Q3 2019 Earnings Call
Good morning, welcome to Johnson, <unk> Johnson's third quarter 2019 earnings conference call.
Operator: Good morning. Welcome to Johnson & Johnson's 3rd Quarter 2019 Earnings Conference Call. All participants will be in listen-only mode until the question-and-answer session of the conference. This call is being recorded. If anyone has any objections, you may disconnect at this time. If you experience technical difficulties during the conference, you may press star zero to reach the operator. I would now like to turn the conference call over to Johnson & Johnson. You may begin.
All participants will be in listen only mode until the question answer session at the conference.
This call is being recorded if anyone say objections you may disconnect at this time.
If you experienced technical difficulties during the conference you May press star zero to reach the operator.
I would now let's turn the conference call over to Johnson <unk> Johnson you may begin.
Chris Schott: Good morning. This is Chris DeLorfis, Vice President of Investor Relations for Johnson & Johnson. Welcome to our company's review of business results for the third quarter of 2019. Joining me on today's call is Joe Wolk, Executive Vice President and Chief Financial Officer. Additionally, during our Q&A session, Joe and I are pleased to be joined by Ashley McEvoy, Executive Vice President, Worldwide Chairman, Medical Devices; Thibaut Mongon, Executive Vice President, Worldwide Chairman, Consumer; and Jennifer Talbert, Executive Vice President, Worldwide Chairman, Pharmaceuticals. A few logistics before we get into the details.
Good morning. This is Chris the warfare, Vice President of Investor Relations for Johnson and Johnson.
Welcome to our company's review business results for the third quarter 2019.
Joining me on today's call is Joe Walker Executive Vice President Chief Financial Officer.
Additionally, during our culinary Sasha Joe and I are pleased to be joining by actually Mcevoy executive Vice President worldwide Chairman medical devices.
Oh long gone executive Vice President worldwide Chairman consumer.
<unk> for Talbert Executive Vice President worldwide Chairman Pharmaceuticals.
Well justice before we get into the details.
Chris Schott: This review is being made available via webcast. Accessible through the Investor Relations section of the Johnson & Johnson website at investor.jnj.com, where you can also find additional materials, including today's presentation and associated schedules. Please note that today's presentation includes forward-looking statements. We encourage you to review this cautionary statement regarding such statements included in today's presentation, as well as the company's Form 10-K, which identifies certain factors that may cause the company's actual results to differ materially from those projected. Our SEC filings, including our 2018 Form 10-K and our most recent 10-Q, along with reconciliations of the non-GAAP financial measures utilized for today's discussion to the most comparable GAAP measures, are also available at investor.jnj.com. Additionally, several of the products and compounds discussed today are being developed in collaboration with strategic partners or licensed from other companies.
This review is being made available via webcast.
Sensible through the Investor Relations section of the Johnson and Johnson website at a master dog Gee I enjoy dot com.
Well you can also find additional materials, including todays presentation and associated schedules.
Please note that today's presentation includes forward looking statements.
We encourage you to review this cautionary statement regarding such statements included in today's presentation.
As well the company's Form 10-K , which identifies certain factors that may cause the companys actual results to differ materially from those projected or FCC filings, including our 2018 Form 10-K .
And our most recent 10-Q, one with reconciliations of the non-GAAP financial measures utilized for today's discussion to the most comparable GAAP measures are also available at Investor Day, JNJ Dot com.
Our older products in compounds discussed today are being developed in collaboration with strategic partners or license from other companies. This slide acknowledges those relationships.
Chris Schott: This slide acknowledges those relationships. Moving to today's agenda, Joe will first provide some perspective on our overall results for the third quarter. I will then review the sales and P&L results for the corporation and the three business segments. Joe will conclude by providing insights about our cash position, capital allocation deployment, and our updated guidance for 2019, along with some considerations for the balance of this year and initial high-level thoughts for next year. The remaining time will be available for your questions. We anticipate the webcast will last about 75 minutes. I'm now pleased to turn the call over to Joe Wolk.
Today's agenda, Joe will first provide some perspective on our overall results for the third quarter.
Then review the sales and piano results for the Corporation and the three business segments, Joe will conclude by providing insights about our cash position.
Capital allocation deployment and our updated guidance for 2019, along with some considerations for the balance of this year and initial high level thoughts for next year.
The remaining time will be available for your questions.
We anticipate the webcast will last about 75 minutes I'm now pleased to turn the call over to Joe walk.
Joseph J. Wolk: Great, Chris. Good morning, everyone. Thank you for your interest in Johnson & Johnson. As you might suspect, we're very pleased to discuss our strong third quarter results. Our performance positions us well to exceed the 2019 outlook we provided at the start of the year, providing us with a solid foundation for the future. During the quarter, we delivered strong revenue and earnings growth, while also making investments that advance our innovative pipeline across all three segments. We remain committed to advancing solutions that enhance the lives of patients, consumers, employees, and communities, while also delivering value to our shareholders. In a moment, Chris will provide details on our results, but before he does, let me offer some general observations and context about our performance in the third quarter.
Hey, Chris Good morning, everyone. Thank you for your interest in Johnson <unk> Johnson as you might suspect we're very pleased to discuss our strong third quarter results our performance positions us well to exceed the 2019 outlook. We provided at the start of the are providing us with a solid foundation for the future.
During the quarter, we delivered strong revenue and earnings growth, while also making investments that a dance our innovative pipeline across all three segments.
We remain committed to advancing solutions that enhance the lives of patients consumers employees and communities, while also delivering value to our shareholders.
In a moment, Chris will provide details on our results, but before he does let me offer some general observations in context about the performance in the third quarter.
Joseph J. Wolk: While there are many headlines surrounding our company as well as the industry, we continue to deliver life-saving and life-enhancing products to patients and consumers, which translates into solid financial performance. We must recognize that businesses in the U.S. are working in a very litigious environment, but the fundamentals of Johnson & Johnson's business are strong. We remain confident in our ability to navigate challenges and deliver results focused on our mission, as we have done for 133 years. For the quarter, our pharmaceutical business, even in the face of significant generic and biosimilar competition, once again delivered above-market performance across a broad base of therapeutic areas, led by double-digit growth in 10 key products. We are particularly pleased by the progress in the quarter of regulatory approvals and submissions, notably the FDA's approval of Erleada for the treatment of metastatic castration-sensitive prostate cancer, based on the TITAN data, and the approval of Stelara in ulcerative colitis in the EU. Additional indications for both of those products may be forthcoming.
Well there are many headline surrounding our company as well as the industry. We continue to deliver lifesaving in life enhancing products to patients and consumers, which translates into solid financial performance, we must recognize that businesses in the U.S. are working in a very lucky just environment, but the fundamentals of Johnson <unk> Johnson's business are strong we were.
I'm confident our ability to navigate challenges and deliver results focused on mission as we've done for 133 years.
For the quarter, our pharmaceutical business, even in the face of significant generic biosimilar competition. Once again delivered above market performance across a broad base of therapeutic areas led by double digit growth in 10 key products.
We're particularly pleased by the progress in the quarter of regulatory approvals and submissions, notably the FTC approval other leader for the treatment of metastatic castration sensitive prostate cancer based on the tightened data and the approval of Stelara, you know slip collide us in the E mail additional indications football for those products.
Joseph J. Wolk: In our consumer health business, our third quarter performance reflects continued strength in areas we prioritized earlier this year, beauty and over-the-counter medicines. These businesses are fueled by new product innovations and recent acquisitions in large markets experiencing higher growth, which positions the consumer business to grow competitively with the market while also improving the profitability of this segment. Our medical device business continues to accelerate growth. We had some tailwinds that Chris will outline, but the adjusted operational sales growth was the best quarterly growth we have posted since 2015. Interventional solutions delivered yet another quarter of double-digit growth, surgery improved, and orthopedic progress continues. We successfully executed multiple launches in the quarter, and we believe we are well positioned to continue the momentum. Let me turn the discussion back to Chris for details on the third quarter sales drivers and notable line items in our P&L. I will return prior to the Q&A to provide comments on our cash position and guidance. Thank you.
Consumer health business third quarter performance reflects continued strength in areas, we prioritized earlier this year beauty and over the counter medicines.
These businesses are fueled by new product innovations and recent acquisitions in large markets experiencing higher growth, which positions the consumer business to grow competitively with the market. While also improving the profitability of the segment.
Our medical device business continues to accelerate growth, we had some tailwinds that Chris will outline, but the adjusted operational sales growth was the best quarterly growth we posted since 2015.
Professional solutions delivered yet another quarter of double digit growth surgery improved and orthopedics progress continues.
We successfully execute at multiple launches in the quarter and we believe we are well positioned to continue the momentum.
Let me turn the discussion back the credit for details on the third quarter sales drivers and notable line items in our piano I will return prior to the Q and eight to provide comments on our cash position and guidance.
Chris Schott: Thank you, Joe. Worldwide sales were $20.7 billion for the third quarter of 2019, an increase of 1.9% versus the third quarter of 2018. Operational sales growth, which excludes the effect of translational currency, increased 3.2% as currency had a negative impact of 1.3 points. In the U.S., sales increased 1.2%. In regions outside the U.S., our reported growth was 2.6%.
Thank you Joe.
Worldwide sales were $20.7 billion for the third quarter of 2019.
Increase of 1.9% versus the third quarter of 2018.
Operational sales growth, which excludes the effect of translational currency increased 3.2% as currency had a negative impact of 1.3 points.
The U.S. sales increased 1.2% in.
In regions outside the U.S., our reported growth was 2.6%.
Chris Schott: Operational sales growth outside the U.S. was 5.4%, with currency negatively impacting our reported OUS results by 2.8 points. Excluding the net impact of acquisitions and divestitures, adjusted operational sales growth was 5.2% worldwide, 3.4% in the U.S., and 7.3% outside the U.S. Turning now to earnings, for the quarter, net earnings were $4.8 billion, and diluted earnings per share was $1.81 versus diluted earnings per share of $1.44 a year ago.
Operational sales growth outside the U.S. was 5.4% with currency negatively impacting our reported Oh U.S. results by 2.8 points.
Excluding the net impact of acquisitions and divestitures adjusted operational sales growth was 5.2% worldwide, 3.4% in the U.S. and 7.3% outside the U.S.
Turning now to earnings for the quarter net earnings were $4.8 billion and diluted earnings per share was one dollar and 81 cents versus diluted earnings per share of one dollar and 44 cents a year ago.
Chris Schott: Excluding after-tax intangible asset amortization expense and special items for both periods, adjusted net earnings for the quarter were $5.7 billion, and adjusted diluted earnings per share was $2.12, representing increases of 1.5% and 3.4%, respectively, compared to the third quarter of 2018. On an operational basis, adjusted diluted earnings per share grew 5.9%. Beginning with consumer health, I will now comment on business segment sales performance for the third quarter, highlighting items that build upon the slides you have in front of you. Unless otherwise stated, percentages quoted represent the operational sales change in comparison to the third quarter of 2018, and therefore exclude the impact of currency translation. Worldwide consumer segment sales totaled $3.5 billion, growing at 3.3%. Excluding the net impact of acquisitions and divestitures, adjusted operational sales growth was 1.3%, with strong growth in the U.S. of 2.4% due primarily to strong performance in our beauty and OTC franchises. Growth outside of the U.S. was 0.6%.
Excluding after tax intangible asset amortization expense and special items for both periods adjusted net earnings for the quarter were $5.7 billion and adjusted diluted earnings per share was $2.12.
Representing increases of 1.5% and 3.4% respectively compared to the third quarter of 2018, when an operational basis adjusted diluted earnings per share grew 5.9%.
Beginning with consumer health I would now comment on business segment sales performance for the third quarter.
Hi, lighting items to build upon the slide you have in front of you unless otherwise stated percentages quoted represent the operational sales change in comparison to the third quarter of 2018, and therefore exclude the impact of currency translation.
Worldwide consumer segment sales totaled $3.5 billion growing at 3.3%.
Excluding the net impact of acquisitions and divestitures adjusted operational sales growth was 1.3% with strong growth in the U.S. of 2.4% due primarily to strong performance in our beauty I know Tc franchises.
Growth outside of U.S. was 0.6%.
Chris Schott: On a year-to-date basis, consumer growth was double digits across all regions in the e-commerce channel. The beauty franchise grew 8.1% or 2% adjusted to exclude the impact of the acquisition of Dr. Silabo and the Rock divestiture. Our priority brands, Neutrogena and Aveeno, delivered strong performance results due to share growth combined with timing of promotions in our club channel in the U.S. Share growth in Neutrogena was realized in the facial moisturizing treatment, cleansing, and sun protection categories, and Aveeno share gains were due to the hair product line relaunch. Over-the-counter medicines grew 6.5% globally, or just over 5% when adjusted to exclude In the U.S., OTC adjusted operational sales growth was just over 5% and is growing share.
On a year to date basis consumer grew double digits across all regions in the E Commerce channel.
The beauty franchise grew 8.1% or 2% adjusted to exclude the impact of the acquisition of Dr. should labelle and the rock divestiture.
Our priority brands Neutrogena and of Vino delivered strong performance results due to share growth combined with timing of promotions in our club channel in the U.S.
Share growth in Neutrogena was realized in the facial moisturizing treatment cleansing and Sun protection categories, and the vino share gains were due to the hair product line relaunch.
Over the counter medicines grew 6.5% globally, we're just over 5% when adjusted to exclude the impact of as RBS acquisition, which continues to perform well.
In the U.S. Otcs adjusted operational sales growth was just over 5% and is growing share.
Chris Schott: Adult Tylenol was the core contributor to sales growth and continues to drive significant share growth driven by its rapid release gel and Tylenol arthritis product. Zyrtec also continued to grow market share. However, sales declined due to lapping 2018 retail stocking due to a competitor supply disruption. Concluding the consumer segment, baby care declined 9.8% globally, or negative 8% when adjusted to exclude the impact of the baby center divestiture. This decline was primarily due to lapping retail stocking associated with the Johnson's Baby relaunch, most notably in the U.S. Excluding the relaunch comparisons, U.S. retail sales were flat.
All Tylenol was the core contributor to sales growth and continues to drive significant share growth driven by rapid release gel and tylenol arthritis products.
Desertec continue to grow market share. However, sales declined due to lapping 2018 retail stocking due to a competitor supply disruption.
Including the consumer segment baby care declined 9.8% globally or negative 8% when adjusted to exclude the impact of the Baby Center divestiture.
This decline was primarily due to lapping retail stocking associated with the Johnson's baby relaunch, most notably in the U.S.
Excluding the relaunch comparisons U.S. baby was flat.
Chris Schott: Moving on to our pharmaceutical segment, worldwide pharmaceutical sales of $10.9 billion grew 6.4%, enabled by double-digit growth in 10 key products. Sales grew in the U.S. by 4% and increased outside the U.S. by 10%.
Moving onto our pharmaceutical segment.
Worldwide pharmaceutical sales up $10.9 billion grew 6.4% enabled by double digit growth in 10 key products.
Sales grew in the U.S. by 4% and increased outside the U.S. by 10%.
Chris Schott: Generic competition for Zytiga negatively impacted our worldwide and U.S. growth by about 350 and 560 basis points, respectively. However, our strong portfolio of products and commercial capabilities has enabled us to deliver global growth at above market levels despite significant biosimilar and generic headwinds. Our Immunology portfolio delivered global sales growth of just over 10%, driven by strong double-digit performance in Stelara, Tremfya, and Symphony, Symphony, Aria. However, sales growth was partially offset by continued erosion of Remicade of almost 17% due to increased discounts and modest share loss in the U.S. due to alternative mechanisms of action and biosimilars. Stelara growth of almost 31% was primarily from the Crohn's disease indication, where market share has increased by over 6 points in the U.S. compared to the third quarter of 2018. Tremfya grew over 70% and achieved an 8.1% share of the psoriasis market in the U.S., which is up about 2.5 points from the third quarter of 2018. Additionally, we filed an application to the U.S. FDA seeking approval of Tremfya for the treatment of adults with active psoriatic arthritis.
Generic competition for psyche negatively impacted our worldwide and U.S. growth by about 350, and 560 basis points respectively.
Our strong portfolio of products in commercial capabilities has enabled us to deliver global growth at above market levels. Despite significant biosimilar generic headwinds.
Our immunology portfolio delivered global sales growth of just over 10% driven by strong double digit performance since the Laura trim fire and Symphony Simponi ARIA.
Sales growth was partially offset by continued erosion of remicade of almost 17%.
The increase discounts and modest share loss in the U.S. to alternative mechanisms of action and bio similars.
Store growth of almost 31% was primarily from the Crohns disease indication where market share has increased by over six points in the U.S. compared to the third quarter of 2018.
Fire grew over 70% and achieved an 8.1% share the psoriasis market in the U.S., which is up about 2.5 points from a third quarter 2018.
Additionally, we filed an application to the U.S.F.D.A. seeking approval of term fire for treatment of adults with active sorry, Arctic arthritis, our oncology therapeutic area delivered another strong quarter with worldwide growth almost 9% Darzalex continued its strong performance growing about for.
Chris Schott: Our oncology therapeutic area delivered another strong quarter with worldwide growth of almost 9%. Darzalex continued its strong performance, growing about 57% globally or about 42% when adjusting for the impact of a favorable comparison to the prior year one-time reimbursement adjustment outside the U.S. The U.S. grew just over 26% and continues to benefit from strong market growth and about a 3.5 point increase in U.S. market share across all lines of therapy. The continued strong growth outside the U.S. is driven by increased penetration and share gains across the 41 AMEA countries where it is commercially available as well as Latin America and the Asia-Pacific region. Of note, we received regulatory approval for Darzalex combination regimen for newly diagnosed transplant-eligible patients with multiple myeloma in the U.S. Imbruvica grew 33.5% globally, driven largely by market share gains and strong market growth, primarily in the CLL indication in the U.S., along with strong uptake outside the U.S. in the European, Asia Pacific, and Latin America markets.
57% globally or about 42% when adjusting for the impact of a favorable comparison to the prior year onetime reimbursement adjustment outside the U.S.
The U.S. grew just over 26% and continues to benefit from strong market growth and about a 3.5 point increase in us market share across all lines of therapy.
The continued strong growth outside the U.S. is driven by increased penetration and share gains across the 41, a main countries, where it is commercially available as well as Latin America, and the Asia Pacific region.
No we receive regulatory approval for Darzalex combination regimen for newly diagnosed transplant eligible patients with multiple myeloma in the U.S. Imbruvica grew 33.5% globally, driven largely by market share gains and strong market growth primarily in the.
Well indication in the U.S., along with strong uptake outside the U.S. in the European Asia Pacific and Latin American markets in the U.S. based on second quarter data across all indications and lines of therapy Imbruvica gained approximately 2.5 points of market share.
Chris Schott: In the U.S., based on second-quarter data across all indications and lines of therapy, Imbruvica gained approximately 2.5 points of market share and continues to be the new patient and total patient share leader in chronic lymphocytic leukemia, which gained above 8.5 points of market share in line one therapy. Worldwide Zytiga growth declined by about 21%, with declines of almost 56% in the U.S. due to generic competition, which was partially offset by continued strong growth of about 21% outside the U.S. In non-metastatic castration-resistant prostate cancer, we continue to be pleased with the launch progress of Erleada, which gained almost three points of market share in the U.S. As Joe highlighted, during the quarter, we received approval in the U.S. for treatment of patients with metastatic castration-sensitive prostate cancer.
Continues to be the new patient and total patient share leader in chronic lymphocytic leukemia, which gained above 8.5 points of market share in line one therapy.
Worldwide as I ticket growth declined by about 21% with declines of almost 56% EMEA U.S. due to generic competition, which was partially offset by continued strong growth of about 21% outside the U.S.
Non metastatic castration resistant prostate cancer, we continue to be pleased with the launch progress of our leader, which gained almost three points a market share in the U.S. as Joe highlighted during the quarter. We received approval in the U.S. for treatment of patients with metastatic castration sensitive prostate cancer.
Chris Schott: We are also pleased with the launch progress in EMEA, where Erleada is now available in eight countries. In neuroscience, our paliperidone long-acting portfolio performed well, growing 15%, with higher market share driven by increased new patient starts and strong persistency. In addition, we continue to progress the launch of Spravato because patient demand is strong, and the unmet need remains very high. To date, over 2,000 sites have been certified in the REMS program to become a Spravato Treatment Center, and more than 500 of these are actively treating patients with treatment-resistant depression.
We're also pleased with the launch progress in Amelia, where Lita is now available in eight countries.
The neuroscience, our power pared down long acting portfolio performed well growing 15% with higher market share driven by increased new patient starts and strong persistency.
In addition, we continue to progress the launch of to provide a.
Patient demand is strong and the unmet need remains very high.
To date over 2000 sites have been certified in the Rems program to become US bravado treatment center and more than 500 Tvs are actively treating patients with treatment resistant depression.
Chris Schott: We are encouraged by the continued progression of treatment centers being certified and treating patients. During the quarter, we filed an SNDA in the U.S. for a second indication for the rapid reduction of depressive symptoms in adults with major depressive disorder who have active suicidal ideation with intent. In infectious diseases, our portfolio grew 3.6%, led by strong growth of Cymtuza and Jalouka for HIV, partially offset by cannibalization and increased generic competition in other products. In our cardiovascular metabolism and other product portfolio, we did experience declining sales of 4.8 percent, primarily driven by declines in Indokana and biosimilar competition for Procred. Xarelto was flat with volume increases offset by rebates, primarily due to an increase in the legislative rate for the donut hole from 50 percent to 70 percent, along with higher Medicare and donut hole utilization. And just yesterday, we were pleased to announce the U.S. approval of an additional indication for Xarelto for the treatment of VTE in the medically ill population.
We are encouraged by the continued progression of treatment centers being certified and treating patients.
During the quarter, we filed an SMB AG in the U.S. first second indication for the rapid reduction of depressive symptoms in adults with major depressive disorder, who have active suicidal ideation within 10.
Infectious diseases, our portfolio grew 3.6% led by strong growth of some tusa and your Luca for HIV, partially offset by cannibalization an increase generic competition in other products.
And our cardiovascular metabolism and other product portfolio, we did experience declining sales of 4.8%, primarily driven by declines in Invokana and biosimilar competition for appropriate.
So we're also was flat with volume increases offset by rebates, primarily due to increase in a legislative rate for the donut hole from 50% to 70% along with higher Medicare and donut hole utilization.
And just yesterday, we were pleased to announce the us approval of an additional indication for xarelto for the treatment of BT in the medically ill population.
Chris Schott: Our total pulmonary hypertension portfolio grew by 0.5%, with strong performance in both Upsumut and Uptravi growing by about 13% and 24%, respectively, on a global basis. Both benefited from further market penetration and increased share. This growth was offset by Terclear, which was negatively impacted by the recent generic entry into the U.S., as well as continued generic competition outside of the U.S. Now, I'll now turn your attention to the medical devices segment.
Our total pulmonary hypertension portfolio grew by 0.5% with strong performance in both up summit and Uptravi growing by about 13% and 24% respectively on a global basis. Both benefited from further market penetration and increased share this growth was offset by trickling.
There, which was negatively impacted by the recent generic entry in the U.S. as wells continue generic competition outside of the U.S.
I'll now turn your attention to the medical devices segment.
Chris Schott: Worldwide medical devices sales were $6.4 billion, declining 2%. Excluding the net impact of acquisitions and divestitures, primarily the divestitures of LifeScan and ASP, adjusted operational sales growth was 5.3% worldwide. Growth in the quarter was aided by one-time items contributing about 80 basis points to growth, largely related to forward buying ahead of the consumption tax change in Japan, primarily impacting our vision business. We expect the majority of this to sell through in Q4, with the remainder occurring in Q1, 2020.
Worldwide medical devices sales were $6.4 billion declining 2%.
Excluding the net impact of acquisitions and divestitures, primarily the divestitures of Lifescan SP adjusted operational sales growth was 5.3% worldwide.
Growth in the quarter was aided by onetime items contributing about 80 basis points to growth largely related to forward buying ahead of the consumption tax change in Japan, primarily impacting our vision business. We expect the majority of this to sell through in Q4 with the remainder occurring in Q1.
2020.
Interventional solutions grew over 14% globally led by continued strength in our electrophysiologist business, achieving about 15% growth worldwide continuing its trend of double digit growth.
Chris Schott: Interventional solutions grew over 14% globally, led by continued strength in our electrophysiology business, achieving about 15% growth worldwide, continuing its trend of double-digit growth. Growth was strong in all regions, driven by our newer product offerings in ablation and advanced catheters, contributing to atrial fibrillation procedure market growth. During the quarter, we were pleased to share the results of the Atrial Fibrillation Progression Trial, known as the test, which showed that patients treated with catheter ablation were almost 10 times less likely to develop persistent atrial fibrillation than patients on standard antiarrhythmic drugs at three years after study initiation.
Growth was strong in all regions driven by our newer product offerings in ablation and advance catheters contributing to atrial fibrillation procedure market growth.
During the quarter, we were pleased to share the results of the atrial fibrillation progression trial known as a test which show the patients treated with catheter ablation, we're almost 10 times less likely to develop persistent ATRIO fibrillation than patients on standard anti arrhythmic drugs.
Three years after study initiation. Additionally, our service business delivered a fifth straight quarter of double digit growth driven by new product innovation, including Mboe trap for the treatment of scheming stroke as well as strong market growth.
Chris Schott: Additionally, our Serenovus business delivered a fifth straight quarter of double-digit growth driven by new product innovation, including EmboTrap, for the treatment of ischemic stroke, as well as strong market growth. Vision growth of 6.1% was driven by contact lenses, which grew 7.6% globally, led by daily disposables in the Oasys family. As I mentioned earlier, total vision sales were aided by a forward buy in Japan in advance of a consumption tax increase worth approximately 300 basis points globally. In surgical vision, we launched our Technus Synergy Interocular Lens, a continuous range of vision intraocular lens.
Vision growth of 6.1% was driven by contact lenses, which grew 7.6% globally led by daily disposables EMEA waste family.
As I mentioned earlier total vision sales were aided by a forward buying Japan in advance of a consumption tax increase worth approximately 300 basis points globally in surgical vision, we launched our TECNIS synergy inter ocular lens continuous range of vision intraocular.
Since.
Orthopedics growth continues to improve with significant acceleration in the quarter delivering growth of 2.3% its largest quarterly growth. Since 2016. This progress reflects the continued execution of our innovation and commercial strategies aimed to improve performance.
Chris Schott: Orthopedic growth continues to improve with significant acceleration in the quarter, delivering growth of 2.3 percent, its largest quarterly growth since 2016. This progress reflects the continued execution of our innovation and commercial strategies aimed to improve performance. HIPs grew 2.9%, driven by our leadership position in the anterior approach, continued strong demand for our primary stem actus, and the concise surgical automated system. Trauma growth of 4.7% globally was driven by market growth, supported by strong adoption of newer innovations, such as our femoral neck system and recon nails. Sales growth was also aided by a one-time rebate reserve adjustment in the U.S. worth almost 90 basis points globally. Adjusting for this item, as the market leader in trauma, we are driving growth and expect our performance to represent growth in line with the overall global market.
EPS grew 2.9% driven by our leadership position in the anterior approach continued strong demand for our primary stem access and the concise surgical automated system trauma growth of 4.7% globally was driven by market growth supported by strong adoption of newer innovation such.
As our femoral neck system and recon Nationals sales growth was also aided by a onetime rebate reserve adjustment in the us worth almost 90 basis points globally.
Adjusting for this item as the market leader in trauma, we are driving growth and expect our performance to represent growth inline with the overall global market.
Spine declined less than 3% with the U.S. being the primary driver of decline, while we continue to see stabilization of performance driven by new products, such as the Viper Prime system for minimally invasive surgery, and our newly launched conduit inner body platform with E. G cellular titanium.
Threed printing technology to treat degenerative spine disease, we lost share in the quarter.
Chris Schott: Spine declined less than 3%, with the US being the primary driver of decline. While we continue to see stabilization of performance driven by new products, such as the Viper Prime system for minimally invasive surgery and our newly launched Conduit inner body platform with EIT cellular titanium 3D printed technology to treat degenerative spine disease, we lost share in the quarter. Chinese growth was 2.3% in the quarter, with declines in the US offset by strong double-digit growth of 10.8% outside the US.
These growth was 2.3% in the quarter with declines in the us offset by strong double digit growth of 10.8% outside the U.S.
Oh, you asked results are expected to represent above market performance led by new innovation, including Attune revision and ask plus.
Yes market continues to realize positive uptake from me in tune revision system and this quarter, we launched the attune cementless knee in the us and other select markets around the world.
Chris Schott: OUS results are expected to represent above-market performance led by new innovation, including Attune Revision and S+. The U.S. market continues to realize positive uptake from the Attune Revision System, and this quarter, we launched the Attune Cementless Knee in the U.S. and other select markets around the world.
Pricing pressure continue to impact all categories in orthopedics, but did show modest improvement compared to Q2, However, us pure price was negative across all platforms for the quarter.
Spine hips and trauma all declined approximately 2% with these declining about 1%.
Moving to the results for the surgery business.
Vance surgery delivered global growth of over 5% led by strong performance in energy of 8%, primarily driven by share gains and new products in the Asia Pacific region Biosurgery grew approximately 5% with growth in all regions, particularly the Asia Pacific region.
Chris Schott: Pricing pressure continued to impact all categories in orthopedics but did show modest improvement compared to Q2. However, U.S. pure price was negative across all platforms for the quarter. Spine, hips, and trauma all declined approximately 2%, with knees declining about 1%.
We were pleased to abroad surgery flow back to the market in the us at the end of July with that one month of being off the market in the quarter impacting global growth by about 100 basis points.
Chris Schott: Moving to the results for the surgery business, advanced surgery delivered global growth of over 5% led by strong performance and energy of 8%, primarily driven by share gains and new products in the Asia-Pacific region. Biosurgery grew approximately 5% with growth in all regions, particularly the Asia-Pacific region. We were pleased to have brought Surgiflow back to the market in the U.S. at the end of July.
Closure grew almost 5% driven by share gains in conventional and Barb sutures and continued strong market growth in China.
Timing of purchases in the veterinary channel Favourably impacted global growth by almost 100 basis points. Additionally, we launched the industry's first powered circular stapler for colorectal gastric and thoracic surgery, a key innovation for us in our general surgery franchise as expected selling days had a minor positive in.
Packed on our global growth rates in the third quarter, and we do not expect a significant impact in Q4.
Chris Schott: Wound closure grew almost 5%, driven by share gains in conventional and barbed sutures and continued strong market growth in China. Timing of purchases in the veterinary channel favorably impacted global growth by almost 100 basis points. Additionally, we launched the industry's first powered circular stapler for colorectal, gastric, and thoracic surgery, a key innovation for us in our general surgery franchise.
Now provide some commentary on our earnings for the quarter regarding our consolidated statement of earnings for the third quarter of 2019. Please direct your attention to the box section of the schedule as referenced in the table of non-GAAP measures. The 2019 third quarter net earnings are adjusted to exclude.
Intangible asset amortization expense and special items of zero point $8 billion on an after tax basis, primarily driven by intangible amortization of $1 billion.
Chris Schott: As expected, selling days had a minor positive impact on our global growth rates in the third quarter, and we do not expect a significant impact in Q4. I will now provide some commentary on our earnings for the quarter. Regarding our consolidated statement of earnings for the third quarter of 2019, please direct your attention to the box section of the schedule.
Excluding the impact of those items, our adjusted earnings per share is $2.12, an increase of 3.4% versus the third quarter 2018.
Adjusted EPS on a constant currency basis was $2.17 up 5.9% versus third quarter 2018.
Chris Schott: As referenced in the table of non-GAAP measures, the 2019 third quarter net earnings are adjusted to exclude intangible asset amortization expense and special items of $0.8 billion on an after-tax basis, primarily driven by intangible amortization of $1 billion. Excluding the impact of those items, our adjusted earnings per share is $2.12, an increase of 3.4% versus the third quarter 2018. Adjusted EPS on a constant currency basis was $2.17, up 5.9% versus third quarter 2018. I'd like to now highlight a few noteworthy items that have changed on the statement of earnings compared to the same quarter last year. Cost of products sold deleveraged slightly, primarily driven by the negative impact of currency in the pharmaceuticals business.
I'd like to now highlight a few noteworthy items that have changed on the statement of earnings compared to the same quarter last year cost of products sold de Levered slightly primarily driven by negative impact of currency in the pharmaceuticals business selling marketing and administrative margins for the quarter improved as a result, a favorable segment.
Thanks plan prioritization in the consumer and medical devices businesses as well as expense leveraging in the pharmaceuticals business. We continue to invest in R&D, a competitive levels and our investment in research and development. This quarter as a percent to sales was 12.5% which is higher than the third.
Quarter 2018 by 20 basis points. This increase was primarily driven by higher investment in our medical devices business related to robotics digital programs and key growth platforms.
The change recorded in the other income and expense line was primarily driven by contingent liability reversal in the third quarter of 2018.
Chris Schott: Selling, marketing, and administrative margins for the quarter improved as a result of favorable segment mix, planned prioritization in the consumer and medical devices businesses, as well as expense leveraging in the pharmaceuticals business. We continue to invest in R&D at competitive levels, and our investment in research and development this quarter as a percent of sales was 12.5%, which is higher than the third quarter of 2018 by 20 basis points. This increase was primarily driven by higher investment in our medical devices business related to robotics, digital programs, and key growth platforms. The change recorded in the other income and expense line was primarily driven by a contingent liability reversal in the third quarter of 2018. Net interest expense was lower by $109 million, primarily driven by the positive effect of net investment hedging arrangements and lower interest expense due to a lower average debt balance.
Net interest expense was lower by $109 million, primarily driven by the positive effect of net investment hedging arrangements and lower interest expense due to a lower average debt balance.
Regarding taxes in the quarter.
Our effective tax rate was 14.4% compared to the third quarter of 2018 tax rate of 11.1%.
As a reminder, regarding the third quarter of 2018, the company recorded a favorable financial impact of approximately 9% related to us tax reform.
The current quarter includes an estimated tax benefit for the transition provisions of Swiss tax reform, partially offset by an adjustment to existing tax reserve physicians negatively impacting the effective tax rate.
We encourage you to reference our 10-Q for further details on this and other specific tax matters, excluding special items, the effective tax rate was 20.3% compared to 17.6% in the same period last year.
Chris Schott: Regarding taxes in the quarter, our effective tax rate was 14.4% compared to the third quarter of 2018 tax rate of 11.1%. As a reminder, for the third quarter of 2018, the company recorded a favorable financial impact of approximately 9% related to U.S. tax reform. The current quarter includes an estimated tax benefit for the transition provisions of Swiss tax reform, partially offset by an adjustment to existing tax reserve positions negatively impacting the effective tax rate. We encourage you to refer to our 10-Q for further details on this and other specific tax matters. Excluding special items, the effective tax rate was 20.3% compared to 17.6% in the same period last year.
The increase was driven by the adjustment to tax reserve positions previously noted.
Now looking at adjusted income before tax in the third quarter of 2019, our adjusted income before tax for the enterprise as a percent of sales increased from 33.3%.
The 34.3% in 2019, primarily driven by improvement in selling marketing and administrative margins for the quarter. As previously noted the following are the main drivers of adjusted income before tax by segment.
The decrease in pharmaceutical margins by 180 basis points was primarily driven by the negative impact of currency in cost of goods sold.
Consumer margins improved by 450 basis points, primarily due to planned optimization of selling and marketing expenses.
Chris Schott: The increase was driven by the adjustment to tax reserve positions previously noted. Now looking at adjusted income before tax. In the third quarter of 2019, our adjusted income before tax for the enterprise as a percent of sales increased from 33.3% to 34.3% in 2019, primarily driven by improvement in selling, marketing, and administrative margins for the quarter, as previously noted. The following are the main drivers of adjusted income before tax by segment.
Medical devices improved by 220 basis points due to investment optimization in selling marketing and administrative expenses and other income items, which were partially offset by R&D investment in robotics and digital surgery solutions.
That concludes the sales NPL highlights for Johnson and Johnson third quarter 2019 for your reference Here's a slide summarizing notable developments occurring in the third quarter some of which were mentioned in my comments.
Ill now turn the call back to Joe.
Thanks, Chris with respect to cash at the end in the third quarter, we had approximately $11 billion of net debt consisting of approximately $18 billion of cash and marketable securities and approximately $29 billion of debt. We estimate our year to date free cash flow to be approximately 14, and a half billion dollars.
Chris Schott: The decrease in pharmaceutical margins by 180 basis points was primarily driven by the negative impact of currency on the cost of goods sold. Consumer margins improved by 450 basis points, primarily due to planned optimization of selling and marketing expenses. Medical devices improved by 220 basis points due to investment optimization in selling, marketing, and administrative expenses and other income items, which were partially offset by R&D investment in robotics and digital surgery solutions. That concludes the sales and P&L highlights for Johnson & Johnson's third quarter 2019. For your reference, here is a slide summarizing notable developments occurring in the third quarter, some of which were mentioned in my comments. I will now turn the call back to Joe.
We acted upon all four tenants of our capital allocation strategy, which are designed to and continue to drive shareholder value.
Some of the highlights include investing $2.6 billion in research and development in the quarter investing in our business delivered transformative healthcare solutions remains a top priority at Johnson and Johnson.
As in previous years, we expect to experience even higher levels of investment during the fourth quarter.
Some tangible examples of where this investment will be direct it will be progressing our future digital surgery offerings.
R&D activity related to car T constitutes a mab darzalex subcutaneous formulation and line extensions within the immunology portfolio, such as Stelara and lupus.
Joseph J. Wolk: Thanks Chris. With respect to cash, at the end of the third quarter, we had approximately $11 billion of net debt, consisting of approximately $18 billion of cash and marketable securities and approximately $29 billion of debt. We estimate our year-to-date free cash flow to be approximately $14.5 billion. We acted upon all four tenets of our capital allocation strategy, which is designed to and continues to drive shareholder value. Some of the highlights include investing $2.6 billion in research and development in the quarter. Investing in our business to deliver transformative healthcare solutions remains a top priority at Johnson & Johnson. As in previous years, we expect to experience even higher levels of investment during the fourth quarter. Some tangible examples of where this investment will be directed will be progressing our future digital surgery offerings and RD activity related to CAR-T, Cusatuzumab, Darzalex subcutaneous formulation, and line extensions within the immunology portfolio such as Stelar and Lupus. At the same time, we continue to evaluate strategic transactions that will further enhance our broad-based business and drive value creation, having invested nearly $6 billion this year. We also used cash in the quarter to complete the authorized $5 billion share repurchase program announced just last December, deploying $1.2 billion in the third quarter.
At the same time, we continue to evaluate strategic transactions that will further enhance our broad based business and drive value creation, having invested nearly $6 billion. This year.
We also use cash in the quarter to complete the authorized $5 billion share repurchase program announced just last December the point $1.2 billion in the third quarter.
I will now provide updates to our guidance for 2019, we continue to see strong results across our enterprise as such we are increasing sales guidance and are now comfortable with your models, reflecting operational sales growth of 2.5% to 3.0% for the year.
This growth would result in sales for 2019 on a constant currency basis of approximately $83.7 billion to $84.2 billion.
We expect that operational sales growth, excluding the impact of acquisitions and divestitures will be between 4.5% and 5.0% for the year.
Both metrics are up over 200 basis points at the respective Midpoints from the original guidance, we provided in January and over 100 basis points on the guidance we provided last July .
Although we are not predicting the impact of currency movements utilizing the euro spot rate relative to the U.S. dollar as of last week at 1.10, the negative impact of foreign currency translation is slightly worse than our last guide by 20 basis points and is estimated to negatively impact reported sales by approximately two point.
Three points.
Joseph J. Wolk: I will now provide updates on our guidance for 2019. We continue to see strong results across our enterprise. As such, we are increasing sales guidance and are now comfortable with your models reflecting operational sales growth of 2.5% to 3.0% for the year. This growth would result in sales for 2019 on a constant currency basis of approximately $83.7 billion to $84.2 billion. We expect that operational sales growth, excluding the impact of acquisitions and divestitures, will be between 4.5% and 5.0% for the year.
Under this scenario, we expect reported sales growth in the range of 0.2% to 0.7% or approximately $81.8 billion to $82.3 billion.
Moving to items impacting earnings.
Net interest expense is now expected to be net interest income of $50 million to $100 million.
For other income and expenses, we are tightening the range to $2.75 billion to $2.85 billion. As a reminder, this is the account, but we record royalty income as well as gains and losses arising from such items as litigation investments by our development Corporation divestitures asset sale.
Sales and write offs.
Our effective tax rate guidance for 2019 is now estimated to be approximately 18.0% to 18.5%, reflecting the higher end and a tightening of the previous guidance range.
Joseph J. Wolk: Both metrics are up over 200 basis points at their respective midpoints from the original guidance we provided in January and over 100 basis points from the guidance we provided last July. Although we are not predicting the impact of currency movements, utilizing the Euro spot rate relative to the U.S. dollar as of last week at 1.10, the negative impact of foreign currency translation is slightly worse than our last guide by 20 basis points and is estimated to negatively impact reported sales by approximately 2.3 points. Under this scenario, we expect reported sales growth in the range of 0.2% to 0.7%, or approximately $81.8 billion to $82.3 billion. Moving on, to items impacting earnings. Net interest expense is now expected to be net interest income of $50 to $100 million. For other income and expenses, we are tightening the range to between $2.75 billion and $2.85 billion. As a reminder, this is the account where we record royalty income as well as gains and losses arising from such items as litigation, investments by our development corporation, divestitures, asset sales, and write-offs.
Given those updates we are now comfortable with the adjusted EPS guidance in a range of $8.84 to $8, an 89 cents per share on a constant currency basis.
This reflects operational or constant currency growth of approximately 8.1% to 8.7%, which is higher than our prior guidance and reflective of our solid performance. This year.
Again, we're not predicting the impact of currency movements, but to give you an idea of potential impact on EPS using recent exchange rates a reported adjusted EPS would be negatively impacted by approximately 22 cents per share versus prior guidance of negative 20 cents.
Counting for that our reported adjusted EPS would range from $8.62 to $8.67 per share reflecting growth of approximately 5.7% at the midpoint, which is also higher than our previous guidance.
While we do not provide quarterly guidance and are not providing guidance for next year, just yet I will provide a few comments for you to consider looking ahead.
Joseph J. Wolk: Our effective tax rate guidance for 2019 is now estimated to be approximately 18.0% to 18.5%, reflecting the higher end and a tightening of the previous guidance range. Given those updates, we are now comfortable with the adjusted EPS guidance in a range of $8.84 to $8.89 per share on a constant currency basis. This reflects operational or constant currency growth of approximately 8.1% to 8.7%, which is higher than our prior guidance and reflective of our solid performance this year. Again, we are not predicting the impact of currency movements.
For the fourth quarter as well as for 2020 to better inform your modeling.
One notable item for the fourth quarter of this year.
You may recall that in the fourth quarter of 2018, we had an elevated level of adjusted other income of approximately $800 million, primarily due to the lifescan divestiture.
There is nothing similarly plans for the fourth quarter of this year.
Looking beyond the fourth quarter, we're still on the process of finalizing our 2020 plans.
But allow me to provide some context from line items, where we have some preliminary insights.
Relatively for sales, we expect our pharmaceutical business to continue to deliver growth above market.
Joseph J. Wolk: But to give you an idea of the potential impact on EPS, using recent exchange rates, a reported adjusted EPS would be negatively impacted by approximately 22 cents per share versus prior guidance of negative 20 cents. Accounting for that, our reported adjusted EPS would range from $8.62 to $8.67 per share, reflecting growth of approximately 5.7% at the midpoint, which is also higher than our previous guidance. While we do not provide quarterly guidance and are not providing guidance for next year just yet, I will provide a few comments for you to consider looking ahead, both for the fourth quarter and for 2020, to better inform your modeling. One notable item for the fourth quarter of this year. You may recall that in the fourth quarter of 2018, we had an elevated level of adjusted other income of approximately $800 million, primarily due to the LifeScan divestiture. There is nothing similarly planned for the fourth quarter of this year.
Our medical device business is anticipated to continue sales momentum and we remain focused on optimizing our consumer portfolio for competitive growth while improving profitability.
In terms of items on the PNM now.
Again robust plans are still being developed by our leaders, but we will continue to balance improved operating efficiency with investing for sustainable long term success.
For other income and expense at this early stage, we expect at this time to record approximately half the level. The income just provided in our current 2019 guidance range.
We continued to preferred investment in R&D to progress our robust pipeline of assets. This includes continued investment in our digital surgery portfolio, which was bolstered by the acquisition of our US that we completed in the second quarter of 2019.
For the effective tax rate based on current legislation, we anticipate the range being relatively similar to the 2019 full year tax guidance I provided earlier, 18.0% to 18.5%.
And while we don't forecast currency fluctuations based on current exchange rates, we expect currency to continue to be a headwind, although less than this year's impact.
Joseph J. Wolk: Looking beyond the fourth quarter, we are still in the process of finalizing our 2020 plans, but allow me to provide some context for line items where we have some preliminary insight. Qualitatively, for sales, we expect our pharmaceutical business to continue to deliver growth above-market. Our medical device business is anticipated to continue its sales momentum, and we remain focused on optimizing our consumer portfolio for competitive growth while improving profitability. In terms of items on the P&L, again, robust plans are still being developed by our leaders, but we will continue to balance improved operating efficiency with investing for sustainable long-term success. For other income and expense, at this early stage, we expect at this time to record approximately half the level of income just provided in our current 2019 guidance range.
That concludes our financial summary.
Im pleased to be joined on today's call by Ashley Tivo and Jennifer to help me address your questions before we open up the call for Q and a I would like to thank our Johnson and Johnson associates around the world for their continued hard work and dedication we celebrate its a 70 fiveth anniversary of our initial public offering at the New York Stock Exchange in September .
For a significant milestone made possible by their tremendous efforts and those who preceded them.
I will now turn the call back over to crash to begin the Q and a portion.
Thank you Joe we will now move to the Q1 a portion of the webcast. As a reminder, I would encourage you to take advantage of Ashley Tivo and Jennifer being on todays call by directing questions to them about their areas of expertise.
Operator can you please provide instructions for those on the line wishing to ask a question.
Ladies and gentlemen, if you like to ask a question at this time. Please press Star then one on your telephone keypad. If you like to withdraw your question Press Star then too. Please limit your questions one question and one follow up.
Joseph J. Wolk: We continue to prefer investment in R&D to progress our robust pipeline of assets. This includes continued investment in our digital surgery portfolio, which was bolstered by the acquisition of Aros that we completed in the second quarter of 2019. For the effective tax rate, based on current legislation, we anticipate the range being relatively similar to the 2019 full-year tax guidance I provided earlier, 18.0% to 18.5%. And while we don't forecast currency fluctuations based on current exchange rates, we expect currency to continue to be a headwind, although less than this year's impact.
Your first question comes from David Lewis with Morgan Stanley .
Yes.
Good morning, and thanks for the questions maybe just one for you and then one for for Ashley.
Joe This is a greater level of financial disclosure, we typically get heading into 2020. So so thank you in advance just doing some quick math here. It does sound like you're basically suggesting for 2020 outlook why not providing financial guidance topline should accelerate in the next year and you're pretty comfortable with that kind of relative type of leverage JNJ has done historically, which is sort of earnings growth rate.
Kind of in the one and a half one and a half ratio and earnings relative to sales is at a decent way of thinking about 20 2020, yes, David Thanks for the comments certainly glad that you find some of the.
Joseph J. Wolk: That concludes our financial summary. I am pleased to be joined on today's call by Ashley, Tebow, and Jennifer to help me address your questions. Before we open up the call for Q&A, I would like to thank our Johnson & Johnson associates around the world for their continued hard work and dedication. We celebrated the 75th anniversary of our initial public offering on the New York Stock Exchange in September, a significant milestone made possible by their tremendous efforts and those who preceded them. I will now turn the call back over to Chris to begin the Q&A portion. Thank you.
Outlook commentary helpful to you I do want to emphasize though what I said in the prepared remarks in that it's our teams are still working through their plans for 2020, we want to see the momentum that we seen through this year carry on throw with respect to topline I would say.
If you recall back in January we were a little bit more.
Conservative with this year's outlook, given some of the ability to hold onto brands that were facing exclusivity risk.
As a t. gopro creates a clear we performed a little bit better. So we do expect to be.
Above market, but just not as pronounced as we would've thought in the beginning of this year for 2020, but we're feeling very good about the momentum with respect to the income ratio to sales growth ratio I'd say, that's a little bit early to comment on I would expect to see some moderating more back towards I'll round sales growth.
Chris Schott: Thank you, Joe. We will now move to the Q&A portion of the webcast. As a reminder, I would encourage you to take advantage of Ashley, Tebow, and Jennifer being on today's call by directing questions to them about their areas of expertise. Operator, can you please provide instructions for those on the line wishing to ask a question?
Operator: Ladies and gentlemen, if you'd like to ask a question at this time, please press star, then 1 on your telephone keypad. If you'd like to withdraw your question, press star, then 2. Please limit your questions to one and one follow-up. Your first question comes from David Lewis with Morgan Stanley. Good morning, and thanks for the questions. Maybe just, Joe, one for you, and then one for Ashley.
This year, if you look at it let's just take.
Adjusted to adjust it so accounting for.
Divestitures and acquisitions impact, it's a 1.8 ratio that's a little bit higher than we typically run at and then obviously, we're going to digest.
A pretty significant hit on the other income line. So again the teams working through the plans. We do have ambitious goals for next year and what I would say is.
Joseph J. Wolk: Joe, this is a greater level of financial disclosure we typically get heading into 2020, so thank you in advance. Just doing some quick math here, it does sound like you're basically suggesting for the 2020 outlook, or you're not providing official guidance, the top line should accelerate into next year, and you're pretty comfortable with that kind of relative type of leverage JNJ has done historically, which is sort of an earnings growth rate kind of in the 1.5 ratio of earnings relative to sales. Is that a decent way of thinking about 2020?
Stay tuned as probably the best Directionally can give you at this point in time.
Okay. Just two quick follow ups Joe the first is for you on the repo you've completed the before this quarter just given the operational performance of JNJ and the company's historical discount.
What are you thinking now with the share repo completed.
Going forward and then actually just real quickly can you talk a little bit value us market dynamics within vision two specific dynamics you talked about pressure in the surgical business to what extent is that well dynamics in the marketplace versus the lasik franchise.
Super helpful. Thanks, so much.
So David with respect to this share repurchase we are pleased to have the $5 billion Board authorized program completed.
Joseph J. Wolk: Yes, David, thanks for the comments. I'm certainly glad that you find some of the Outlook commentary helpful to you. I do want to emphasize, though, what I said in the prepared remarks, that our teams are still working through their plans for 2020. We want to see the momentum that we've seen this year carry on. But we're feeling very good about the momentum.
It continues to be one of the four pillars within our capital allocation strategy I would say in terms of pecking order as you know havent covered us for years, it's probably the least of our preferred options, although still an option.
Joseph J. Wolk: With respect to the income ratio to sales growth ratio, I'd say that's a little bit early to comment on. I would expect to see some moderating more back towards around sales growth. This year, if you look at it, let's just take adjusted to adjusted, so accounting for divestitures and acquisitions, it's a 1.8 ratio. That's a little bit higher than we typically run at.
Simply because doesn't provide us capabilities going forward.
We'll continue to evaluate that along with the dividend increase the investment in R&D as well as.
Opportunistic.
Acquisitions that.
Makes sense from a value creation standpoint, but also a really good strategic fits that expand our portfolio.
And thank you David further question on vision, but before I get to that and I have to first acknowledge kind of this strong quarter for medical device in quarter three growing 5.3%.
Joseph J. Wolk: And then, obviously, we're going to digest a pretty significant hit on the other income line. So, again, the team's working through the plans. We do have ambitious goals for next year. And what I would say is, stay tuned. It's probably the best.
And as Chris had mentioned, we did experience on far buying into Japan consumption. So if you take that out we're looking around for a half percent crowd, which is the strongest that we had in four years. So as you know we've been on this journey since 2017 to really enhance our performance year over year and when we look at 17, we exited.
Joseph J. Wolk: Okay, maybe just two quick follow-ups.
Joseph J. Wolk: Thank you. On the repo, you completed the repo this quarter. Just given the operational performance of JNJ and the company's historical discount, what are you thinking now with the share repo completed going forward? And then, Ashley, just real quickly, can you just talk a little bit about U.S. market dynamics within Vision, two specific dynamics? You've talked about pressure in the surgical business. To what extent is that IOL dynamics in the marketplace versus the LASIK franchise?
On a half percent growth.
Revenue in 18, we exited 2.6% and in 2019 to date, we are tracking a little bit north of 4%. So as I always say I don't think our growth is going to be linear, but I do think that weve turned the corner and and that really if you can predominantly in the near term to strategic choices that we're making to strengthen our competitive.
Joseph J. Wolk: That'd be super helpful. Thanks so much.
And it's really about that's very strong Stephen leadership team has got five quarters underneath them and I'm very very strong focus on execution and so I think this is starting to have an effect. So to your question on vision vision had a good quarter I would say contact lens in particular had a very healthy quarter really driven by very strong growth in United States.
Joseph J. Wolk: So, David, with respect to the share repurchase, we are pleased to have the $5 billion board-authorized program completed. It continues to be one of the four pillars of our capital allocation strategy. I would say in terms of pecking order, as you know, having covered us for years, it's probably the least of our preferred options, although it's still an option, simply because it doesn't provide us with any capabilities going forward. But we'll continue to evaluate that, along with the dividend increase, the investment in R&D, as well as opportunistic acquisitions that make sense from a value creation standpoint but also are really good strategic fits that expand our portfolio.
Around 6%.
Surgery, we had very strong outside the us performance double digit U.S. surgical does it is challenged related to front number one and competitive inroads and we are looking to strengthen our commercial execution and you actually strengthened that leadership team revisited our programs.
And we are also accelerating some innovations we expect to have three meaningful innovation and in premium I allows and modify file out over the next 18 months and here earlier point, yes, we give the lead that we've seen some softening in the lasik market in the United States. Thanks to the question.
Ashley A. McEvoy: You know, I have to first acknowledge kind of a strong quarter for medical devices in quarter three, growing 5.3%. And as Chris mentioned, you know, we did experience some forward buying in Japanese consumption. So if you take that out, we're looking at around four and a half percent growth, which is the strongest that we've had in four years. And, as you know, we've been on this journey since 2017 to really enhance our performance year over year. And when we look at 17, we exited one and a half percent growth on revenue. In 18, we exited 2.6%.
Great. Thank you David appreciate the question.
Next question please.
Next question is from Chris Schott with JP Morgan.
Great. Thanks, very much just two questions here, maybe first can you talk about transpired dynamics, particularly relative to sky rizzi. The product obviously term fight obviously ramping nicely. Another some investor concern, though that that ramp could be impacted by a strong launch from your competitors. So just trying to think about price and volume for that business.
Ashley A. McEvoy: And in 2019, to date, we're tracking to a little bit north of 4%. So, as I always say, I don't think our growth is going to be linear, but I do think that we've turned the corner. And that really is due, predominantly in the near term, the strategic choices that we're making to strengthen our competitiveness. And it's really about this very strong season leadership team. He's got five quarters underneath them and a very, very strong focus on execution, so I think this is starting to have an effect.
Going forward.
The second question was on on liabilities. It seems like kind of these this liability is somewhat dominated the narrative for the JJ story this year.
Do you think the company can do to address that overhang and what's the company's approach towards settlement because it seems like right now the mix of opioids talc and some others. So overshadowed with what's going to be very strong underlying fundamentals of the company. Thank you.
Ashley A. McEvoy: So to your question on vision, you know, vision had a good quarter; I would say contact lenses in particular had a very healthy quarter, really driven by very strong growth in the United States of around 6%. In surgery, we had very strong performance outside of the United States, double-digit. The U.S. surgical business is challenged, really, due to two fronts. Number one, some competitive inroads, and we are working to strengthen our commercial execution in the U.S. We have strengthened that leadership team, revisited our programs, and we also are accelerating some innovations. We expect to have three meaningful innovations in premium IOLs and monofocal IOLs over the next 18 months. And to your earlier point, yes, we do believe that we've seen some softening in the LASIK market in the United States. Thanks for the question, David.
The China for why don't you addressed.
This is question around trying to fire, maybe and getting some pharmaceutical perspective, and then I'll pick up the litigation matters.
Hi, Chris and good morning, everyone.
First off it was really strong quarter for the pharmaceutical growth then I just wanted to highlight a couple of key points.
First being as sales of $10.9 billion, 6.5% operational growth. This was our sixth consecutive quarter with sales of $510 billion and if you take a look at our growth excluding side. It was 10% and also with very strong contribution from the U.S.
And the international markets were actually we had 10% growth outside of the U.S. as well.
Our growth was broadly based which kind of our key brands growing at double digit rates, which more than offset the erosion due to bio Similars engineering overall, our immunology business was up 10% oncology business up 9% and neuroscience up 8%.
Ashley A. McEvoy: Thank you, David. I appreciate the question. Rob, next question, please.
Operator: Your next question is from Chris Schott with GPRC. Great, thanks very much.
A few notable call outs Stelara had 31% growth Darzalex has 57% imbruvica, 33% growth transpire, which I'll come back to 70% growth.
Invega sustenna, 15% and our lead at 95% growth, so very strong performance across our base of business and across our key growth drivers.
Jennifer Taubert: Just two questions here. Maybe first, can you talk about Tremfya dynamics, particularly relative to SkyRISE? The product, Tremfya, is obviously ramping nicely. I know there's some investor concern, though, that that ramp could be impacted by a strong launch from your competitor. So just how are you thinking about price and volume for that business going forward? The second question was on liabilities, and it seems like these liabilities have somewhat dominated the narrative for the J&J story this year. What do you think the company can do to address that overhang? And what's the company's approach to settlement? Because it seems like right now that the mix of opioids, talc, and some others has overshadowed what seem to be very strong underlying fundamentals of the company.
Additionally, it with a really nice quarter for the progression of our pipeline and we had a number of significant approvals as well as filings that are worth calling out most recently as of last Friday, we got approval further alto to help prevent the key in acutely medically ill patients.
We got approval for Invokana for the treatment of diabetic kidney disease.
Nevertheless, we got approval for the combination regimen in newly diagnosed transplant eligible patients.
And for our lead we got approval for a treatment of metastatic castration sensitive prostate cancer, which expands our opportunity for that product. So that it's not only in a non metastatic space that into the metastatic space as well.
Also had a number of regulatory submissions and kill breakthrough designation that were granted so strong performance for our key growth drivers and good reasons for optimism on our pipeline progression as well.
In terms of.
Trend Fiat Cuattro fire business grew 70% versus the third quarter and in addition, we filed an application for use in active Surrey attic arthritis in August and so to date, we're really pleased with the launch progress and a trajectory based on the strength of the profile of the product that we've got couple of.
The with very strong.
Longevity data that we have we believe that we've got a really competitive offering that ill 23 as is the right mechanism for psoriasis and other areas that we're exploring and also that we've got a very very strong package to drive continued growth I think any settings before we've discussed the strength of the package that we have with superiority.
Any data versus three separate mechanisms so approval versus.
And in our label superiority data versus Humira as an anti TNF.
Assist stelara nonresponders.
IL 12, 23 mechanism and then our most recent data versus Cosentyx, such as an eye on 17, and Pozzi 90 at week free eight and now we actually have four years of data that further demonstrates the therapeutic longevity of the asset that's going to be presented next week. So when you take a look at it we believe we've got to.
The profile versus the IL Seventeens, we've also got a competitive profile versus the other aisle 23, and we don't see that they're bringing anything to the market that is any different.
In fact based on the strength of our data plus now our four year data and the strength of the access that we have in the market. We think that we're going to continue to compete very very well and what it was arguably be at very competitive space.
Jennifer Taubert: Thank you.
Thanks, Jennifer Chris with respect to your second question and litigation more broadly in and what can the company do so I think it's important without going into two deep of a litany about the cases that are out there. There's three I'd say headline grabber is that.
Jennifer Taubert: Jennifer, why don't you address Chris's question about Tremfya, maybe even get in some pharmaceutical perspective, and then I'll pick up the litigation matters.
Jennifer Taubert: Hi Chris, and good morning, everyone. First off, it was a really strong quarter for the pharmaceutical group, and I just wanted to highlight a couple of key points, the first being, you know, sales of $10.9 billion and 6.5% operational growth. This was our sixth consecutive quarter with sales above $10 billion, and if you take a look at our growth, excluding Zytiga, it was 10%, and also with very strong contribution from the U.S. and international markets, where we actually had 10% growth outside of the U.S. as well. Our growth was broadly based, with 10 of our key brands growing at double-digit rates, which more than offset the erosion due to biosimilars and generic
Folks have taken notice of and it is important for me to just give a brief summary of the position on each because they are a unique in their own right with respect to the risk, but all judgment that you heard last week.
First of all let's make sure people understand the benefits of risk, but all what it provides for psychosis is for decades now been on WH shows list of.
Most of preferred medicines.
And that judgment itself.
Based on US Supreme Court precedent would suggest it's very agree just so we don't expect that to stand we will appeal certainly the amount and you can expect that to come down.
Precedent halt with respect to opioids.
Jennifer Taubert: And now we actually have four years of data that further demonstrates the therapeutic longevity of the asset, and that's going to be presented next week. So, when you take a look at it, we believe we've got a real competitive profile versus the IL-17s. We've also got a competitive profile versus the other IL-23s, and we don't see that they're bringing anything to the market that is any different. In fact, based on the strength of our data plus now our four-year data and the strength of the access that we have in the market, we think that we're going to continue to compete very, very well in what will arguably be a very competitive space.
As seen two divergent past therefore sell in Oklahoma, we thought that based on the theory of law in which was brought under in public nuisance as well as the facts that underlie that case, where even the attorney General the states had many times during the court proceedings. This is not about Johnson and Johnson, it's about that there's an opioid.
Crisis.
Where we had less than 1% market share that's not just for the state of Oklahoma, but across the country.
With those facts were ignored and we couldn't find a reasonable settlement approach.
We decided to.
Pursue with that case and we are.
Currently appealing that case and have made motions to do that.
Jennifer Taubert: Thanks, Jennifer. Chris, with respect to your second question and litigation more broadly, and what can the company do, so I think it's important, without going into too deep of a litany about the cases that are out there, there's three, I'd say, headline grabbers that folks have taken notice of, and it is important for me to just give a brief summary of the position on each, because they are unique in their own right. We will appeal, certainly, the amount, and you can expect that to come down, should precedent hold. With respect to opioids, you seem to diverge and pass, therefore, so in Oklahoma, we thought that based on the theory of law in which it was brought under in public nuisance, as well as the facts that underlie that case, where even the Attorney General of the state said many times during the court proceedings, this is not about Johnson & Johnson, it's about that there's an opioid crisis, where we had less than 1% market share, that's not just for the state of Oklahoma, but across the country, where those facts were ignored, and we couldn't find a reasonable settlement approach, we decided to pursue with that case, and we are currently appealing that case, and have made motions to do that. Investors who obviously want certainty.
In Ohio, you saw something different we saw a reasonable amount in proportion to other companies that were involved as defendants.
We were particularly pleased to see that the funds were going to victims of opioid addiction.
And so for many reasons there we thought the best path for all stakeholders was settlement and that's something that we will always kind of take into account in terms of what is the best solution for all stakeholders, including investors, who obviously once certainty.
Lastly, with talc.
This to me is probably.
The poster child for how big of business.
Plaintiffs attorneys have made this type of approach if you think about the outstanding cases product liability cases.
The U.S. quit system today about 50% are related to life Sciences, our against life science companies when products have never been safer and have never been more effective.
The plaintiff bar.
In total has spent over $400 million this year alone in advertising on TV trying to drive up the numbers in class action suit, it's become a $36 billion industry.
And what you may not realize you'll see the headlines certainly when verdicts our ruled against us and I will remind everyone that there is currently not any case, that's been fully adjudicated that stands in judgment against us, but last week alone. There were three decisions that were in favor of the company.
Joseph J. Wolk: Lastly, with Talc, you know, this is probably the poster child for how big a business plaintiff's attorneys have made this type of approach. If you think about the outstanding cases, product liability cases in the U.S. court system today, about 50% are related to life sciences or are against life science companies when products have never been safer and have never been more effective. You know, the plaintiff's bar has spent over $400 million this year alone on TV advertising, trying to drum up numbers in class action suits.
And you don't see headlines on that so in that case, we're going to continue to defend a product that we know to be safe.
That we know does not cause cancer and that's not just the opinions of Johnson and Johnson scientists that's the opinion of respected institutions like the National Cancer Institute, the FDA and numerous prestigious universities.
Joseph J. Wolk: It's become a $36 billion industry, and what you may not realize is that you'll see the headlines certainly when verdicts are ruled against us. And I will remind everyone that there's currently not any case that's been fully adjudicated that stands in judgment against us. But last week alone, there were three decisions that were in favor of the company, and you don't see headlines on that. So, in that case, we're going to continue to defend a product that we know to be safe, that we know does not cause cancer, and that's not just the opinion of Johnson & Johnson scientists. That's the opinion of respected institutions like the National Cancer Institute, the FDA, and numerous prestigious universities.
So we'll continue to evaluate each situation for its unique merits.
But.
What I cant underscore enough is we've got a small great legal team working on this matters as today's results hopefully demonstrate to all of you on the phone and anybody who's reading the press release.
Is that we continue to be focused as an organization of 135000 associates trying to bring better solutions that are innovation to health care that will eventually went out we're very well.
Were very strong and our conviction around that it has for 133 years, we know how to navigate these matters I'm going to stay focused at the task at hand.
With that last point it may be good sometimes we get a question, especially as it relates to talcott theres been any overhang on the business and so that I'd like to turn it over to to Tivo, maybe to just to give some quick commentary with respect to the consumer business and whether he's seeing any impact from it.
Joseph J. Wolk: So, we'll continue to evaluate each situation for its unique merits, but, you know, what I can't emphasize enough is we've got a small, great legal team working on this matter. And, as today's results hopefully demonstrate to all of you on the phone and anybody who's reading the press release, we continue to be focused as an organization of 135,000 associates trying to bring better solutions and better innovation to healthcare. That will eventually win out. We're very strong in our conviction around that. It has for 133 years. We know how to navigate these matters, and we're going to stay focused on the task at hand. With that last point, you know, it may be good sometimes we get a question, especially as it relates to Talc, if there's been any overhang on the business. And for that, I'd like to turn it over to Thibault, maybe just to give some quick commentary with respect to the consumer business and whether he's seeing any impact from it.
Sure good morning, everyone.
The short on studies is no we do not see any significant inset effect across to the consumer business.
Joel just referenced.
He is around the world in the consumer sector hyper focused on.
Delivering vessel health very differentiated way with very strong brands that are we did in science and endorsed by professionals.
In Q3, as Chris highlighted earlier, we delivered solid growth.
Key priority areas that we declared at the beginning of the year you heard about 5.2% growth in LTC, 2% in beauty.
Stroke four months by Brown's light tightly nanya to Gina.
No.
Full perspective into ground you as BB franchise represent only 12% to proximity of all revenues.
Joseph J. Wolk: Sure. Good morning, everyone. The short answer is no.
And it looks maybe 80% of those sales outside the United States, where there is less of an impact from the U.S.
Thibaut Mongon: We do not see any significant effect across the consumer business. As Joe just referenced, our employees around the world in the consumer sector are hyper-focused on delivering personal health in a very differentiated way with very strong brands that are rooted in science and endorsed by professionals. In Q3, as Chris highlighted earlier, we delivered solid growth in our key priority areas in the markets and segments where we compete. You also saw that we increased our adjusted IBT significantly this year, 210 basis points so far year-to-date at 22.4%. So we are focused on executing our strategy.
Events so.
You see the performance of the business.
In the US we continued to gain share in beauty in LTC. We are outperforming the market, we are well positioned in segments of the ongoing.
Two to two 2.5%.
Into markets and segments, where we compete.
You will so that we increased adjusted IBT.
Significantly this year 210 basis points, so far year to date up 22.4%.
So we are.
Focused on executing a strategy.
Great. Thanks, Tivo, Chris Thanks for the question Rob next question. Please.
Thibaut Mongon: Great. Thanks, Thibaud. Chris, thanks for the question. Rob, next question, please.
Operator: Your next question is from Larry Beagleson with Wells Fargo. Good morning. Thanks for taking the question.
Next question is from Larry Biegelsen with Wells Fargo.
Good morning, Thanks for taking the question one for China at one on China, and one once one medtech for Ashley So first on China.
Joseph J. Wolk: One on China and one on MedTech for Ashley. So first on China, Joe, any color on what you're seeing across divisions there and your expectations going forward? Obviously, there's been some concern about the environment in China. And just remind us of how much China accounts for as a percent of total J&J sales.
Joe any color on what you're seeing across divisions there.
And your expectations going forward, obviously theres been some concern about the the the environment in China.
And just remind us of how much China accounts for as a percent of total JJ sales and I just had one follow up perhaps slate.
Joseph J. Wolk: Yep, sure, Larry, good to speak with you. So China continues to perform extremely well for us. So if you look, if I strip out, you know, the significant divestitures of LifeScan and ASP, our overall growth was about 15 percent. I would say medical devices, which, you know, we know is the number one company for medical devices in China.
Yes, sure Larry get to speak with you. So China continues to perform extremely well for us. So if you look if I strip out significant.
Divestitures of life Lifescan NSP, our overall growth was about 15%.
I would say medical devices, which we know as the number one company for medical devices in China, we were up around 19%, 14% in pharmaceuticals, and about 5% in consumer so very healthy across the board, we've not seen any impacts on tariffs.
Joseph J. Wolk: We were up around 19 percent, 14 percent in pharmaceuticals, and about 5 percent in consumers. So, very healthy across the board. We have not seen any impacts on tariffs, and we don't know of any that are pending around health care. So we've been fortunate in that way.
And we don't know of any that are pending around healthcare. So we've been fortunate in that way we continue to monitor it.
Ashley A. McEvoy: We continue to monitor it. The business overall was a billion dollars for the quarter. So that's, I think, a high watermark for that business as it continues to go fairly strong in terms of growth levels.
Business overall was $1 billion for the quarter. So that's I think a high watermark for that business as it continues to go.
Fairly strong in terms of growth levels.
Ashley A. McEvoy: That's very helpful, Joe. And, Ashley, your advanced surgery business has been growing outside the U.S. nicely but has been soft in the U.S. So, my question is, what will turn that around in the U.S.? And, you know, will these recent trends continue until you launch your surgical robot? Thanks for taking the question.
Thats very helpful Joanne and Ashley your advanced surgery business has been growing outside the us nicely, but has been soft in the U.S. So my question is what turns at around in the US and will these recent trends continue until you launcher surgical robot thanks for taking the questions Jim.
Ashley A. McEvoy: Thanks Larry. Before I get specifically into the surgery business, I do think it's helpful to share. You know, I talked about in the last quarter some of our hotspots and how we address some of those. And then when we look at some of the areas that are really on fire, as Joe mentioned, in China, like our Asia business continues to perform double digits. And we actually performed high single digit, if not double digits, in all of our franchises, in orthopedics, in surgery, as well as in interventional. And as I talked last time, really, you know, the U.S. is our largest market. How do we continue to accelerate growth there? And then when I look at our global orthopedics business, where we do command a world-leading position in orthopedics, we've accelerated that revenue in 2019.
Thanks, Larry.
Before kind of get specifically into kind of the surgery business I do think it's helpful to share.
I had talked at the last quarter some of our hot spots and highly address some of this and then when we look at some of the areas that are really on fire as Jim mentioned in China like our Asia business continues to perform double digit.
And and we actually performed high single digit if not double digit and and all of our franchises in orthopedics in surgery as well as an intervention and as I talked last time really do you actually is our largest market. How do we continue to accelerate growth. There. So I am pleased to see that year to date that business is up around 2.2% and this time last year.
That number like a little that south of 1%.
And then when I look at our global Orthopedics business, where we are we do command, where our leading position in orthopedics, we've accelerated that revenue in 2019, so year to date that business is that around 1% really feel they very strong quarter in quarter, three up of around 2.3%, which in our strongest quarter since 2016.
Ashley A. McEvoy: So year-to-date, that business is up around 1%, really fueled by a very strong quarter in quarter three, up by around 2.3%, which is our strongest quarter since 2016, which is a growth acceleration versus a year ago, where that number was about down 1%. So if I turn my attention to surgery, I would say, you know, our energy business has a very strong performance, really double-digit growth, OUS. In the U.S., we will be challenged until we get our digital surgery offerings out there. And then, similarly, for endocutters, endocutters globally had a softer quarter versus the second quarter, really due to some phasing between quarter two and quarter three and due to a very healthy comp last year, where we grew 10% in endocutters. Similarly, we're seeing very strong performance outside of the United States, high single-digit growth, but we are challenged versus the robotic penetration happening in the United States.
Which is a growth acceleration versus a year ago way that number was about down 1%.
So if I turn my attention to surgery I would say our energy business has a very strong performance really double digit growth you asked in the U.S., we will be challenged until we get our digital surgery offerings out there and then similarly for Endocutters Endocutters globally had a softer quarter versus the second quarter really didn't get some phasing beach.
Third quarter two in quarter, three and you guys very healthy comp last year, where we grew 10% endocutters.
And lastly, we're seeing very strong performance outside the United States high single digit.
But we are challenged versus the robotic penetration at in United States.
Ashley A. McEvoy: Thank you.
Thank you.
Operator: Great. Thank you, Larry. I appreciate the question. Rob, next question, please.
Great. Thank you Larry I appreciate the question Rob next question. Please.
Operator: Next question is from Daniel and Talvey with SVB Lyric Hey, good morning guys. Thanks so much for taking the question. Um, I appreciate all the commentary on medical devices. I'd love to see the growth this quarter. Ashley, just a quick...
Next question this from Danielle Antalffy SVB Leerink.
Hi, Good morning, guys. Thanks, so much for taking the question and I appreciate all the commentary on medical devices love to see growth. This quarter actually just a quick question for you as we think about that 4.5% growth you talked about X and one timers.
Ashley A. McEvoy: I have a question for you. As we think about that 4.5% growth you talked about, X and 1 timers, how should we think about its sustainability? I know there's probably going to be volatility quarter to quarter, but I just want to make sure this level of growth isn't going to fall off for any sort of reason. So I'm wondering if you could talk about, as we look out over the next four to six quarters,
How should we think about the sustainability of this I know, there's probably going to be volatility quarter to quarter, but just wanted to make sure. This level of growth isn't going to fall off or any sort of region. So wondering if you could talk about if you look out over the next.
Just six quarters, the sustainability of that 4% to 5% growth level.
Ashley A. McEvoy: to 5% growth level, or are there any headwinds in any particular quarter coming up that we should be thinking about? So thanks for the question, Danielle.
Are there any headwinds at any particular quarter coming out that we should be thinking about.
So thanks to the question Daniel and listen it's really good to see a number for you now and were pleased with quarter three and we're pleased with really kind of the year over year enhancement. So I I feel confident in that continued year over year progression I don't anticipate us having a perfect linear line every quarter to quarter.
Ashley A. McEvoy: And you know, listen, it's really good to see a number four, and we're pleased with quarter three. And we're pleased with really kind of the year over year enhancement. So I feel confident in that continued year over year progression. I don't anticipate us having a perfect linear line every quarter to quarter. The market is just, we'll have to adapt to the market.
In the market has just got lot to adapt to the market, but I really think that we're going to accomplish that what you're seeing is really the benefit of strength in commercial execution, but I would say what I'm equally bullish on is really the innovation agenda and when I look at 2019, I think we benefited from some really novel innovations in our circular.
Ashley A. McEvoy: But I really think that we're going to accomplish that. What you're seeing is really the benefit of strength and commercial execution. But I would say what I'm equally bullish on is really the innovation agenda. And when I look at 2019, I think we've benefited from some really novel innovations in our circular powered circular staple for complex oncology cases. We had a first in the contact lens with a light adaptive lens.
Particular staple for complex oncology cases, we had a first in.
And the contact lens with a light adapter lens, we are launching our cementless such as a high growing segment need in quarter three.
Ashley A. McEvoy: We are launching our cement list, which is a high-growth segment in knees, in quarter three. In quarter four, we'll have some news in spine related to our symphony launch for our complex posterior cervical and deformity. So I really think that those are going to have an effect, but equally important is what I look at the innovations coming out over the next, let's say 18 months. And we're going to have a first of kind, smart micro catheter in our electrophysiology business under Q dot, which is going to deliver about two to three times the amount of energy and take the procedure from four hours to two hours. We're going to have another novel innovation in vision related to the first ever drug-eluding contact lens for allergies, and more premium intraocular lenses coming. And we're going to have some digital surgery robots in our orthopedics business, really beginning with the filing in 2020, let alone all the digital surgery offerings that we have with Monarch and, and the future with verb and the I platform. So, thanks for the question.
In quarter four will have some news in spine related to our symphony launch for complex, but curious cervical and deformity.
So I really think that those are going to have an effect, but but equally important is really what I look at the innovations coming out over the next let's say 18 months and we're going to have a first in kind smart micro catheter in our electrophysiology business on a Q dot, which is going to deliver about two to three times the amount of energy and take the procedure from four hours to Q.
Yes, we're going to have another novel innovation envision related to the first ever drug eluding contact lens for allergy more premium intraocular lens coming and we're going to have some digital surgery robots and our orthopedics business really beginning with the filing in 2020, let alone all the digital surgery offerings that we.
With monarch and and the feature with of urban AI platform. So thanks for the question.
Ashley A. McEvoy: Thanks, Danielle. I appreciate the question. Rob, next question, please.
Thanks I appreciate the question.
Rob next question please.
Next question by from Terence Flynn with Goldman Sachs.
Operator: The next question is from Terrence Flynn with Goldman Sachs. Hi, thanks for taking the question.
Hi, Thanks for taking the question.
Jennifer Taubert: Just as we think about margins, obviously, posted a really strong quarter. It looks like consumer and medtech were the key drivers of the improvement. Just wondering if that level is sustainable here or if there's room for further improvement in each of these segments as we look into 2020. And then on Darzalex, looking ahead into 2020, is it reasonable to assume that year-over-year growth in the U.S. should inflect positively?
Just as we think about margins, obviously posted a really strong quarter. It looks like consumer in med Tech where they are the key drivers of the improvement just wondering if that's that level sustainable here or if there's room for further improvement in each of these segments as we look into 2020 and then on Darzalex looking ahead into 2020 is it reasonable.
I assume that year over year growth in the U.S. should inflect positively next year, given the frontline label. Thanks.
Jennifer Taubert: should inflect positively next year given the front line label. Thanks.
Jennifer Taubert: Maybe Thibaut and Ashley, if you'd like to address your levels of investment with respect to your businesses, and then Jennifer, you can handle the Darzalex question.
Maybe tivo and actually if you'd like to address your levels of investment with respect to year businesses and then Jennifer you can handle the charge like question.
Thibaut Mongon: Sure, I can start with consumer trends. As you saw, we are very focused on improving our profitability. I just talked about the sequential improvement we are seeing this year. As I look at 2020, we expect to see moderate acceleration in the top line, with the market growing around 3%. We remain focused on driving our productivity agenda. So that's the agenda for 2020. Yeah, I think that the best way to characterize it relative to this year, Terence, is that this year was the bigger lift in terms of profit and...
I can start with consume utterance on.
So we are very focused on improving our profitability level I just talked about.
The sequential improvements we are seeing.
This year.
As I look at 2020, we expect.
To see.
Well there its acceleration the into top line, which is.
Market growing around 3%.
And we remain focused on driving productivity agenda.
So.
The agenda for 2020, yes, I think the best way to characterize it relative to this year terence's that this year was the bigger lift in terms of profit improvement profitability margins improving for the consumer unit. So you will still have still see continued improvement as tivo mentioned, but not to the same degree probably saw in 2019.
Thibaut Mongon: Improvement, profitability margins are improving for the consumer unit, so you will still see continued improvement as T-Bone.
Ashley A. McEvoy: And just to build, Terence, this is Ashley, on the kind of the investments and what the expectations are. I think, you know, we're seeing very strong performance in Asia. We've made continued investment in Asia and continued investment in China. You know, we continue to command a leadership position in China, and we command a leadership position in emerging markets, and it's really nice to see emerging markets up 10% and China up 19%. And we will continue to make those very, very select investments. And then, in areas like commercial infrastructure around having a world-class sales force and world-class professional education, I think we're seeing the investments that we made, particularly in new deployment models in the United States, having an effect. And then, clearly, in innovation, both in digital surgery through the ORS acquisition and what we're continuing to do with our VRB and orthotaxi and some robotic programs in spine. And as you know, we've invested about $12 billion in M&A since 2017 in medical devices to make sure that we're playing in the most attractive spaces.
And just to download Kansas is Ashley on that kind of the investments in what the expectations are I think how we're seeing very strong performance in Asia. We've made continued investment in Asia and continued investment in China.
We continue we command a leadership position in China, and we can and leadership initiate emerging markets and it's really nice to see emerging markets at 10% and China, 19% and we will continue to make this very very selective evidence and then in areas like commercial infrastructure around having a world class selling for Salesforce and.
World Class professional education, I think we're seeing the investments that we need particularly in new deployment models in the United States, having an effect and then clearly in innovation both in digital surgery, the Rx acquisition and what we're continuing to do with our verbally ortho taxi and some robotic programs in spine and as you know we invested about $12 million.
M&A since 2017 and medical devices to make sure that we're playing in the most attractive spaces it'd be fair Terrence, it's a little bit of a tough question for our business leaders to answer at this point in time as I mentioned at the outset, we're still developing our plans for 2020 and for US when we go through those plans.
Joseph J. Wolk: And to be fair, Terrence, it's a little bit of a tough question for our business leaders to answer at this point in time. As I mentioned at the outset, we're still developing our plans for 2020. And for us, when we go through those planning processes, we're really looking at what investment opportunities are available to us in terms of strengthening not just the short-term but the long-term. What's going to make us truly competitively advantaged two, three, five years down the road?
We're really looking at what investment opportunities are available to us in terms of fortifying not just the short term, but the long term, what's going to make us truly.
Competitively advantaged 235 years down the road, so thats why its a little bit difficult to answer, but we're always looking to make sure that we've got.
Jennifer Taubert: Hi Sharon.
Jennifer Taubert: and we have a lot of new subscribers to that, with 57% growth versus the third quarter of last year. As you noted, we've got a great opportunity to make strides in the frontline setting. Right now, Darzalex is a leader in Line 2+, however, at the end of June, we gained approval in the frontline setting for transplant ineligible patients in combination with Revlimid, and at the end of the third quarter, we gained approval in the frontline setting for transplant eligible patients in combination with Velcade and Thalidomide based on our Cassiopeia data. And so we're really looking to continue to expand Importantly for us, and I believe a key growth driver for the future, we filed our sub-Q formulation, which is going to take us from a several-hour infusion of this product down to under five minutes.
Over a sustained periods of time.
Sales growth that exceeds the market in the respective segments, and then profit a little bit better growth than sales growth.
Our oncology business had another strong quarter end Darzalex was really one of the key drivers of that with 57% growth versus the third quarter of last year. As you noted we've got a great opportunity to make strides in the frontline setting right now darzalex as a leader in line to.
Plus.
However at the end of June we gained approval for in the frontline setting for transplant in eligible patients in combination with Revlimid and at the ended the third quarter. We gained approval for the in front line for the transplant eligible patients in combination with al Qaeda Entolimod based on our Kathy APEA data and so were.
Really looking to continue to expand darzalex across the various lines of therapy and in various combinations to really be backbone therapy importantly for us and I believe that key growth driver for the future we filed our subcu formulation.
Which is going to take us from several hour infusion on this product down to under five minutes and so we think thats going to be an important catalyst for growth, particularly in the outpatient settings and the more community settings, and we're also importantly, studying darzalex enlight doses smoldering myeloma. So we think that there is.
Both.
Near term short term growth as well as continued long term growth potential on this asset so based on the strength of the performance to date. The additional data that we're seeing and the opportunities that we have in the frontline setting and growth potential coupled with the subcu.
Formulation Thats coming up we believe that Theres very good reasons for a very strong continued growth for darzalex going forward.
Great. Thanks turns appreciate the question Rob next question. Please.
Your next question is from Kristen Stewart with Barclays.
Hi, everyone. Thanks for taking the question.
Just wanted to I guess clarifies just some of the timing around the digital surgery platforms. I think Ashley you mentioned filing for ortho taxi and 2020, just wanted to get some clarification. There and then also any updates on progress with monarch, and then timing around fair.
Jennifer Taubert: And so we think that's going to be an important catalyst for growth, particularly in outpatient settings, the more community settings. And we're also studying Darzalex and amyloidosis, and smoldering myeloma. So based on the strength of the performance to date, the additional data that we're seeing and the opportunities that we have in the frontline setting and growth potential, coupled with the sub-Q formulation that's coming up, we believe that there are very good reasons for very strong continued growth for Darzalex going forward.
You might have a.
Medical device day next year, just wondering what we should expect with that and and just kind of Bourbon thoughts with Medtronic I guess showcasing their platform tail.
Thank you, Chris and for the question, so listen I couldn't be more bullish around how JNJ is going to create value in this space and really kind of the goal that we're trying to achieve is really to make medical interventions.
Harder at less invasive more personalized quite frankly to change to standard of care not just for the next 10 years, but the 20 or 30 years.
Terence Flynn: Great. Thanks, Terrence. I appreciate the question. Rob, next question, please.
So it really started as you know are very very strong footprint that we actually have today and as a world leader open surgery and a world leader in nearly they said laparoscopic surgery I'm very pleased to share that monarch is off to a great start as a first and aluminum surgery, we've conducted over a thousand bronchoscopy using the monarch.
Operator: Your next question is from Kristen Stewart with Barclays. Hey everyone, thanks for taking the question. I just wanted to, I guess, clarify.
Chris Schott: So that just clarifies some of the timing around the digital surgery platforms. I think Ashley mentioned filing for Orthotaxi in 2020. Just wanted to get some clarification there and then also any updates on progress with Monarch and then timing around VIRB.
John .
You'll see in CESC at the end of October we will be sharing our post market surveillance data.
And and so stay tuned for that.
Have a very healthy pipeline with monarch for not just lung biopsies potentially lung treatment, the ablation and potential treatment via Oncolytic viruses, so that program as well on its way. We also are looking at applications have monarch, Andrew urology for the treatment of kidney stones and we also are assessing the potential application.
Chris Schott: and I think you might have a medical device day.
Chris Schott: Next year, just wondering what we should expect with that and just what kind of verbs.
Chris Schott: and just kind of verbs and thoughts with Medtronic, I guess, showcasing their platform too.
Ashley A. McEvoy: Thank you, Kristen, for the question. So, listen, I couldn't be more bullish about how J&J is going to create value in this space, and really kind of the goal that we're trying to achieve is really to make medical interventions smarter, less invasive, more personalized, quite frankly, to change the standard of care, not just for the next 10 years, but the 20 years and 30 years. Who've been really assessing how we can create value with all of these assets over the next several years. So, I am encouraged to say both programs have conducted, and I mean both programs; both the RSI platform and VIRB have conducted end-to-end procedures in multiple different indications in general surgery. We've gotten very good feedback from over 30 plus surgeons, and we're going to take the absolute best of all those as we, in parallel, advance both of those programs.
Our in Gi and discovery, so very encouraged with monarch equally encouraged with the acquisition of Rs as well as verb we brought in a new leader to head our program car Azure Bain, He's got over 30 years experience and minimally invasive surgery and robotics.
It's pretty fun to watch Kurt and community of Dr., Fred Mall again, one of the foundation of intuitive Peter Shandy is going up on ethicon instrumentation, and then any comment from there really kind of put those thought leadership together with over 30 different key opinion leaders around the world who have been really assessing how we can create value with all of these ask.
Thats over the next next several year. So I am encouraged to say both programs have conducted too and I mean, both programs. Both the ours I platform Enverv have conducted end to end procedures and multiple different indications in general surgery, we've gotten very good feedback from over 30 plus surgeon.
And we're going to take the absolute best of all those as we in parallel advanced both of those programs.
Ashley A. McEvoy: I am equally pleased to see Dr. Fred Mull engage with our orthopedics team. We plan to file our orthopedics program for approval in the middle of 2020. And so, when I take a step back, I really see us having a healthy cadence of news, starting last year with the launch of Monarch, every single year having meaningful news. We are completing our assessment, Kristen, as you had mentioned, around, you know, the iPlatform and VIRB and how do we create the most amount of value. Right now, we're not changing any timelines until that assessment is complete, so stay tuned.
Clearly pleased to see Dr., Fred mall engage with our orthopedics team, we plan to file our orthopedics program for our filing middle of 2020.
And so when I take a step back I really see as having a healthy cadence.
News, starting last year with the launch of monarch every single year, having meaningfulness, we are kept freeing our assessment, Chris and you had mentioned around the platform environment. How do we create the most amount of value right now we're not changing any timelines until that assessment is complete so stay tuned.
Ashley A. McEvoy: Great. Thanks, Ashley.
Great. Thanks, Ashley and maybe just another update to Ashley's point on the progress of the monarch platform. While it's early and limited revenue today were very pleased with the progress of the placement of systems two times the amount year to date versus where we were in 2018. So that continues to progress well from an adoption standpoint.
Operator: And maybe just another update to Ashley's point on the progress of the Monarch platform. While it's early and has limited revenue to date, we're very pleased with the progress of the placement of systems, two times the amount year-to-date versus where we were in 2018. So that continues to progress well from an adoption standpoint in the marketplace. Thanks, Chris, and Rob. Next question, please.
In the marketplace.
Thanks, Chris and Rob next question. Please.
Operator: Your next question is from Josh Jennings with Cowen & Company. Hi, good morning.
Your next questions from Josh Jennings with Cowen and company.
Hi, good morning, Congratulations on strong quarter, I was hoping to to start off Oh around this on the farm business.
Jennifer Taubert: Congratulations on a strong quarter. I was hoping to start off on the pharma business. Just wanted an update on the generic-slash-biosimilar headwind. You guys have called out a kind of $3 billion number for 2019. And in any way, can you help us think about where that headwind will sit as we head into 2020?
Just wanted an update on the generic such Biosimilar headwind you get it was called out of $3 billion number for 2019, and just any any way you can help us think about where that had been will sit as we as we head into 2020.
Jennifer Taubert: And the second question, another pharma question, just on Xarelto. Congratulations on the line extension. Any help there, just in terms of how you would proceed launching into this new indication? Are there any pricing considerations you need to undertake? And Ken Xarelto, in return for growth, it has been a blockbuster that's been a relatively anchor over the last number of quarters. Thanks a lot.
And then the second question. Another pharma question just on loans are also.
Congrats on the line extension.
Any help there just in terms of help of how you would perceive launching into this this new indication are there any pricing considerations you need to undertake.
Cans are also returned to growth has been the blockbuster.
In a relatively anchor over the last number of quarters.
Jennifer Taubert: Hi Josh, it's Jennifer. So, as we take a look at this year, first on your question regarding sort of biosimilars and generic impact. We think we're seeing about $2 billion of incremental impact from biosimilars and generics this year, which is a little bit less than what we'd anticipated this year. However, the number of generic approvals and the erosion rates are starting to catch up. And so we think as we enter into next year, we'll work through the rest of that. So part of it, a little bit of it is going to carry over into 2020, and then we'll be working through and be done with that.
Thanks, a lot.
Hi, Josh Jennifer So as we take a look at this year on first on your question regarding sort of Biosimilar in generic impact. We think we're seeing about $2 billion of incremental impact from Biogen and generics. This is a little bit less than what we'd anticipated this year.
However, the number of generic approvals and the erosion rates are starting to catch up and so we think as we enter into next year, we'll work through the rest of that so part of that a little bit of its going to carry over into.
2020, and then we'll be working through and be done with that.
Jennifer Taubert: As it relates to Xarelto, we're very excited about the new indication. This is actually the eighth indication for Xarelto. And that product really remains unmatched in the oral space in terms of the number of indications. So the asset has indications for AFib, VTE prevention and treatment, and then also in CAD and PAD. So how should we think about the acute medically ill indication? First of all, it broadens Xarelto's base of indications across these three areas, and it's really unmatched. And so that can help from a formulary perspective and from a payer perspective.
As it relates to Toronto, we were very excited about the new indication and this is actually the eighth indication for us or alto.
And that product really remains unmatched in the oral space in terms of the number of indication. So that asset has indications in Asia. They TVT prevention and treatment and then also in CA D. P. 88, so how to think about the acute medically ill indication first of all.
It broadens our altos base of indications across these three areas and it's really unmatched and so that can help from a formulary and from the payer perspective, and then within the market. There's over 7 million Americans that are hospitalized each year with acute medical assess and so these patients are at increased risk.
Jennifer Taubert: And then within the market, there are over 7 million Americans that are hospitalized each year with acute medical illnesses. And so these patients are at increased risk of CLATS for up to three months post-discharge. So currently, they're treated in the hospital with a product like Lovenox, but because of the complications and the difficulties with injections, they typically go untreated once they leave the hospital. What we now know from our studies and our data is that it's much better for these patients to actually be treated for about 31 to 39 days following their medical illness. And so we believe that patients will start on Xarelto in the hospital when they're there with the acute medical illness, and then our goal is that they transition out of the hospital with a script and continue on oral medication for that 31 to 39 days. Now, you may have the question, "How do we go about doing this?"
Class for up to three months post discharge. So currently they are treated in hospital with it with product like Lovenox.
Because of the complications in the difficulties with injection. They typically go untreated once they leave that the hospital what we now know from our studies in our data is that it's much better free stations to actually be treated for about 31 to 39 days.
Following their medical illness.
And so this is and we believe that patients will start on Xarelto in hospital. When they are there with the acute medical illness and on our goal as they transition out of hospital with his script and continue on oral medications that for that 31 to to 39 days.
Now you may have the question.
How do we go about doing this the good news is around so 10 milligram, which is the right dose for the syndication is already available on hospital formulary is that's the dose that we've had in the market now for a number of years for post knee and hip surgery. So we do have very broad availability.
Jennifer Taubert: The good news is Xarelto 10 milligram, which is the right dose for this indication, is already available on hospital formularies. That's the dose that we've had in the market for a number of years for post-knee and hip surgery. So we do have very broad availability in hospitals, formulary access, and also payer access for this. We've also got teams that are already deployed to hospitals across the other range of indication sets. So in our typical way, we do next-day launches, so the team's already out in the markets getting ready and working on this indication, as well as continuing to drive uptake in the paradigm-changing CADPAD indication and fighting out for competitive share in both AFib as well as the other VTE treatment and prevention indications. So we feel very good that we reached flat this year. That's obviously not where we want to be, but we're moving forward and getting past some of the donut hole and rebate issues, and we do believe there's an opportunity for growth for this asset as we take a look at completing the year and going forward.
Hospital formulary access and also payer access for this we've also got teams that are already deployed to hospitals.
Across the other range as an indication sets. So in ours is in our typical way we do next day launches. So the teams already out in the market.
Getting ready and working on this indication as well as on continuing to drive uptake in the paradigm changing CDP 80 indication and fading out for a competitive share involves a fifth as well as the other VT treatment and prevention indication. So we feel very good that we reached.
Flat this year, that's obviously not where we want to be.
Were moving moving forward and getting past the some of the donut hole and rebate issues and we do believe theres an opportunity for growth for this asset as we take a look on and completing the hearing and going forward.
Great. Thanks, Josh I appreciate the question Rob next question. Please.
Next question is from Matt Miksic with credit Suisse.
Josh Jennings: Great. Thanks, Josh. I appreciate the question. Rob, next question, please.
Hi, Thanks for taking your question. So just to two follow ups, if I could one.
Operator: The next question is from Matt Miksik with Credit: Hi, thanks for taking the question. So just two follow-ups, if I could.
Digital surgery side actually appreciate the color on.
The strategy across the major business lines.
Ashley A. McEvoy: One on the digital surgery side. Ashley, I appreciate the color on the strategy across the major business lines. The one that I wanted to ask you about was your spine. You have a partnership with BrainLab, and that continues to progress. You have a pretty solid set of new products that you mentioned are going to drive improving growth in spine. But just if you could, what amount of competitive pressure is there coming from this sort of increase in robots in that space?
One.
I wanted to ask about was just fine.
Hey of a partnership with brain lab and that continues to progress you've had pretty solid.
Set a new products that you mentioned are going to drive improving growth.
In spine, but.
Just if you could.
What what amount of competitive pressure there is coming from.
On the sort of increasing robots in that space and how do you think about that strategically and then just one follow up for Joe If I could.
Ashley A. McEvoy: Sure. Thank you, Matt. So, you know, spine. We're number two in the world in spine. We have been challenged. Our revenue performance has been challenged.
Sure. Thank you Matt.
So.
We're number two in the world in spine, we have been challenge of revenue performance has been challenged and really what we've been working on is one to give very dedicated focus today ill call. It like the top six markets in spine that are really going to be the growth contributors in stabilizing us.
Ashley A. McEvoy: And really, what we've been working on is, one, to give very dedicated focus to, what I'll call it, the top six markets in spine that are really going to be the growth contributors and stabilize those from a leadership point of view, from a commercial execution point of view, from a clinical acumen of how we engage with spine surgeons, and then rebuilding the spine portfolio. And so I think we're starting to see the fruit of that in stabilization. And we mentioned some of the innovations around Viper Prime, around conduit and inner body cages, around Symphony, which is going out in quarter four. And so clearly, digital surgery is also going to be important for us to launch that. To date, that has had a very minimal effect.
From that leadership point of view from a commercial execution point of view from a clinical acumen of how we engage with spine surgeons and then rebuilding spine flex folio and so I think we're starting to see the fruit of that on stabilization and and we mentioned some of Chris had mentioned some of the innovation.
Around Viper prime around conduit interbody cages around since any which is going out quota for and so clearly digital surgery is also going to be important that we launched that to date that has had a very minimal effect.
Ashley A. McEvoy: As you know, and you referenced, we do have a strategic partnership with Brain Lab, which is offering us an end-to-end navigation solution. And we actually, in quarter three, entered into a co-marketing distribution and R&D agreement with Tanavi, who is the market leader in orthopedic robotics in China. And actually, it's the only arm-based robotic technology approved for spine surgery in China. So clearly, we feel like we have to have a digital surgery offering as well for spine.
You know any reference we do have a strategic partnership with Brainlab, which is offering us and then navigation solution.
And we actually in quarter three entered into a co marketing distribution and R&D agreement with technology.
Is the market leader in orthopedics robotics in China.
And actually it's the only our major robotic technology approved for spine in China. So clearly we feel like we have to have a digital surgery offerings along fine.
Ashley A. McEvoy: Well, that's helpful. And the question for Joe, if I could, just, I understand from your comments on the call that you're that you're working through the plan for next year. And it's still, you know, not not a not a full outlook for next year. But, but just if you could help us understand, perhaps the puts and takes and how you how you think about spending, as you've mentioned, balancing near term to long term, against some of the you know, some of the year over year challenges you may have elsewhere in the P&L, you know, that'd be super helpful just to maybe walk us through R&D and SG&A and any potential flex or opportunities you have in gross margin, just at a high level, Joe, that'd be super helpful.
Thats helpful. Ben.
Question for Joe if I could just.
I understand from your comments on the call that your that you're working through the plan for next year.
And it's still not not if not a full.
The outlook for next year, but just in any of you could help us understand perhaps the puts and takes and how you how you think about.
Spending as you've mentioned bouncing near term to long term.
Again, some of the some of the year over year challenges you may have elsewhere in the BNL.
Yes.
Very helpful. Just to maybe walk us through R&D, and as Gionee and any potential flex or or opportunities you have in gross margin just.
Hi level, Joe that'd be super helpful.
Joseph J. Wolk: Yeah, so I appreciate the question, Matt. I think I'm going to be respectful to the teams, though, in letting them finalize their plans.
Yes. So appreciate the question, Matt I think I'm going to be.
Respectful and to the teams on letting them finalize their plans, but I would say in terms of puts and takes I feel very good about the topline growth we need to see where.
Joseph J. Wolk: What I would say in terms of puts and takes, I feel very good about the top-line growth. We need to see where the net of all the incremental, generic, and biosimilar erosions will eventually land as we go through the fourth quarter here. That will give us a pretty good insight.
The net of all the incremental generic and Biosimilar erosions will.
Eventually land as we go through the fourth quarter here that will give us a pretty good insight as you saw with medical devices.
Joseph J. Wolk: As you saw with medical devices, we expect to be in the market, so 4% to 5% is where we see that market overall. As you know, some of that is influenced by some of the higher segments where we yet don't have a, I'd say, pronounced presence, but working our way towards that. But, again, Ashley and the team have their line of sight on continued acceleration there.
We expect to be around the market, so 4% to 5% is where we see that market overall as you know some of that is influenced by some of the higher segments, where we don't have a I'd say a pronounced presence, but working our way towards that but again actually in the team have.
Their line of sight in continued acceleration there.
Joseph J. Wolk: Maybe as a step back, for the overall farmer market, we see about 4% growth for next year. And then for consumers, you've heard from Thibault that we expect to be competitive with the market, which we anticipate will be around 3%, but the focus there has been on prioritizing skin health and self-care and improving the profitability profile. We're going to continue to invest in R&D. That's been a priority of ours for a number of years.
Maybe as a step back for the overall pharma market, we see about 4% growth for next year and then in consumer you've heard from Tivo, though we expect to be competitive with the market, which we anticipate will be around 3%.
But the focus there has been on.
Prioritization two skin health.
And self care.
And improving the profitability profile.
We're going to continue to invest in R&D, that's been a bias of ours for a number of years you can see that when we issue rpls that there is a disproportionate share and that's where we grow as a percent to sales more often than not and we're going to continue to look for those opportunities to advance the pipeline I was really thrilled with the press release today.
Joseph J. Wolk: You can see that when we issue our P&Ls, that there's a disproportionate share, and that's where we grow as a percent to sales more often than not. And we're going to continue to look for those opportunities to advance the pipeline. I was really thrilled with the press release today, not simply because of the financial results, although I was very pleased with those. I would say it was the 15 items that were listed across our businesses of notable advancements in our pipeline. And that really just bodes well for the future. So, Matt, I appreciate the question. I apologize I can't give you a little bit more detailed guidance today, but stay tuned for our report out in January, and we'll be pretty specific then.
Not simply because of the financial results, although as very pleased with those I would say was the 15 items that were listed across our businesses.
Of notable advancements in our pipeline and that really just bodes well for the future. So Matt I. Appreciate the question I apologize I can't give you a little bit more detailed guidance today.
But stay tuned for our report out in January and will be pretty specific then.
Joseph J. Wolk: That's great. Thanks, Matt. I appreciate it. Rob, next question, please.
Great. Thanks Man I appreciate it.
Rob next question please.
Operator: And your next question is from Bob Hopkins with Bank of America. Thanks very much for taking the question. Just two really quick ones, given the strength of medical devices, I was wondering if you could comment on two quick things. One, you had very strong growth in hips and knees outside the United States. I was wondering if you could just elaborate on what drove that incremental growth.
Next question is from Bob Hopkins with Bank of America.
Oh, thanks, very much for taking the question.
As to really quick ones.
Given the strength in medical devices I was wondering if you could comment on two quick things one.
Very strong growth in hips and knees outside the United States I was wondering if you could just elaborate on on what drove that incremental growth was it was at market share or was it market strength and then just one last one on verbose just wondering when you think you'll be able to be in a position to provide us with a more detailed update in the timelines for filing and approval.
Ashley A. McEvoy: Was it market share? Was it market strength? And then, just one last one on...
Ashley A. McEvoy: and VIRB. I was just wondering when you think you'll be able to provide us with a more detailed update on the timelines for filing and approval. And I ask, you know, in part because of your comments on endocutters and in part because, you know, one of the other large competitors has now provided pretty specific timelines. So just those two quick device questions. Thank you.
And I ask because in part because your comments on into cutters and in part because.
One of the other large competitors is now provided pretty specific timelines. So just just those two quick device questions. Thank you.
Ashley A. McEvoy: Sure. Thanks, Bob.
Sure. Thanks Bye.
Ashley A. McEvoy: I think I'm pleased with the performance that we've had in HIPS, around 3%. We have a strong portfolio in HIPS, and we're really leading the way on the anterior approach. We actually just completed a new acquisition of JointPoint, which is going to help us with kind of an interoperative software program to enable a more digitally oriented procedure in HIPS. I'd say HIPS is pretty balanced between OUS and US. You know, knees. I am encouraged. This is the first quarter in several quarters that we actually posted growth in knees of around 2%, really fueled by OUS performance. The US, I'll come back to that.
I think I'm pleased with the performance that we've had in hats around 3% on we have strong portfolio and hats, and we're really leading the way on the anterior approach, we actually just completed and new acquisition of joint point, which is going to help us with kind of an inter operative software program to enable.
I am more digitally oriented procedure and Heps I'd say it hits is pretty balanced between now you asking us.
Needs I am encouraged us is that first quarter and several quarters that we actually posted growth in need of around 2% really fueled by early last performance.
Yes, I'll come back to that two is performing well in the U.S., we've seen a pivot and start in primary and revision and into working off from legacy transition in some of our legacy any Branson Sigma really what's enabling needs is just a couple of things on strength in commercial execution and our top six markets. It's also about innovation.
Ashley A. McEvoy: Attune is performing well in the US. We've seen a pivot in primary and revision in Attune. We're working off some legacy transition in some of our legacy knee brands in Sigma. Really, what's enabling knees is just a couple things. One, strengthening commercial execution in our top six markets. It's also about innovation.
And we have a very strong foundation and our attune knee platform that we've invested over 10 years and bringing to market, it's performing very well from an efficacy and safety point of view, we now have a full portfolio any attune revision those fixed bearing and rotating platform.
Ashley A. McEvoy: We have a very strong foundation in our Attune knee platform that we've invested over 10 years in bringing to market. It's performing very well from an efficacy and safety point of view. We now have a full portfolio in the Attune revision, both fixed bearing and rotating platform. We've also launched our cementless in quarter three. Then you can add to that, Bob, next year when we'll have cementless and fixed bearing, we'll have our digital surgery offering in knees. I feel pretty confident that our joint platform will start to get back to market performance. As it relates to VIRB, we have been progressing VIRB and all of the milestones to bring this to market. We have been preparing for validation studies. We've been in active discussions with all regulatory authorities, both in the United States as well as in Europe.
And we've also launched our cement less in quarter three and then you could add to that you can see next year. When we'll have some atlas and tech Sperry and we'll have our digital surgery offering a need I feel pretty confident that our joint platform.
Well start to get back to the market performance.
As it relates to verb we have been progressing verb and all of the milestones to brightness to market. We are preparing for kind of validation studies, we've been in active discussions with regulatory authorities, but in the United States as well as in Europe .
Ashley A. McEvoy: As I mentioned, we brought in a new CEO of VIRB, Kurt Azerbain, about 60 days ago. So, we've been letting him get underneath the hood of what needs more focus, what we need is acceleration, and very pleased with, again, the customer feedback from VIRB. What we've done is we've brought in the combination of AORUS, their leaders with Dr. Fred Maul and Kurt, and Verily, our partner in Verily, to create kind of this connected OR of the future. And we're in the middle of assessing how do we really optimize all of these assets to make a difference in healthcare systems. So, we're still in the middle of that, and I expect to have that completed before the end of the year. Right now, we're holding to the timelines, but I expect it to be completed in quarter one with some updates. We'll keep you posted. Thanks for the question, Bob.
As I mentioned, we brought in a new CEO of or Kurt as your made about 60 days ago. So we've been letting him get underneath the hood of what needs.
What needs more focus what we need to acceleration very pleased with again the customer feedback from verb.
What we've done is we've brought in a combination of RF.
There are leaders with Dr., Fred mall, and Curt and fairly our partner barely of creating kind of this connected LR the feature and where in the middle of assessing how do we really optimized all of these assets can make a difference in and healthcare system. So we're still in the middle of that and I expect to have that completed before the end of year right now we're holding to the time.
Lines, but I expect probably in quarter, one with some updates we'll keep you posted thanks to the question about.
Thanks actually Rob we have time for one last question and then after that I'll turn it over to Joe walk for some closing remarks.
Bob Hopkins: Great, thanks Ashley. Rob, we have time for one last question, and then after that, I'll turn it over to Joe Wolk for some closing remarks.
Thank you. Your next question comes from Jason Bedford with Raymond James.
Hi, good morning, I'll keep it to one question and thanks for squeezing me in just maybe for Tivo and I apologize if I missed this earlier, but your international consumer business seems to have lagged year to date about 1% growth can you give us a little detail and why the international growth has been a little slower and then.
Operator: Thank you. Your next question comes from Jason Bedford with Raymond. Hi, good morning. I'll keep it to one question and thanks for...
Thibaut Mongon: The international growth has been a little slower, and then you've alluded to a bit of a pickup in market growth next year in consumer. What are the big factors driving that better growth? Yeah, thank you for the question.
You've alluded to a bit of a pickup in market growth next year and consumer one of the big factors driving that better growth. Thanks.
Thibaut Mongon: Regarding, as you said, we had a very strong quarter in the U.S., a bit softer outside of the U.S. A number of factors, internal and external. Externally, we see some softness in some emerging markets, Latin America especially, and we are rolling out our baby, our new Johnson's baby brand around the world. The rollout will be completed by the end of this year, and this has an impact on our shipments outside of the U.S. In the U.S., we already completed this rollout last year, as we just talked about. Regarding next year, we anticipate a modest acceleration in the markets and geographies in which we compete from 2% to 2.5% this year to 3% next year. And, as Joe just mentioned, we are finalizing our plans to grow competitively in these markets while continuing to work on our profitability agenda so we can improve our profitability and, at the same time, invest in the growth opportunities we see in our priority areas.
Yes. Thank you for the question regarding as you said, we had a very strong quota in the U.S. readsoft.
Outside of the us.
Number effect of internal and external externally, we see some softness in some emerging markets Latin America.
Especially.
And we are rolling it out of baby all new jumps on his baby brands around the world.
The Rollouts will be completed by the end of this year and these has an impact.
Shipments outside of the us in the U.S., we have already completed these fallout.
The last year as we just talked about.
Regarding next year.
We anticipate a modest acceleration.
In the markets and geographies in which we compete from two to two and a half persons each year to 3% next year and as Joe Just mentioned, we are finalizing our plans to.
Grow competitively in these markets.
Continuing to work.
All profitability agenda, so we can improve profitability and at the same time invest.
Behind the growth opportunities we see in.
In a priority areas.
Joseph J. Wolk: Great. Thank you, Jason. I appreciate the question. Joe, final comments from you?
Great. Thank you Jason appreciate the question.
Joe final comments from you sure well first let me thank all of you.
Joseph J. Wolk: Sure. Well, first, let me thank all of you on the webcast today for your time and your continued interest in Johnson & Johnson. Ashley, Thibault, Jennifer, Chris, and I were certainly proud to discuss the quarterly results and also engage in discussing the overall health of our business. What you hopefully saw from today's press release and the discussion that we're about to conclude is that we have a focused organization here delivering transformational innovation for the betterment of healthcare and a much broader society. We manage through any challenges that we face to deliver those results, not just over one year or five years, but many, many years, many, many decades, and hopefully, you saw that on display today. So, again, thank you for your time, and we look forward to the next meeting.
On the webcast today for your time and year continued interest.
In Johnson, and Johnson, and actually Tivo, Jennifer Chris and I were certainly proud to discuss the quarterly results and also engage in discussing the overall health of our business. What we you hopefully saw from today's press release in the.
Discussion that we're about to conclude is that you have a focused organization here on delivering transformational innovation.
For the betterment of of health care.
Much broader society, we manage through any challenges that we face to deliver those results not just over one year or five years, but many many years many many decades.
And hopefully you saw that on display today. So again. Thank you for your time and look forward to the next encounter.
Operator: Thank you. This concludes today's Johnson & Johnson 3rd Quarter 2019 Earnings Conference Call. You may now disconnect.
Thank you. This concludes today's Johnson <unk> Johnson's third quarter 2019 earnings Conference call you may now disconnect.