargerperspective.Ifyouthinkaboutwhatwe'vebeendoinginmedicaldevicesoverthelastseveralyears,we'vebeenhadarangeofactivitiesrangingfromsomeofthedivestitureswithOCD,aswellasCordisunderway.Atthesametime,we'vebeenmakingchangesinternallywiththewaythatourorganizationsareinnovating,aswellasinthewaythattheyaregoingtomarket.

Weseethisasthenextlogicalstepinthatoverallprocess.Ourmedicaldevicebusinessisonethatweremainverycommittedto.Webelievethatit'sgotanexcitingfuture,alotofnewinnovationcoming,newwaysofdealingwithourcustomers.Andsowethinkthisistherighttimetomakesurewearesetupforgrowthnotonlyin2016butactuallyforthenextfiveand10years.


Dominic,canyoushareanycommentaryabouthowyou'rethinkingabouttherespectivebusinessesin2016versusyour2015performance?AndthenmaybejustontheMD&Dtopic,it'shardtopieceoutwhattheunderlyinggrowthiswiththeextrasellingdays,butMD&Ddidgrow5.8%thisquarter.It'sobviouslyinflatedbythat.DoyouhaveanythoughtsintermsofwhereyouareintheturnoftheperformanceoftheMD&Dbusiness?


Sure,Mike,letmecommentoverall.Asyouknow,ourgrowthin2015primarilydrivenbypharmaceuticals,andweexpecthealthygrowthin2016frompharma,butprobablyaslightlylowerrateofgrowththanwhatwesawin2015asthoseproductsthatwelaunchedarebeginningtomatureintheirgrowthtrajectory,butstillalotofgrowthaheadofthem.




We'renotgoingtogiveguidancebysector,butoverallalittlebitlowergrowthin2016versus2015forpharma.Bettergrowthinconsumer,goodmomentumin2015,carryingoninto2016andweexpecthighergrowthratesin2016versus2015forthemedicaldevicebusinessaswell.Andasyousaw,weendedtheyearwithgoodstrongmomentuminthatbusinessaswell.


Perfect.I'llletsomeothersjumpin.


Okay;nextquestion,please.

Operator :

GlennNavarro,RBCCapitalMarkets.


Goodmorning,Glenn.

GlennNovarro (Analyst-RBC):

Hi,goodmorning,guys.QuestionforAlex.Alex,giventhestrongbalancesheet,Iamsomewhatsurprisedyouwerenotmoreaggressivewiththebalancesheetin2015,especiallyontheM&Afront.

Youmadesomecommentsaboutthebalancesheetgoingforward,butIamjustcurious,asyouevaluateyouroptions,particularlyontheM&Afront,isthefactthatwehaven'tseendealsyeartodateorsofar,isitbecausethetargetsstillhaveveryhighvaluationexpectations,orisitthatmostofyourcashistrappedoutsidetheUS,limitingyourabilitytodoacquisitions?Orisitalittlebitofboth?Thanks.


Hey,Glenn,thankyouverymuchforyourquestion.WeareandwehavebeenandwewillcontinuetobeveryactiveintheM&Acategory.Aswementionedduringtheearliercomments,ifyoulookatithistoricallyreallyoveraboutanytimeframe,20years,10years,whatyouseeisabouthalfofourgrowthbeinggeneratedfromorganicinnovationplatformsandabout50%beinggeneratedvis-a-visM&A.

Aswereflectbackon2015,werealizethatthemarketwaspremiumpriced.Weremainedveryactiveinanumberofdifferentareasandwhilewedidn'tnecessarilycloseonalargerdeal,Iwouldnotassumethatwewerenotengagedandinvolved.Butatthesametime,wethinkit'sreallyimportantforyou,ourshareholders,asyouthinkaboutlong-termreturns,thatwestayattheappropriatelevelofdisciplineanddecisivenessaswegothroughthatprocess.Andaswelookattheenvironmenttoday,weseeanumberofopportunitiesacrosstheconsumer,themedicaldeviceandthepharmaceuticalgroups.

Wearegoingtoremainveryactive.Ithinkourfinancialteamhasdoneagreatjobofusingouroffshoreassetsinaverycompliantbutalsotaxeffectiveway.Andwewillcontinuetolookforopportunitiesthatultimatelywebelievearegoingtoprovide--aregoingtohelpuscontinuetogetintogrowingmarkets,toimproveourshareposition,toprovidecomplementaryproductsandservicestoplatformswealreadyhavethatultimatelyaregoingtoleadtolong-termsustainablegrowthforJ&J.

GlennNovarro (Analyst-RBC):

IfIhearyoucorrectly,youaresayingvaluationswereelevatedforthetargetsin2015,butIsensefromyouthatthevaluationsofyourtargetsarecomingdown.Anditsoundslikethecashsittingoutsidethe




USwillnotinhibitdealflow.Isthatafairassumption?

Andthenisthereanyonebusinessversustheotherthatyouwouldbemorelikelyinclinedtodoanacquisitiontohelpaccelerategrowth?Thanks.


Glenn,we'refortunateinthatbecauseofourstrongperformance,ourstrongcashflows,ourbalancesheetisactuallyquitestrong.Ialsobelievethatifyoulookatourtrackrecordofhowwe'veutilizedthatcashtomaketherightcapitalinvestmentsincompanies,thatwe'vebeensuccessfulatthat.Andwethinkthereareopportunitiesacrossallthreeofourdifferentsectors.

It'snotanalgorithm,perse,aswedecidewhichandwheretoinvest,butratheritreallydependsontheopportunityandmanyotherfactorsthatDominicdescribedearlierasfaraswhatarethespecificplatformswearelookingat?Whereisthepartner?Intermsoftheirdecisionmaking,whattheywanttodowiththebusiness.And,frankly,whatthecompetitiveenvironmentislike.Sowethinkthatthereareopportunities.Weintendtobequiteactiveaswelookat2016andbeyond,inamannerthat'sbeenconsistentwithourtrackrecordinthatarea.


Thankyou.Nextquestion,please.

Operator :

MattMiksic,UBS

MattMiksic (Analyst-UBS):

Goodmorning;thankyoufortakingthequestion.OnebroaderquestiononthechangesinthehealtheconomyintheUSandthenIhaveonefollow-uponsomeoftheextradaycommentarythatyoumade.LookingforwardtotheMD&Ddayandtheupdateontherestructuringthere.

Butsteppingback,youhavebeenoneoftheleadershereinbroadercontractingstrategiesanddevelopmentofsomeofthesevalue-addedservices,like[Kerosynth]andOutpatientSolutions.It'shelpfultogetyourthoughtsonwhatyouareseeinginthemarketplaceintermsofuptakeofthosekindsofstrategiesandmaybetalkaboutwhetherweareintheearlyinningshereandhowyouthinkaboutsomeofthebenefitsyouareseeingorhopetoseewiththoseapproachestothebusiness.AndthenIhaveonefollow-up.


Sure,Matt,thankyouverymuch.Look,overallwefeelwearestillintheveryearlyinningsofwhatIwouldcallisthemarketevolutionthatweclearlyexpecttoseeoverthenextthree,five,andeven10years.Andforallthereasonswe'vediscussedaroundincreasingdemands,basedondemographics,certainlyhereintheUSandtherisingmiddleclassanddemographicsoutsidetheUnitedStates,andthepressurethatthat'slikelygoingtoputonpayersandgovernmentsandothersinbetween,werealizethatthereisanopportunityforustoparticipatenotonlyinbringinggreatinnovationthat'sgoingtohelppatients,butalsodoingitinavalue-addedway.

Andclearlytheconsumer,ispatient,isweighinginmuchheavierinthesedecisionsastheytakeonhigherco-pays,astheycangetmoreinformationthat'savailableonline.Andfranklytheyjusthavehigherexpectationsabouttheirabilitytoparticipateinthathealthcaredecision-makingprocess.Sowhatweseeisarangeofcustomers.Weseesomecustomerswhoarestillveryinnovation-focused.Tobe




clear,weremainveryinnovation-focused.Wethink,attheendoftheday,whatwedobestisbringnewproducts,newsolutionstoourcustomersthataregoingtoultimatelyhavebetteroutcomesforpatients.Sothatisanareawhereweareveryfocusedonandwillcontinuetobefocusedon.

Weare,though,startingtoalsoseehospitalsystems.Ithinkoneimportantpointhereis,it'scertainlytakingplaceintheUnitedStates,butit'salsodefinitelytakingplaceinplaceslikeEuropeandevensomeofthedevelopingandemergingmarketsthat,frankly,don'thavethehistoryandthelegacyofsomeoftheinfrastructureyouseeinthemoredevelopedmarkets.

Andtherewhatweseeasanevolutionmoretowardsabusiness-to-businessrelationshipwhere,yes,customerswanttoseeinnovation,buttheyalsowanttoseehowareyougoingtointeract?Howcanyouassistinworkingwithoursupplychaintomakeitmoreefficient?Howcanweworktogetheraspartofabroaderpartnershipthatultimatelyisfocusingnotjustonaproductsellbutactuallyonanoutcome,onanepisodeofcareforthepatientanditcreatesamuchbroaderpartnership.

Weareseeingthoseorganizationsbecomingmoreandmoreinterested,andthat'swhyweareadaptingtomakesurewearepartofthat.Sooverall,it'simportantthatwecontinuetoinnovate,wecontinuetooperatewithalotofexcellenceinthecurrentenvironment.Atthesametime,it'simportantthatwesetthestageforthisevolutionthat'stakingplaceoutthere,tomakesurethatwecannotonlybesuccessful,butwillbealeaderasthatmarketevolvesaswell.

MattMiksic (Analyst-UBS):

Very,veryhelpful.Andthentheclarificationontheextrashippingdaysasyoutalkedabout,itwasaholidayweekandmaybeORsurgerydayswerenotasmuchofafactorasshippingdaysfromwhatIcouldtellinyourcommentary.Butyouwerestronginvisioncare,obviouslyashippingtypeofbusiness.Stronginpharma.

Justwondering,Dominic,ifyouhaveanycoloronsomeofyourconsignmentbusinesseswherewethinkaboutorthopedicsandspineandtrauma,wheretheinventoryisinthefield,it'sonyourbalancesheet.Wasthereanydifferenceinthewaythosebusinesseswereimpactedversusbusinesseswhereyouareactuallyshippingandbillingforthingsinthelastcoupledaysofthequarter?


Sure,Matt.Justanoverarchingcommentonthis,ofcoursetheseextrashippingdayswerealreadyincludedinourguidancefortheyearandIthinkyou'veallmodeledforthem.Asyouknow,oursalescameinprettymuchinlinewithexpectations.About1%fortheyear,wethinkistheimpactoverallfortheenterpriseandabout4%inthequarter.

You'reright.ItdoesvaryslightlybydifferentbusinesseswithintheUSinparticular.ThisislargelyaUSphenomenon,asopposedtoaglobalphenomenon.Andwithrespecttotheorthopedicsbusinessline,whichIthinkyouarereferringtospecifically,Ithink,Louise,youmighthavethedetailsontheimpactthere.


Yes,sotheadditionaldaysintheUSinorthopedicswasabout2.5daysandoutsidetheUSabout1.5dayaverage.


Sothat'sreallynotmuchdifferentfromtheoveralltotalbecausethat2.5daysgetsyoutothis4%and1%thatItalkedaboutearlier.





What'sinteresting,also,whenyoulookattheunderlyinggrowthintheorthopedics,thirdquarter,fourthquarter,takingouttheadditionalshippingdays,wesawsequentialimprovementacrosships,knees,spineandtraumaonaworldwidebasis.Nextquestion,please?

Operator :

LarryBiegelsen,WellsFargo.


Goodmorning,Larry.

LarryBiegelsen (Analyst-WellsFargo):

Goodmorning.Thanksfortakingmyquestions.LetmestartwithmedtechandIhadafollow-uponpharma.Alex,canyoutalkaboutthehealthofthemedtechendmarketsintheUSandemergingmarketsandwhatdrivestheaccelerationforyourbusinessspecificallyin2016?WhenIlookatthegeneralsurgerybusiness,itlookedlike,adjustingfortheextradaysintheUS,thatwas--orworldwide--thatwasslightlyweakerinQ4.SojustthehealthoftheendmarketsintheUSandemergingmarkets?AndIhadafollow-up.Thanks.


Sure.Thanksalotforthequestion,Larry.Ithinkwhatwewouldsayoveralliswecontinuetosee,let'ssay,aslightlyincreasingpositivetrend.Wesawhospitaladmissions,Ibelieve,uparound2%;wesawsurgicalproceduresupalittleover1%intheUS.That'sthemostrecentdatawehave.IfwegooutsidetheUS,wethinkratesinEuropehavebeenprettysteady.Andeveninthemarketsinwhichwecompetemostsignificantlyinthedevelopingmarkets,wehaven'tseenamajorimpactfromsecularshifts.PerhapsinChinasome,butnotdramatic.Andthenputtingthatintothecontextofwhatthatrepresentsoverallonourbusiness,wedon'tseeitasamajorindicator.

AsIlooktowards2016,there'safewthingsthatcauseustobeoptimisticaboutourmedicaldevicebusiness.Itreallystartswithinnovation.We'vegotabout30productsthatwewillbelaunchingbytheendof2016.Overhalfofthosehaveeitherbeenlaunchedorarewellontheirwayaswespeak.Andwhatweareseeingiswhenwearebringingnewtechnologiestothemarket,likeournewcontactlenses,likeournewinsulinpump,likeournewenergyinstrumentation,liketheATTUNEknee,we'reseeingverygooduptake.And,infact,inthosecategories,weareseeingsharegains.Andcertainlyinareaslikeelectrophysiology,endocutters,thesamething.Andsowebelievethemarketdoesstillrewardsignificantinnovationwhenweareintroducingit.

That'soneaspect.Thesecondaspect,frankly,is,one,justimprovedexecution.Ithinkifyoulookacrossallofourdevicebusinesses,youthinkaboutdiabetescareandthemajorpriceresetwehadthereacoupleyearsago.Andasallofyouknow,whenyoutakethatkindofareduction,resizingyourbusiness,goingbackintoeachandeverylineandsettingitforthenewmarketplace,causesatremendousamountofchange.

Ifyoulookatourvisioncarebusinesslastyear,wewentinandwereallyincreasedthecadenceoutofourinnovationpipeline,launchingfivenewproducts.WedidapriceresettheretomakeusmorecompetitivewiththeECPs.Wemadealotofotherinternaladjustmentstoimproveoursellingandmarketing.We'redefinitelyseeingtheimpactofthatnow,notonlyonthesalesresultsofup8%,butmaybeevenmoreimportantly,ifyoulookattheleadingindicatorsasfarasnewsharethat'sbeinggeneratedandnewpatientstartsintheoffices,thosethingsarepositive.




Louisementionedearliertheimprovementweareseeingacrossourorthopedicsbusiness.Thisisonewhereweknowthatwhenyoubringlargeorganizationstogether,whenyoustandardizequalitysystems,manufacturingsystems,wethinkthatwehavemadealotofprogressthere.

And,frankly,whenyoucompoundthatwiththeinnovationrolloutthatwehaveseeninorthopedicsoftheATTUNEknee,theCORAILhip,theTFNANail,we'restartingtoseethatcomeback,aswellassomeofthe--frankly,thenewapproacheswearetakingthatGarywillbetalkingaboutmoreinMaywhereEthiconandourDePuySynthesteamsareactuallyco-selling,co-contracting,inanumberofveryinnovativeways,compoundedwiththefactthat,look,wethinksomeoftheperformanceissuesrelatedtoChinainourorthopedicsaremoreofaone-timeevent.That'sgettingnormalized.Soasweburnourwaythroughthoseandheadinto2016,overallwethinkthatinnovation--wethinkchangesinourcommercialmodel,wethinkimprovedexecution--allthosethingsmakeusmoreoptimisticaboutthegrowthprospectsasweheadinto2016.


That'sveryhelpful,Alex.AndIjusthadonefollow-uponbiosimilarREMICADE.Obviouslythereisapanelscheduled,thatreschedulednextmonth.I'mwonderingifyoucantalkaboutwhatissuesyouthinkweshouldbelisteningfor?WhatyourexpectationsareandwhatyouareseeinginEuropewherebiosimilarREMICADEisonthemarketandwhyorwhynotthatmightbeaproxyfortheUS.Thanksalot.


Obviouslywewillalsobewatchingtheadvisorycommitteeandparticipatinginitaswellcomingup.Wethinkthereareafewthingstokeepinconsiderationaboutthis.Firstandforemostisthat,asDominicstatedearlier,biosimilarsareverydifferentfromgenerics.Particularlyinthiscategory,keepingthepatientinthecenterofallthese,we'vegotatremendousamountofexperienceinthebiologicscategorygoingbacktoPROCRIT,REMICADE,(inaudible)days.

Andwethinkthatthedifferencesbetweenmoleculescanhave--manifestthemselvesinsignificantwayswithpatients.Somakingsure,andIthinkthingsthatwe'llbewatchingforattheACarewhatkindofdatadothebiosimilarsactuallyhave,whatkindofindications,whatwillbetheguidancearoundsubstitutability?Allthose,frankly,sittingheretoday,areunknowns.Wewillneedmoreclarification.Butwethinkeachofthosemeansthattheexpecteduptake,evenwhenabiosimilardoeslaunch,willleadtoasignificantlydifferentcurvethanwhatyouseewithgenerics.

Wethink,secondly,it'sveryimportanttoactuallythinkaboutitfromapatientperspective.Weknow,forexample,there'sabout2.5millionpatientswithREMICADEandabout70%ofthoseareeithercontinuingtherapyandhaveaprettyhighsatisfactionrate.Soifyoulookattheavailablepopulationwhoislikelytobeswitched,wethinkit'sinthe30%range.

Andlast,butcertainlynotleast,there'sthewholeissueofthebusinessmodelandthewaythatweactuallyworkwithcustomersinthissetting.Thisisanareawherewe'vegotalotofexperienceincontracting.We'vegotsomegreatrelationshipswithprovidersinthisarearightnow.Wealsohaveaverybroadportfolio.IfyouthinkaboutwhatREMICADEdoes,butyoulookmorebroadlyattheperformancerecentlyofaproductlikeSTELARA,multi-billion-dollarcompound,growingat20-plus%rate.IfyoulookatSIMPONI,samething.SIMPONIRA,inparticular,thegreatdosingconvenienceitprovides,that'sanothermulti-billion-dollaradditionthatwehavetothatportfolio.

Thenyouaugmentthatwiththesubmissionswehavein2016plannedforvisilizumab,sirukumabandIL-23andanIL-6,wethinkthatpositionsusverywellwithourportfolioandfromacontractingpointofviewwithlargeprovidersandpayers,certainlyintheUS,butalsoabroad.WhatweareseeingoutsidetheUnitedStatesisthatmostofthemarketswheretheyareintroducedisarelativelyminorimpact.Weare




seeingthatweareholdingontoabout90%,plusorminus,itvariesbymarket.Youhavetolookateachoneindividually.It'sdifficulttoprojectexactlywhatthatimpactwouldbegoingforward.

ButIthinkwhenwethinkofitbroadlyacrossallthosedifferentareas,what'stheclinicaldatashow?Whatultimatelyisthelabeling,theregulatoryaspects?Whataboutourcontracting,thebusinessaspects?Andwethinkallthoseareveryimportant,willresultinadifferentimpactfrombiosimilars.Andultimately,wewillcontinuetodefendourintellectualpropertyaswellthroughwhatwebelieveistherightpatentinSeptemberof2018.


Andjusttoaddtothat,wehaveREMICADEinCanadaisaJohnson&Johnsonproductandwehaveseenfairly--it'sactuallystillgrowinginCanada,evenwiththebiosimilarthere.Thebiosimilarhasalimitedindicationthere,butitisstillgrowing,andwewillbelisteningtoMerck'scallaswelltoseethelatestinEurope.


Thinkyouverymuch.


Nextquestion,please.

Operator :

JamiRubin,GoldmanSachs.

JamiRubin (Analyst-GoldmanSachs):

Questionforyou,Dominic,andthenIhaveaquestionforAlex.Justtryingtounderstandthedifferencebetweenconsensusestimatesfor2016inyourguidance.DoyouhaveasenseforwhattheStreetwasassumingfornon-operatingincome?WhenIgobackhistorically,that'sbeeninthe$500millionto$600millionrange.Clearlyitwas$2billionlastyear,butjustcurioustoknowwhatconsensusmodelshadassumedforthat.

Secondly,didyourguidanceassumethatthemedicaldevicetaxwouldbesuspended,asIthinkwe'veseenwithotherdevicecompanies?Justcurioustoknowifthatsavingsisreinvestedinthebusiness,orifthatispartoftheguidance?

Andthenforyou,Alex,justcurioustoknowyourthoughtsonpricing.Imean,weheardBernieandHillarylastnightgoafterdrugpricingagainandIthinkthat'salsosomethingwearegoingtohearfromtheRepublicancandidates.Whatareyourexpectationsintermsofpricingin2016and2017?Doyouexpecttherewillbeachangeintermsoflistpricesgoingforward?Thanksverymuch.


Okay,letmetrytotakethefirsttwoandthenhaveAlexmaybecommentonthedrugpricing.Youarereferringtoournonoperating,let'scallittheotherincomeandexpenselinefor2016.Whatwasassumedinanalystmodelsversuswhatwehaveprovidedinguidance.

Whenwelookedattheanalystconsensusmodels,overallitlookedlikethatnumberaveragedinthehigh$900millions,sonearly$1billion.Ourguidance,ofcourse,issomewhereat$1.1billionto$1.2billion.Ourguidanceisslightlyhigherthantheanalystmodels,butjustareminder,wealwaystaketheopportunityto--sincetheseareportfoliochoices,touseanyofthosegainstooffsetsomeother




expenseswewouldliketoinvestin.

Andthenwithrespecttothemedicaldevicetax,wehaveassumedthatitwouldbeabenefitin2016,butImustsaythebenefitforusisveryminor.Rememberwhenthemedicaldevicetaxisincurred,it'sincurreduponthefirstmanufactureofaproductand,therefore,itcanbe,forexample,orthopediccompanieshungupininventoryforquitesometime.Sotheoverallimpactofnothavingamedicaldevicetaxin2016isnotsignificantforJohnson&Johnson.Itmaybesignificantforcertainothercompaniesthatmaybearepureorthopedicplayers,butnotoverallsignificantforus.

Secondly,Iwouldsaythatwhateverbenefitweseethere,wehavealreadyassumedwouldbereinvestedininnovationbecause,ofcourse,duringthetimethatthemedicaldevicetaxwasadragonearnings,obviouslydecisionshadtobemadeonwheretoinvest.Nowwe'rehappywiththateasementofthedevicetaxforacoupleyears,wewillbeabletoactuallyinvestmoreininnovationinthemedicaldevicespace.


YesJami,thanksforthequestiononpricing.Look,werealizeandunderstandthepricinginpharmaceuticals,letaloneallofhealthcare,iscertainlyaveryimportantissue.Webelievethatit'simportanttoconsideritjustinthatway.

Aswethinkaboutpharmaceuticals,forexample,theycurrentlymakeupabout12%ofhealthcarespendingintheUnitedStates,slightlyhigherinEurope.Ifyouthinkaboutmedicaldevices,theyrepresentabout6%.Andifyougobeyondthoseareas,ofcourse,there'salotofothercostsbuiltintothatsystemrangingfromhospitalpatientcare,insurancecompanies,manyotherpeople.Andparticularlyinanenvironmenttodaywhere,frankly,weareseeingsuchtransformationaloutcomesandmovingmoreandmoretowardscures,diseaseprevention,interceptionthanweeverhavebecauseofsomeofthegreatsciencethat'sbeingproduced.

Soweunderstandandwouldcertainlyexpecttheretobeacontinuedspotlightinthisarea.Obviouslyweareworkingwithalotofstakeholderstotryandmakesurethatwelookatitinaveryholisticway.Andit'svery,Ithink,difficultatthispointintimetotrytoprojectwhat'sgoingtohappenin2016or2017.Allofusknowthatthehealthcaresystem,notonlyhereintheUnitedStatesbut,frankly,aroundtheworld,iscomplex.There'salotofissuesthatareintertwined,andit'sobviouslyaconversationthatwewillbeparticipatinginandultimatelywherewewanttobepartofthesolution.



Operator :

VamilDivan,CreditSuisse

VamilDivan (Analyst-CreditSuisse):

Goodmorning,everyone.Thankssomuchfortakingthequestion.Justacoupleonthepharmaside--IguessoneonthepharmaandthenoneotheroneforDominic.

YoumentionedSTELARAandyoumentionedthestrongquarterand20%growthit'sshowing.Iamjustwonderingifyoucansharealittlebitifyouthoughtabout2016andbeyondyourexpectationofthatproductgoingforward,justgiventhecompetitionitisgoingtofacefromtheIL-17s,bothinpsoriasisandpsoriaticarthritis.Isthis20%rangestillsustainableordoyouthinkyou'llseemoreofadecline?




AndthesecondforDominic,justontheguidance.AndIapologizeifImissedthis,butintermsofyourEPSguidance,canyoucommentonwhatsharecountyouareusingtogettothatguidanceorjustgivesomesenseofthebuybacks,Iguess,thatyouareincorporatingintothewayyouthinkabouttheyear?


Sure.Whydon'tItakethatpartfirst.WeobviouslyannouncedthesharebuybackinOctoberandIsaidwealready,throughthefourthquarter,spentabout$1billionofthat$10billion.Inourplansfor2016,wehavenotassumedthatit'stotallycomplete,butcertainlymorethanamajorityofthesharebuybackwillbecompletedbytheendof2016,maybethreequartersofit,sortofaroundthatrange.Andthat'swhatwe'veassumedinourmodelsfor2016,theguidanceIjustgave.


Vamil,thanksforthequestion.IfwelookatSTELARA,one,itstartswithagreatcompound.It'shadveryniceuptake,verygoodgrowthandwehavecertainlyseenthatinpsoriaticarthritis,butwearealsoexcitedabouttheplannedindicationsinareaslikeUCandaxialspondylitis.

Sowhenyoutaketheprofile,themomentumweareseeinginthecurrentmarketplaceandthesharethatcontinuestogrow,youcombineitwithsomeadditionalindicationsaswegoforward,particularlyaspartofourbroaderimmunologyportfolio,wethinkthatthere's--andtheotherimportantissue,Ibelievethiscategoryisonlyabout22%or23%penetrated.Sointermsofnewpatientsthatarecomingin,allofthatrepresentsanicegrowthopportunityforthisimportantproduct.



Operator :

KristenStewart,DeutscheBank


Goodmorning,Kristen.

KristenStewart (Analyst-DeutscheBank):

Thanksfortakingmyquestion.Twoquestions,thefirstforDominic.Ibelieveacoupleyearsagoyoutalkedabouttheopportunitytomerge(inaudible)withconsumerandwereallyhaven'tseenthatjustyet.WithmostoftheproductsnowreturnedintheOTCbusiness,doweexpecttoseeconsumerreallystartingtoseereachan[infraction]point?Andwiththegoal,Ibelieve,[Sandy]hadtalkedabouttwoyearsagoatthelastconsumerupdatereallygettingbackintothatkindof20%rangestillreallyachievableforthenextcoupleyears?


Wedoexpectthattheconsumerbusiness,nowthattheproductshavebeenlaunchedandthecostremediationsassociatedwiththeconsentdecreearelargelybehindus,althoughwestillcomplywiththeconsentdecreeforanotherfiveyears.Wedidwanttolaunchthoseproductswiththerightsupport,butitistruethatwedoexpectandwewillseeitin2016andwewillreportonitlaterintheyear,throughoutthequarters,animprovementintheoperatingmarginsoftheconsumerbusinessgoingforward.

KristenStewart (Analyst-DeutscheBank):




Okay,great.AndthenforAlex,Iguessjustfollowingthat--willM&Abeakeydrivertoimprovingthemargins,oranysortofportfoliomanagement?Andthenmorebroadly,IknowIhavealwaysaskedDominicthisquestion,everynowandagainIguessyouguyshavealwaystalkedaboutthefourthleg.Andwehaveseensomeofyourcompetitorsgotoamoresolutions-basedapproachandwraparoundprograms.

Youhavesomeofthoseaswell,particularlywithintheorthopedicsbusiness.IsthatsomethingyouthinkofwhenyouarethinkingaboutM&A,movingmoretowardsaholistichealthcaremodelandmaybeperhapsrollinginsomemorelifestylediseasemanagementprogramsorsomethingmoreontheserviceside?Thanks.


Sure.Look,I'djustpickupwithwhatDominichadjustsaidaboutourconsumerbusinessisthatIamreallyproudoftheworkwe'vedoneontheconsentdecreeandthegreatstridestheyhavetakenaroundquality.Infact,IthinkinworkingcloselyandpartneringwiththeFDA,welikelyhaveabenchmarkorganizationnowandwearereallyproudofhavingdonethat.

Atthesametime,Ithinkastheybegintoshiftfromonlyremediationtoremediationandrelaunchacrossanumberoftheseareas,whilecertainlykeepingitveryhighonquality,asweincreaseourvolumes,asweareabletodeepenourrelationshipswithalotofthemajortradepartners,that'swhereweseeagreatgrowthopportunityaswell.Obviouslythat'sgoingtohaveanimpactonourmarginsaswegoforward.

Ialsothinktheotherthingthatteamisdoingisaswe'retransitioningmoreandmoretoonlinemarketingversusjusttraditionalmarketing,thewaywearepartneringwithsomeofthelargecustomers,Ithinkthatthere'salotofopportunities,notonlytodriveshareandvolumebutactuallytoimproveefficienciesonourbackendaswell.

AsIstepbackandlookmorebroadly,wethinkthethreeareaswearein,consumer,medicaldevicesandpharmaceuticals,areallgreatplatformsingreatbusinesses.Ofcourse,wewouldlook,first,forareasthat--whatisthenextZYTIGA?Whatisthenextvisioncareplatform?WhatisthenextNeutrogena?Thatwouldcertainlybeourfocus.

Anotherwouldbearetherechancestogrowinperhapssomeofthefastergrowingdevelopingmarketswiththerightkindofopportunity?Thosearethingsthatwewouldbeinterestedin.Andthenwhatarewaystocomplementourexistingbusinesses?Ithinkthewayyoupointedout,asthemarketsevolve,wearelookingnotonlyatM&A,butalsobroaderpartnershipsthatwehavedone.Forexample,withcompanieslikeGoogleandVerily,whereweseeabigopportunitytoreallyhelptransformtheroboticsurgeryspaceinaprettysignificantwaylongerterm.

Iguessthefinaloptiontherewouldbeforustoactuallyacquiresomethingoutsidethecurrentthree.Andagain,ifit'ssomethingwherewethoughttherewasalotofunmetpatientorconsumerneed,ifwefeelthatit'sconsistentwiththecapabilitiesthatwecanbringtobeartoactuallyhaveitbeasuccessfulbusiness,ifthefinancialswork,thenwewouldtakethatstep.



Operator :

BobHopkins,BankofAmerica.




BobHopkins (Analyst-BofAMerrillLynch):

Thanksfortakingthequestion.TwothingsandIwilljustrattlethemoff.First,IwaswonderingifyouguyscouldcommentalittlebitonemergingmarketgrowthinQ4relativetotrendsearlierintheyear?Andthen,moreimportantly,talkaboutthecurrentoperatingenvironmentinChinaandwhendoyouthinkwecouldseeareaccelerationofemergingmarketgrowthforJ&J?That'squestionnumberone.

Andthenquestionnumbertwoisbacktotheoriginalquestiononthe200basispointsofpretaxoperatingmarginimprovementin2016.Iwaswonderingifyoucouldgiveusalittlemoredetailonexactlywherethatcomesfrom?Maybeyou'dmentionhowmuchextraspendwastherein2015thatwon'tmaterializein2016?Justlookingforalittlebitmorecolorthere.Thankyouverymuch.


Okay,soontheemergingmarketsgrowth,excludingtheimpact,ofcourse,ofCordisandOCD,itwasabout6.5%inthefourthquarterandonayear-to-datebasisit'sabout5.5%.Thosearebothoperationalnumbers.


AndonChina,justacouplecommentsthatChinawedidseeaslowdowninChina,primarilyintheconsumerbusiness,becausebothmedicaldeviceandpharmabusinessesstillhadhighsingle-digitgrowthinChinaandweareoptimisticaboutChinagoinginto2016.OurplansareforimprovedgrowthinChinain2016.

ButIjustwanttoputChinainperspective.It'slessthan5%ofoursales.It'sanimportantmarketforuslongertermwith1.3billionpeopleandlotsofhealthcareneeds,etcetera,butanyshort-termchangesintheireconomyisunlikelytohaveanysignificantimpactonourresults.

Andthenonthe200basispointimprovement,Bob,it'sactuallyacrossallthreelinesoftheP&L:COGS,selling,marketing,aswellasR&D.SointhecaseofCOGS,wehavealong-termprogramthatwe'vebeenexecutingontoreducefootprint,we'reacceleratingsomeofthoseprogramsthatwillbenefitusontheCOGSline.Ontheselling,marketingandadministrativeline,Italkedearlieraboutthefactthatwehadaprograminplaceforacoupleyears,shootingfor$1billionofcostsavingsby2018.Wearewellonourway.Wewillseecostreductionsinthatline.AndR&D,thatdependsontheindividuallicensingdealthatwehaveandthetimingofwhenwewouldspendthosemilestonepaymentsorenterintonewlicensingagreements.Butasitlookstoday,theadvancementintheportfolioin2015fromthemilestonepayments,etcetera,arenotexpectedtobeatthesamelevelin2016thattheywerein2015.

Soit'sacrossallthreelinesintheP&L.Ican'tgiveyouanexactnumberontheamountofinvestmentwemadein2015,extrainvestmentwemadein2015,butjusttosay,wehad$2.8billionofotherincomein2015,wellabovetheyearspast,andwestillimprovedoverallincomebeforetaxbynotquitethatamount,right?Somostofitwasreinvestedinthebusiness.

BobHopkins (Analyst-BofAMerrillLynch):

Great,veryhelpful.Thankyou,Dominic.


Thankyou.Wewilltaketwomorequestions.Nextquestion,please.

Operator :

JoshJennings,CowenandCompany.




JoshJennings (Analyst-Cowen):

JusthaveoneforAlex.Youhaveaformalplaninplacetoaccelerategrowthinthemedicaldeviceunit.It'sreasonableandIbelieveyourtargetofreturningunitto4%to5%or4%to6%growth,Ijustwantedtoaskhowpatientyouwillbebeforeyoulookexternallyinatransformationalway?Isthisa12-to24-monthinitiative,oralongertimeperiodthatyouputinplace?Thanksalot.


Yes,Josh,thanksalotforthequestion.WhatIwouldsayisthisissomethingthathasbeenunderwayforthelastseveralmonths.Clearlywe'reacceleratingit.Wheneveryoumakethiskindofadecision,wecertainlythinkabouttheimpactthatithasonemployees.Butwealsoseeitasourresponsibilitytomakesurethisbusinessespositionedforthenextfive,thenext10years.

Withthatnote,wehaveahighsenseofurgencyaboutincreasingourrateofinnovation,aboutmakingthebusinessmodelchangesandultimatelyaboutmakingsurewearemorecompetitiveindeliveringinthemarkets.Wetrytobeveryclear.Ourgoalistogrowfasterthanthemarkets,evengivenoursizeandgivenourscale,wethinkwe'vegotover10platformsthatare$1billion.Themajorityofthosearenumberoneornumbertwo,butwerealizethere'sstillalotofopportunity.

Sowhilewearepleasedwithwhatwe'reseeing,wearefarfromsatisfied.IknowGaryandtherestofhisteam,aswellasallofus,arecompletelycommittedtoacceleratingtheperformanceofthisgrouptobe,frankly,benchmarkintheindustry.


Thankyou.WewilltakethelastquestionandAlexwillprovidesomebriefclosingremarks.Nextquestion,please.

Operator :

DavidLewis,MorganStanley

DavidLewis (Analyst-MorganStanley):

Goodmorning.Justtwoquickones.IwillstartwithastrategiconeforAlexandaquickpharmaquestionforDominicorothers.Alex,justthinkingaboutM&Aforasecond,Iknowit'sbeenthethemeforthiscall,buthowdoessegmentperformanceinfluenceyourwillingnesstodeploycapitalinthosesegments?Areyoumoreinclinedtodeploycapitalinoutperformingsegmentsornot?

AndIguessrelated,doesitmakesensetodeploymaterialcapitalanddevicesthroughM&Auntiltherestructuringhasbeendigestedandgrowthisbacktomarketratesinthosefranchises?AndthenaquickquestionforDominic.


David,thanksforthequestion.Look,itdependsonanumberofdifferentfactors.Obviously,aswethinkaboutit,forexampleinourpharmaceuticalgroup,wethinkthatthemodelwepulltogether,wherewetrytofindthenextINVOKANA,thenextDARZALEX,veryearlycompoundswhere,frankly,we'vegotsolidscientificinsight.Webringitinsideandbecauseofourclinicaldevelopmentandourregulatorycapabilities,wecanlaunchandthenverystrongsales,marketingandreimbursementpracticesaroundthat.Frankly,that'swhat'shelpeduscreatethenumberof$1billionblockbusterswe'vebeenabletolaunchsince2009.Ithink16newproducts,sevenofwhicharerightat$1billionorshortlywillbe,sowethinkthat'sagoodmodel.




Inmedicaldevices,we'vedonetuck-insaswellaslarge,andIthinkinbothcases,whetherit'sPharmaormedicaldevices,thesmallertalk-insare,frankly,morestraightforwardtogetdone.Wewon'tshyawayfromlargewherewethinkitmakesforasignificantopportunity.It'ssomethingwewillcontinuetolookatinconsumer.

Asfarasthequestion--ifit'sunderperformingornot?Ithinkitdependsonwhyit'sunderperforming.Ifit'sanexogenousmarketshiftorsomethingelse,thenobviouslythatwouldnotnecessarilyhaveusshyawayfromthatparticulararea.Ontheotherhand,ifit'saninternalmoreexecutionalissue,absolutelywewouldwanttomakesurewe'vegottheknittingwhereweneeditbeforeweaddontothatparticularopportunity.That'sthewaywetendtolookatit,butagainit'spartofabroaderstrategicquestionreallyonhowwearemanagingtheportfolioacrosstheenterprise.

DavidLewis (Analyst-MorganStanley):

Veryhelpful.Andthen,Dominic,justaquickoneforyouortheteam.JustonINVOKANA,hasn'tcomeupyetonthecall.Iwonderifyoucangiveusasenseofwhat'shappeninginthemarketpost[impareg]asitrelatestoclassexpansionoryourmarketshare.AndcanyougiveusanyupdateontheCANVAStrialandwhenwecangetdatain2017?Thankyouverymuch.


Iwillgiveyouthemarketsharethirdquarterversusfourthquarterwhichwillgiveyousomenicetrendinformation.AndthisisUS.Forthetotal,wewentfrom6.3%inthethirdquarterto6.5%inthefourthquarter.Primarycare,wewentfrom5.6%to5.8%.And[endozipflavid]about13%quartertoquarter.


Thereadingwearegettingfromthefieldisthatmostphysicians--and,infact,someguidelineswererecentlypublishedthatthecardiovascularbenefitthatwesawwiththeotherSGLT-2ismostlikelyaclasseffect,asthat'sthewayphysicianstreatitand,infact,theguidelineswerejustrecentlyissuedthatcalleditaclasseffect.

Ourdatawon'tbeinuntilsometimemid-2017,Ibelieveonthoseresults,wherewewillactuallythenbeabletoputthoseresultsinourlabel.Butuntilthen,Ithinkthemarketrecognizesitasabeneficialeffectoncardiovascular.


Thankyou.Andfinalremarks?


Thankyouverymuch,everybody.Look,inclosingIwouldliketothankyouagainforjoiningtoday'scall.We'repleasedwiththeresultswedeliveredin2015,andwethinkourstrongunderlyingoperationalgrowthacrosstheenterprise,combinedwithaveryhighsenseofurgency,givesusalotofconfidenceasweheadinto2016.

Weareoptimisticabouttheopportunitiesinhealthcareand,frankly,abouttheunderlyingstrengthofourcorebusiness.ThankyouverymuchandIhopeeveryonehasagreatday.

Operator :

Thankyou.Thisconcludestoday'sJohnson&Johnson'sfourth-quarter2015earningsconferencecall.




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