Q4 2019 Earnings Call

Good morning, Welcome Johnson <unk> Johnson's fourth quarter 2019 earnings conference call.

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I would now let's turn the conference calls over the Johnson <unk> Johnson you may begin.

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 fourth quarter and full year of 2019.

Joining me on todays call, our Alex Gorsky Chairman of the board of Directors and Chief Executive Officer, Joe Walk Executive Vice President Chief Financial Officer.

If you will just six before we get into the details. This review is being made available via webcast accessible through the Investor Relations section of the Johnson and Johnson website at Investor dollar change any dot com, where you could also find additional materials, including today's presentation and associated schedules.

Please note 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.

I see 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.

Also available at Investor Dot JJ Dot com.

Several of the products and compounds discussed today are being developed in collaboration with strategic partners well license from other companies.

Slide acknowledges those relationships.

Moving to todays agenda I will review the fourth quarter sales in piano results for the Corporation and the three business segments. Alex will then provide some perspective on our overall results and business highlights for the year.

I will conclude by providing insights about our cash position capital allocation deployment and our guidance for 2020.

The remaining time will be available for your questions.

We anticipate the webcast will last up to 90 minutes.

Well why sales were $20.7 billion for the fourth quarter of 2019, an increase of 1.7% versus the fourth quarter of 2018.

Operational sales growth, which excludes the effective translational currency increased 2.6% that's currency had a negative impact of 0.9 points.

The U.S. sales increased 1.4%.

In regions outside the U.S., our reported growth was 2.1%.

Operational sales growth outside the U.S. was 4%.

Currency negatively impacting our reported or U.S. results by 1.9 points, excluding the net impact of acquisitions and divestitures.

Instead operational sales growth was 3.4% worldwide, 2.7% in the U.S. and 4.1% outside the U.S.

For the full year 2019, consolidated sales were $82.1 billion, an increase of 0.6% compared to the full year of 2018.

Operationally full year sales grew 2.8% with currency, having a negative impact of 2.2 points.

Sales growth in the U.S. was 0.5%.

Regions outside the U.S., our reported growth was 0.7%.

Operational sales growth outside the U.S. increased by 5.3% with currency negatively impacting our reported Oh U.S. results by 4.6 points.

Excluding the net impact of acquisitions and divestitures adjusted operational sales growth was 4.5% worldwide, 2.3% in the U.S. and 6.7% outside the U.S.

Turning now to earnings for the quarter net earnings were $4 billion diluted earnings per share was $1.50 cents versus diluted earnings per share of $1.12 cents a year ago, excluding after tax intangible asset amortization expense and special items for both periods adjusted net earnings.

For the quarter were $5 billion and adjusted diluted earnings per share was $1.88 cents, representing decreases of 6.4% and 4.6% respectively compared to the fourth quarter of 2018 on an operational basis adjusted diluted earnings per share declined 3%.

Regarding the full year 2019, net earnings were $15.1 billion diluted earnings per share was $5.63.

2019, adjusted net earnings were $23.3 billion, an adjusted diluted earnings per share was $8.68.

Up, 4.5% and 6.1% respectively versus full year 2018 on an operational basis adjusted diluted earnings per share grew 8.8%.

Beginning with consumer I wouldn't I will comment on business segment sales performance for the fourth 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 fourth quarter of 2018, and therefore exclude the impact of currency translation.

Well not part of the prepared remarks for today's call. We've provided additional commentary on our website for the full year 2019 sales by segment to assist you in updating your models.

Well, one consumer segment sales totaled $3.6 billion growing 2.1%, excluding the net impact of acquisitions and divestitures adjusted operational sales growth was 1.4% with growth in the U.S. of 1.6% due primarily to strong performance in our OTI see franchise growth outside of U.S. was.

1.3%.

Over the counter medicines grew globally, almost 5% operationally and on an adjusted basis.

In the U.S., Oh, Tc growth was around 10% and it's growing share and multiple products such as adult tylenol driven by rapid release gels Pepcid ends arby's.

However, U.S. growth was aided by about 200 basis points of stocking due to incremental distribution and trade promotion programs.

Beauty franchise grew 4.3% or just under 1% when adjusted to exclude the impact of the acquisition of Dr. So about and the rock divestiture.

Neutrogena delivered strong performance globally with growth of 4% outside the U.S. driven by anti aging and cleansing innovation in Amelia as wells Hanam body moisture category strength in Asia Pacific region in the U.S. share and market growth were largely offset by lapping of prior year, new product pipeline builds.

And higher 2019 trade investment in neutrogena.

Including the consumer segment baby care declined 9.3% globally or negative 7% when adjusted to exclude the impact of the Baby Center divestiture. This decline was primarily due to continued competitive pressures as well as comparisons to prior year relaunch activities, most notably in the United States move.

Onto our pharmaceutical segment worldwide pharmaceutical sales of $10.5 billion grew 4.4%.

Enabled by double digit growth in nine key products. The segment delivered a seventh consecutive quarter above 10 billion in revenue sales grew in the U.S. about 4% an increased outside the U.S. by almost 5%.

Generic competition for side, he got negatively impacted our worldwide and U.S. growth by about 180, and 310 basis points, respectively. 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 oncology portfolio delivered another strong quarter with worldwide growth of over 10% Darzalex continued its strong performance growing about 45% globally. The U.S. grew almost 38% with strong growth across all lines of therapy, driven by the new frontline indication for the multiple myeloma transplant eligible population.

The continued strong growth outside the U.S. is driven by increased penetration and share gains.

Imbruvica grew over 26% globally, driven largely by market share gains and strong market growth primarily in the chronic lymphocytic leukemia indication in the U.S., along with strong uptake outside the U.S. and.

In the U.S. based on third quarter data Imbruvica game above seven points of market share in CLL wind one therapy.

Worldwide. So to your growth declined by about 13% with declines of almost 45% in the U.S. due to generic competition, which was partially offset by continued strong growth of almost 13% outside the U.S.

We continue to be pleased with the launch progress of our leader, which generate a global sales of $116 million in Q4 and $332 million for the full year, primarily in the United States. We continue to grow market share in non metastatic castration resistant prostate cancer handing over two points in the U.S. this quarter.

Sales in the U.S. reflects the first full quarter for the approved indication for patients with metastatic castration sensitive prostate cancer. We're also pleased with the launch progress in EMEA, where our leaders now available in 12 countries.

Our immunology therapeutic area deliver global sales growth of just over 6% driven by strong double digit performance of Stelara and term fire.

Sales growth was partially offset by continued erosion of remicade of about 16% due to increased discounts a modest share loss in the U.S. to alternative mechanisms of action and bio similars slower growth of almost 19% was primarily driven by the crohns disease indication where market shares increased by six points in the U.S. versus.

Order of 2018.

In October we receive U.S. after FDA approval of Stelara for the treatment of adults with moderately to severely active ulcerative colitis.

Symphony Simponi ARIA delivered sales growth of 7.6% driven by strong market growth and Simponi ARIA share gains in the U.S.

From fire grew over 55% and achieved an 8.3% share the psoriasis market in the U.S., which is up about two points from the fourth quarter of 2018.

In neuroscience, our Pell apparent on 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 spring Votto patient demand continues to build and the unmet need remains very high new patient starts continue to steadily increase each month with over 3500 patients being treated to date. Further we are pleased to report that in December provided was approved in Europe for adults with treatment resistant major it up.

Yes, if disorder.

And infectious diseases, our portfolio grew 9.6%.

Led by strong growth up some tusa and she'll Luca for HIV, partially offset by cannibalization and increased generic competition and other products.

And our cardiovascular metabolism and other product portfolio, we did experience declining sales of 9.5%, primarily driven by declines in Invokana and Biosimilar competition for Procrit.

So we're also was flat with volume increases offset by rebates, primarily due to an increase in a legislative rate for the tone at all from 50% to 70% along with higher Medicare and donut hole utilization.

In our total pulmonary hypertension portfolio sales declined 6.2% as a result of a distributor model change in the U.S. to realize efficiencies by leveraging our distribution capabilities.

This change negatively impacted sales growth by about 800 basis points with sales growth of 2% when adjusting for this onetime impact.

We continue to see strong share growth for up summit, and Uptravi and when adjusting for the onetime distributor model impact their worldwide sales were about 10% and 30% respectively portfolio growth was also impacted by declining sales intra clear as a result of continued generic competition.

I'll now turn your attention to the medical devices segment.

Worldwide medical devices sales were $6.6 billion growing 0.2%.

Excluding the net impact of acquisitions and divestitures, primarily the divestiture of asked pay adjusted operational sales growth was 2.7% worldwide.

Onetime items negatively impacted growth in the quarter by about 70 basis points largely related to a bleed down of the forward buying in Q3 in Japan headed the consumption tax change, which primarily impacted our vision business.

The majority of this has sold through in Q4 with the remainder expected to occur in Q1 2020.

Additionally, on a year on year basis, we're pleased to report the medical devices has accelerated underlying sales growth worldwide by 130 basis points.

With the second half of 2019, delivering 4% growth.

Interventional solutions grew over 13% globally led by continued strength in our electrophysiology business, achieving about 14% growth worldwide and almost 16% for the year continuing its trend of double digit growth for the 11th consecutive year.

Both was strong in all regions driven by our newer product offerings in ablation and advanced catheters contributing to atrial fibrillation procedural market growth.

Additionally, our service business delivered at six straight quarter of double digit growth driven by strong market growth and new product innovation, including Amba trap for the treatment of a scheme extra work.

Vision grew 0.9% or 3% when adjusting for the negative impact of the Japan consumption tax forward by I mentioned earlier.

Growth was primarily driven by contact lenses, which grew 2.6% globally were 5% adjusted for the bleed of the Japan consumption tax Ford Bye.

Led by double digit growth of daily disposables in the Oasis family for the year contact lens grew almost 5%, which we expect to be inline with the overall market representing the fourth consecutive year. The contact lens has grown at or above the market.

Surgical vision, we saw continued strong oh U.S. growth in the cataract business due to above market performance in Iowa Wells, primarily in Asia Pacific.

This was offset by weak U.S. performance due to competitive pressures and lower market growth in refractive surgery.

We continue to see positive momentum in orthopedics delivering growth for the quarter of 1.2%.

On an annual basis, each major platform accelerated versus the prior year and adjusted growth for this franchise improved by 180 basis points.

This progress reflects the continued execution of our innovation and commercial strategies aimed to improve performance.

Hips grew 4.2% driven by our leadership position in the anterior approach continued strong demand of our primary Stan actavis and enabling technologies such as the concise surgical automated system enjoying point navigation system.

This growth was 1.4% in the quarter driven by strong performance of new innovation, such as Attune revision Attune S. plus I mean, you tune cementless rotating platform, which launched at the end of Q3.

Oh U.S. growth of 3.2% was led by Asia Pacific. Additionally, the United States returned to growth this quarter.

Trauma growth of 2.5% globally was driven by market growth supported by strong adoption of newer innovations such as our femoral neck system.

Spine declined 5.8% with the U.S. being the primary driver partially due to not repeating a onetime Q4 2018 favorable pricing related true up which negatively impacted global growth by 250 basis points. Excluding this impact performance for the quarter was in line with.

The full year well be lost share in the quarter. We continue to see positive uptake of newer products and are pleased with a strong start of our newly launched symphony surgical system for use in posterior cervical spine procedures.

Pricing pressure continued impact all categories in orthopedics U.S. pure price in spine declined about 3% after adjusting for last year's pricing related true up.

Trauma price was consistent with the Q3 decline of 2% price in hips and knees, both improved compared to Q3 and negative 1% and flat respectively.

Moving to the results for the surgery business.

Advanced surgery delivered global growth of over 3% led by biosurgery growth of about 4% with growth in all regions led by Asia Pacific share gains and market rough however growth in the quarter was tempered a surge of flow continued to ramp back up in the United States.

Energy in Endocutters grew approximately 3% and 2% respectively with all U.S. growth driven by share gains and new products in the Asia Pacific region, partially offset by competitive pressure in the United States.

Enclosure grew over 2% driven by continued strong market growth in China, as well as share gains in conventional and Barb sutures.

As expected selling days had an immaterial impact on our global growth rates in the fourth quarter in 2020, selling days will negatively impact Q1 medical devices growth by over 50 basis points with the majority being offset in Q2.

I'll now provide some commentary on our earnings for the year. Please direct your attention to the box section at the bottom of the schedule.

You will see we have provided our earnings adjusted to exclude intangible amortization expense and special items.

As reported this morning, our adjusted EPS of $8.68 reflects reported growth of 6.1% and operational growth of 8.8% exceeding the high end of both our reported an operational adjusted EPS guidance range from October driven by our strong performance consistent with our guidance, we did see a slight dip.

Fine and adjusted pre tax operating margins of 30 basis points, driven by investment in digital surgery and medical devices moving to the next slide.

Our full year 2019, adjusted income before tax for the enterprise improved 170 basis points versus 2018.

Looking at the adjusted pre tax income by segment medical devices at 35.4% is higher than the previous year, primarily due to increased divestiture gains in 2019, partially offset by an increase in investments in digital surgery.

Pharmaceutical margins declined by 200 basis points to 40% driven by reduced divestiture gains and higher cost of products sold to the negative impact of currency consumer margins improved by 90 basis points to 21.4% driven by plan prioritization and spending reductions.

Mostly offset by reduced divestiture gains in 2018.

Now regarding our consolidated statement of earnings for the fourth quarter of 2019. Please direct your attention to the boxed section of the schedule.

As referenced in the table of non-GAAP measures. The 2019 fourth quarter net earnings are adjusted to exclude intangible asset amortization expense and special items of $1 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 $1.88 cents, a decrease of 4.6% versus the fourth quarter 2018.

Adjusted EPS on a constant currency basis was $1.91 cents down 3% versus fourth 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 de Levered slightly primarily driven by an increase in amortization expense.

Partially offset by favorable segment mix selling marketing and administrative margins for the quarter improved as a result of plan prioritization and the consumer business and favorable segment mix, partially offset by increased investment in the medical devices business R&D investment was consistent year over year was slightly lower.

Milestone payments in the pharmaceutical business offset by increased investment in digital solutions in the medical device business.

Net interest expense was lower by 50 million, primarily driven by the positive effect of net investment hedging arrangements, partially offset by reduced interest income, resulting from lower rates of interest earned on cash balances.

The change and the other income and expense line was primarily driven by lower litigation expense higher unrealized gains on securities, partially offset by lower gains from divestitures.

Regarding taxes in the quarter, our effective tax rate was 4.9% compared to the fourth quarter of 2018 tax rate of 2.6%.

The current quarter includes an estimated tax expense for the transition provisions of Swiss tax reform, partially offset by reorganization of certain foreign subsidiaries and additional impacts of recently issued regulations associated with U.S. tax reform.

We encourage you to reference our 10-K for further details on this and other specific tax matters.

Excluding special items, the effective tax rate was 10.7% relatively consistent with the same period last year, which was 11.1%.

Now looking at adjusted income before tax in the fourth quarter of 2019, our adjusted income before tax for the enterprise as a percentage of sales decreased from 29.6% to 27.1% in the fourth quarter of 2019, primarily driven by the impact of divested.

Sure gains in Q4 of last year.

The following are the main drivers of adjusted income before tax by segment.

Medical devices declined by 830 basis points, driven by the Lifescan divestiture gain reported in Q4 2018 as well as an increased investment in robotics and digital solutions in 2019.

Consumer margins declined by 280 basis points, primarily driven by the divestiture of rock in Q4 2018.

The slight increase in pharmaceutical margins of 30 basis points was primarily driven by reduced milestone payments.

That concludes the sales and CNL highlights for Johnson <unk> Johnson's fourth quarter 2019 for your reference here is a slide summarizing notable developments occurring in the fourth quarter some of which were mentioned in my comments.

I'm now pleased to turn the call over to Alex Gorsky.

Thank you, Chris and thanks to all of you for joining US today, we're very pleased to be highlighting our fourth quarter and full year performance. We delivered strong revenue and earnings growth in 2019 exceeding the financial performance metrics that we set the beginning of the year.

And we accomplish this while also making strategic investments that advance the pipeline of opportunities and innovation across all three of our business segments and as we face a variety of challenges from debates about the health care system in our country to uncertainty with global trade to today's litigious environment to name a few.

Now I'm very proud that despite the challenges we still remain focused and delivered on our credo commitments and responsibilities to our patience employees communities and shareholders ultimately driving our purpose to advance health for humanity.

And I'm confident that we are well positioned to build on this momentum in solid foundation as we move into 2020 and beyond we remain focused on the long term a mindset, we maintained for more than a century, a mindset that is directly linked to our focused execution, our relentless pursuit of innovation, our talented and passionate people.

Our culture of caring for the world and our unwavering focus on value creation for all our stakeholders in fact I'm proud to highlight the 2019 marked our 36 consecutive year of adjusted operational earnings growth for Johnson and Johnson.

Now this performance is indicative of the strength of our broad based business and we remain focused on driving the next generation of innovation across our entire portfolio and new markets in markets, where we have greater opportunity compete and into markets, where we lead which include our 26 platforms that eats deliver a billion dollars or more in sales annually.

In pharmaceuticals, our strong track record of success continued again in 2019 as our farms segment outpaced the market growing operationally, 5.8%, which more than offset the loss of exclusivity do the biosimilar competition and generic erosion as well as new competitive entrants and other market pressures.

Now it's important to note that our robust growth can be attributed to volume not price and our sales growth is reflection of the increased number of patients were reaching with our transformational medicines for unmet needs.

This strong growth not only enabled us to deliver life saving in life changing medicines that people around the globe, but also enabled us to become the third largest pharmaceutical company in the world retain our number one leadership position in the U.S. and be recognized as the number one pharmaceutical company unfortunate magazine's annual most admired companies like.

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Our farm investments in R&D continue to fuel exceptional growth as well, we achieved double digit growth for 10 key products and delivered strong performance across all regions, including in both developed and emerging markets.

We're very proud and excited that we gained approval and launch two new transformational medicines for Avado for treatment resistant depression and diverse for metastatic urothelial cancer.

We also continued to maximize the value in a market brand submitting numerous filings and receiving approvals for line extensions for key brands, including Stelara Darzalex Center lead up many would peak sales potential that is greater than $500 million.

And we continue to expand our portfolio is strategic licensing and acquisition of new assets and platforms, including KUSA Tuesday, Mab from our Genex, an investigational anti body for the treatment of acute myeloid leukemia and high risk model, Yeah, just plastics syndromes, a gene regulation platform for mirror Gtx and Promacta Mab.

From X biotech Inc. and anti IL, one alpha in phase two development to treat a topic dermatitis and hydrogen itis separate Ti vo.

With this industry, leading pipeline, our commercial capabilities and robust R&D productivity I'm confident that we are well positioned to continue delivering sustained long term above market growth in 2020 and beyond.

Now 2019 marked a year significant transformation for the consumer health business, we reestablished our brand in purpose and made strategic decisions that overtime will accelerate growth reduce complexity and improve operating margins.

Fueled by Science based professional endorsed brands and strong consumer insights, we placed a concerted focus throughout 2019 on establishing a clear plan and path to achieve benchmark profitability in 2020, and the segment is already well on its way delivering 90 basis points of adjusted pre tax margin improvement for.

The year.

Additionally, we successfully integrated the acquisitions of ZAR visa Inc., a leader and naturally based over the counter remedies and the Doctor Slobber lineup dermal cosmetic skin care products strengthening our position these higher growth categories.

Our U.S. consumer business continues to grow above the market and our priority areas, a beauty and otcs delivered solid operational growth for the year.

I'm also pleased to share that medical devices accelerated growth again in 2019.

As a result of our relentless focus on execution innovation and portfolio management, our underlying growth was just under 4%.

Now improved performance was driven by Electrophysiologist, achieving its 11th consecutive year of double digit growth.

Contact lens, which delivered growth at or above the market for the fourth straight year.

Energy and Endocutters businesses growing mid single digits and improved performance in orthopedics with each major platform accelerating compared to 2018.

During the year, we also fortified our commitment and accelerated our entry into one of the fastest growing health care categories and exciting transforming it feels a medicine digital surgery.

Consistent with our historical pioneering spirit medical devices. We are focused on the next frontier surgery. The acquisition of RSL. Thank a developer of robotic technology is currently in lung cancer accelerated our entry into robotics as part of the digital surgery Eco system designed to make medical intervention smarter less invasive and.

More personalized to elevate the stand of care. Additionally, just last month, we announced an agreement to acquire the remaining stake in verb surgical to further strengthen our ecosystem.

Now we also successfully launched critical products across each franchise throughout 2019, including the attendance cementless knee system. Our first of its kind active you always this contact lens with transitions light intelligent technology.

The industry's first powered circular stapler echelon and the visit go steerable sheet than our market, leading electrophysiology business.

Our team continues to focus on improving our cadence of innovation as well as our portfolio optimization, which included the completion of the advance sterilization products divestiture and the execution of more than 50 acquisitions, our strategic partnerships that we expect will further augment our future growth.

We are committed to building upon this momentum in 2020 and I'm pleased to share that we'll be hosting our medical device business review day on May 13 to highlight the strategies that we believe will drive further growth and provide additional insights and the teams plans and digital surgery.

Looking ahead across all three business segments, we know we've got more work to do.

But we are committed to continuing to deliver above market growth in our pharmaceutical business broadening the reach of our consumer business and meeting the full potential of our medical devices business.

In one of the most critical factors in achieving the goals of all of our business strategies and sustaining our investment in innovation. Once again in 2019, we achieved record levels of investment investing more than $11 billion in research and development and across all industries. We remain one of the top 10 global companies that invest at the highest levels in R&D and then.

Nation.

Across Johnson and Johnson, we recognize the powerful impact the technology innovation and health care breakthroughs have and creating meaningful change in people's lives and establishing a competitive differentiation within the industry.

Now I'd be remiss, if I did not acknowledge that all of these many accomplishments with not impossible without the efforts passion and engagement of our approximately 132000 Global Johnson and Johnson colleagues, who continue to demonstrate a commitment to delivering healthcare solutions the benefit patients consumers and communities around the world.

Our purpose driven credo based culture puts patience and people first and this is certainly true on the way, we think about our employees and work to consistently cultivate the world's best healthiest and most engaged workforce.

The fact that our Johnson and Johnson colleagues are truly the driving force behind our successful performance and then fulfilling our purpose is something that we never never take for granted and always celebrate.

We share the common objective of always make into health and wellbeing of the patients and consumers who use our products every day, our number one priority and has been this way to the last hundred 34 years.

We are on the front lines that developing medicines and revolutionary products that are literally saving people's lives and we're working to prevent cancer offer less invasive surgeries and that and a ball and HIV. This is what the world expects of US and this is what our global workforce as United around committed to and prepare.

To do.

Oh, putting the needs of those we serve first also means protecting our shared environment natural resources.

We know that human health is directly linked to the health of the planet healthy people and communities go hand in hand with a healthy environment. This is why we are committed to reducing the environmental footprint of our operations products and supply chain with 2020 targets to reduce carbon emissions by 20% and procure a 35% of luck.

Trustee from renewable resources looking over the long term, we are optimizing our operations to improve water and energy efficiency, while focusing on sustainable design and reduction in product packaging as well.

All with the goal of delivering better health for people everywhere.

So now I'd like to close right began in spite of the numerous industry challenges. We faced throughout 2019 I'm very pleased that we remain focused on meeting the needs of patients and consumers globally delivering value to all of our stakeholders innovating driving growth in achieving solid performance.

Our sustainable business model is built for the long term and provides us with increased confidence about our business, our strategic direction and healthcare industry, what may sometimes feel like uncertain times.

You have our unwavering commitment that we will hold ourselves accountable to fulfill all of our credo responsibilities, where we always keep the patient at the center of everything we do and also ensure the continued long term success of Johnson and Johnson.

We have an incredible opportunity to play a leading role into finding and driving the future of health care and putting it within the reach of everyone. Everywhere. This is why we're so very excited and confident about 2020 and beyond.

I look forward to addressing your question is during the upcoming today, but I'll now turn it over to Joe who will provide additional details about our results and guidance for 2020. Thank you Joe.

Thank you Alex Hello, everyone. We appreciate you joining todays call I will be providing additional context around our 2019 performance, including our yearend cash position and the capital allocation actions that we executed throughout the year and then conclude with our guidance for 2020.

As Alex and Chris mentioned, we delivered solid fourth quarter results, which capped a strong year performance for Johnson Johnson.

Our full year results reflect a continued commitment to our long term strategic objectives.

Throughout the quarter end the year, we maintained our focus on delivering life saving them life changing products to patients and consumers across the globe heading into 2020, we're confident in our overall strategy and ability to drive results across the enterprise that will yield strong shareholder returns.

Our solid results during the year generated strong cash flow, our highest level ever a free cash flow of nearly $20 billion.

With respect to our cash position at the end of 2019, we had approximately $8.4 billion of net debt consisting of approximately $19.3 billion of cash and marketable securities and approximately $27.7 billion of debt.

Although we don't provide cash flow guidance for transparency as we come off a record year of free cash flow generation. We do expect a decline in 2020 of approximately 10% as we are planning for a payment related to the agreement in principle to settle opioid litigation as previously disclosed.

In 2019, we executed on all four elements of our capital allocation strategy.

Our first objective within that framework is to invest in growth opportunities to solidify and advance our current business delivering transformative healthcare solutions and creating access is the top priority for Johnson and Johnson and as Alex mentioned, we invest it more than $11 billion in R&D during 2019.

As investors and Johnson and Johnson now delivering a competitive and increasing dividend is a capital allocation priority for us in 2019, we returned almost $10 billion to investors, which is approximately 50% of our free cash flow, increasing the quarterly dividend by 5.6%.

Once we satisfied our dividend objectives, we seek M&A opportunities, where our capabilities can create compelling value during the year, we completed a number of strategic acquisitions totaling almost $6 billion to further strengthen our portfolio, which Alex outlined earlier in the call.

Finally after executing on these three important capital allocation priorities, we consider other prudent ways to return value to shareholders such as the 5 billion dollar share repurchase program. We began in December of 2018 and concluded in the third quarter of 2019.

Let's move the discussion to guidance and information to assist your financial modeling for the year ahead.

I'll begin with some qualitative comments that we considered in our outlook.

First our projected sales growth includes the benefit of an additional two to three shipping days associated with a 50 Threerd week in our 2020 fiscal calendar.

This will be partially offset by a SKU rationalization program and our consumer segment.

As part of our efforts to further improve profitability in 2020.

The consumer segment will continue to invest in platforms, where we have differentiated brands with the greatest potential.

Therefore, we plan to rationalize approximately 10% of the skews across the global portfolio translating to a negative impact on 2020 topline growth of slightly over 100 basis points for the segment.

This program will be primarily focused outside the U.S. with a larger impact coming in the second half of the year in the baby and beauty franchises.

Considering both the additional shipping days associated with a 53rd fiscal week and the consumer skew rationalization program. The net impact is approximately 50 to 100 basis points of benefit to the Companys sales growth outlook.

Specific to each segment, our adjusted sales guidance also assumes continued above market performance in our pharmaceutical segment driven by continued strong growth from key products, such as Darzalex Imbruvica trend fire stelara and over Lita due to increased penetration and new indications.

Continued acceleration of sales growth in medical devices generated by recent launches and improved execution.

And then the consumer health business, we will continue to grow above the market in the U.S., while executing the SKU rationalization program to position the segment for benchmark profitability.

Given these factors, we expect adjusted operational sales growth for the full year of between 5.0% and 6.0% were 5.5% at the midpoint.

The adjusted operational sales growth of 5% to 6% is on a constant currency basis, reflecting how we manage our business performance.

Considering a negative impact from net acquisitions, and divestitures, which we estimate a 50 basis points.

We are comfortable with your models, reflecting operational sales growth in the range of 4.5% to 5.5% or $85.8 billion to $86.6 billion.

As you know, we do not predict the impact of currency movements, but utilizing the euro spot rate relative to the U.S. dollar as of last week at 1.11, there was an estimate at negative impact of foreign currency translation of approximately 50 basis points.

Resulting in an estimate it reported sales growth between 4% and 5% compared to 2019 or $85.4 billion to $86.2 billion.

Let's now discuss earnings per share.

As you can see on your screen, here's a slide depicting the components and assumptions included in our 2020 EPS guidance.

Using the sales growth guidance I, just referenced provides approximately 40 cents growth to S.

The next column is based on expected operating margin improvement of approximately 100 basis points, which translates to an incremental 25 cents of contribution net of continued investments across our segments.

Operating margin improvement will be primarily driven by continued efforts to improve manufacturing capabilities optimized sales marketing and administrative expenses and the consumer SKU rationalization just discussed.

This results in strong adjusted operational EPS growth for the core business 65 cents or 7.5% versus the prior year.

Offsetting those two operating components is the anticipated reduced level of other income of approximately 30 cents compared to 2019.

You may recall that we benefited from a large divestiture gain from the sale of our advanced sterilization products business in the second quarter of 2019. The final element to this EPS waterfall chart is the 2020 benefit we will have from the share repurchase program completed in 2019, which adds five cents.

<unk> S compared to 2019, resulting in an adjusted operational EPS of $9, an eight cents at the midpoint.

Our growth rate of 4.6%.

Well I'm not predicting the impact of currency movements using recent exchange rates are reported adjusted EPS would be negatively impacted by approximately five cents per share, resulting in adjusted reported earnings per share of $9.03 at the midpoint, reflecting growth of approximately 4%.

Continuing with EPS guidance. This slide provides a summary of additional TNL items to better provide insight into our full year 2020 guidance.

As referenced earlier for 2020 , we're expecting our adjusted pre tax operating margin to improved by approximately 100 basis points, while still prioritizing investment in our business that accelerates and further strengthens our pipeline of new products for the long term.

Although we are continuously evaluating external value, creating opportunities for purposes of your models. We currently assume no major acquisitions or other major uses of cash and are therefore comfortable with you modeling net interest expense between zero and $100 million.

As a reminder, other income and expense is the line on the TNL well, we record royalty income as well as gains and losses related to the items such as litigation investments by our Johnson and Johnson Development Corporation divestitures asset sales and write offs.

We would be comfortable with your models for 2020, reflecting net other income and expense excluding special items as net income ranging from $1.5 billion to $1.7 billion. This is lower than 2019, as we had elevated levels of divestiture gains and we do not expect an event of that magnitude in 2020.

Moving on to taxes.

Our effective tax rate guidance for 2020 , excluding special items is approximately 17.5% to 18.5% or higher than where we ended 2019 driven by expected changes in the mix of global earnings and miscellaneous onetime benefits not expected to reoccur in Twentytwo.

Okay.

Considering all these factors, we're comfortable with adjusted EPS guidance in a range of $9 to $9 in 15 cents per share on a constant currency basis, reflecting operational or constant currency growth of approximately 3.7% to 5.4%.

Again, while not predicting the impact of currency movements, but to provide some insight on the potential impact on EPS using exchange rates from last week, our reported adjusted EPS would be negatively impacted by approximately five cents per share.

Therefore, our estimate for 2020 reported adjusted EPS is between a range of $8, a 95 cents to $9.10 per share when $9.03 per share at the midpoint.

As a final comment our guidance assumes no formal share repurchase program at this time I wanted to provide this reminder, since the last time I looked street estimates utilized in average share count, which has significantly lower than what we are assuming for our 2020 guidance. We estimate the average diluted shares outstanding to be lot.

Finally in line with the fourth quarter 2019 share count or 2.67 billion shares.

Although we do not provide quarterly guidance. There are a few factors for you to consider in your models beyond the selling day fluctuations Chris mentioned in his remarks from medical device.

For sales you can expect the fourth quarter of 2020 to had the benefit of the additional shipping days, partially offset by the consumer SKU rationalization program that we are projecting throughout the year, but more pronounced in the back half.

With respect to earnings the first quarter of 2019 included an equity gain related to the consumer acquisition of Dr. see labo and the second quarter of 2019 included the gain associated with the A.S.P. divestiture in medical devices.

We don't anticipate similar events for other income and expense in the first half of 2020, but would expect elevated levels of other income aligned to today's guidance in the second half of 2020.

Lastly, based on today's spot rates currency will have a more negative impact in the first half of 2020 .

That concludes prepared remarks of our financial summary of 2019 results and 2020 guidance. Our 2019 results reinforce our confidence in our broad base business as we head into 2020, and we look forward to delivering continued value on behalf of all stakeholders.

As Alex mentioned, we will be hosting our medical device business review day on May 13th and I look forward to seeing all of you know in person at this exciting event, which will be held in New York City. This year.

For your planning purposes, and based on investment community feedback. Please note that we will be highlighting our consumer segment at consumer focused events such as notable CPG conferences this year.

Especial, Thank you to our Johnson and Johnson associates around the world for their tireless efforts and commitment who make the results we have attained possible and the outlook. So bright I will now turn the call back to Chris to begin to keep an eye.

Thank you Joe we will now move to the Q1 a portion of the webcast.

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

Yes. Thank you.

Ladies and gentlemen, if he'd 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 to one question and one follow up.

Your first question comes from Chris Schott with JP Morgan.

Great. Thanks, very much for the questions on the first was just on pharma just elaborate a little bit more on your expectations for growth in 2020, I guess, specifically what are you expecting in terms of patent expiration headwinds for this year and can you elaborate on the competitive dynamics, you're expecting for both term fire and stuff.

Laura in psoriasis with the launch of Scott Rosy. Thanks, so much.

Hey, good morning, Chris and thanks for the question. Thanks for joining us today, so a with pharmaceuticals as I mentioned in some of my prepared remarks, we do expect continued growth above the market I think as we would have sat here last year, we expected a bigger impact in 2019 from the loss of exclusivity and generic and bye bye.

Similar competition.

To our products into our teams credit based on the data the safety the efficacy the familiarity of the products and Comfortability for physicians and patients are those products were able to retain that business a little bit longer we would expect that to bleed into 2020, and but we still do even with that.

Paul a neutralized headwinds, it's not a tailwind per se, but I'll call. It a neutralized headwind compared to 2019.

I think we do certainly expect that the portfolio of products, we'll continue to outperform the general market of pharmaceuticals in general.

Chris This is Alex just that add one comment onto that.

Look we're extremely proud overall of the performance of our pharmaceutical group of particularly our immunology group within pharma and if you. If you just step back a moment look over the past several years at that first of all the way that they were able to manage the biosimilar impact with remicade, while simultaneously launching.

Multiple new indications for compounds like Stelara are launching from fire.

To note that term fire had 55% growth in the quarter Stelara at 19% growth and and frankly also it's the clinical development and a competitive differentiation with term fire. For example, having come to you know comparative trials not only versus our own compounds, but also against Humira Cosentyx and I think.

What's really important is that you know in areas.

But that where these products are used its not only the short term results, but it's particularly important for the long term results in so many patients on psoriasis will ship from product to product and are suffering from this condition for a long time and having a in excess of 48 months.

I want the duration and treatment effect, Oh, you know by a compound lightroom Fiat I think really helps explain its uptake and continued confidence in use by physicians and patients in the marketplace. So if we combine that with the penetration rate are probably somewhere in the 30% to 40% right.

This overall category.

We think that Theres still a lot of unmet need we think that there's still a lot of opportunity with these compounds a and that doesn't even include some of the additional clinical development programs that we're having in areas such as GE API as well for these where you know, particularly for a compound likes stelara, we're seeing great impact a we think that there is a lot of operating.

Study ahead.

Great Thanks for that.

One of the really quick one here other income 1.5 to 1.7 billion I think that's still a bit above your historic levels of other income I know this number can be a bit lumpy, but should we think about the type of level isn't a new norm or if we think about that number declining further as we look beyond 2020. Thanks.

Yeah, Chris Thanks for the question I would say you know certainly down from what we experienced in 2019, and I would expect or not to provide any insights into 2021, just yet, but I would expect that number to come further down as we look out so as you see this year, a we're improving our operating margins by nearly 100 basis points to offset some of the effect.

That we had the benefit of in 20, Nineteena and I think we'll continue to do that.

But.

Good to be truthfully, we continually look and manage our portfolio and a very rigorous fashion, making sure that where the best owners of the assets that we have that that works both ways. So we look to complement our portfolio, but we'll also look to.

Take underperforming businesses and create value for shareholders in other ways.

Chris Thanks for your questions next question. Please your next question comes from Larry Biegelsen with Wells Fargo.

Good morning, Thanks for taking the question.

Just one on the extra week in one or the litigation.

Joe can you talk about the impact to the extra week in 2020 in 2015. It was about 4% in Q4, 1% for the full year and neutral to S.

Does it impact us more than international does it impact some businesses more than others.

I heard your comments on consumer, but I'm thinking more about pharma and med Tech it had one follow up.

Yes, so Larry with respect to the the fiscal 50 Threerd week that translates to about two to three shipping days I would say, that's a pretty much the norm for the medical device and pharmaceutical units that you've asked about a it's a little bit less in consumer in terms of of impact because it doesn't impact stocking during the holiday.

They season, so a and you're absolutely correct. We have the same assumptions around dps, it's pretty much neutral because you still have a full week at the expenses without really the benefit of a full weaker sales.

Thanks for that and Alex just one on litigation just what's the latest on the opioid litigation.

The latest on the $4 billion settlement you'd previously announced by many important dates milestones, we should think about and just lastly on talc. When do you expect the decision from the Dalbert hearing thanks for taking the questions.

Hey, Larry this is Joe and take that.

Thanks for the questions with respect to the opioid a settlement and agreement in principle that was announced shortly after our Q3 earnings where we set aside $4 billion. We continue to work with the negotiating committee of the state Attorney General's to finalize the agreement in principle, a we remain I would say cautiously optimistic.

Ah that that's progressing very well, we're highly engaged to the extent, we can be to finalize that agreement in principle, and we hope to hear more over the coming months off from the lead negotiators representing not just the states, but as you know the counties and municipalities.

With respect to talc and the Dalbert litigation.

We are are awaiting judge wilsons a verdict in that again as you know that's an evidentiary a standards hearing so we'll be able to.

Make sure that there's great clarity and certainty as to the type of scientific evidence that needs to be presented as you know and you probably saw it in the journal, although not at American Medical Association article published just a few weeks ago, probably one of the most comprehensive reports evaluating all studies from independent sources found no link.

Between talc and cancer. So we think Thats again, another independent source.

And we think those facts those that data that scientific research will bear out in the end.

Thank you.

Great. Thanks, Larry Rob next question. Please.

Your next question is from David Lewis with Morgan Stanley .

Great just a couple questions. This morning, Joe just one clarification in one qualitative on revenues so the 5% to 6% operational guidance for 2022 way to think about that is that includes about 50 to 100 basis points to the net effect.

Selling days adjusted for the consumer skews.

Exactly right, David Okay, and just a follow on revenue and one more quick one after that just you qualitatively Joe can you sort of help us understand 2020, how you see it of framing up from a pharmaceutical consumer medical device business historically, you've given us a sense of sort of which businesses are likely to accelerate and which businesses are sort of more stable so across farmer MDD and consume.

Or how do you see sort of the qualitative parameters are driving the 2020 guide.

Thanks for the question David So you know we have I think right now does across all three of our businesses. If you look at pharmaceuticals, we will continue to accelerate growth I would say will be above market, it's probably not as robust as we would've thought this time last year again, because we were able to retain some of the business that was.

Object to generic and Biosimilar competition, but again very healthy growth above market and we'll be looking to.

Complement the portfolio certainly with a advancing our pipeline. We've got a couple things that are hopefully will be filed this year around and that's some odd for a multiple sclerosis, we hope to gain approval on the Darzalex subcutaneous formulation, which is a tremendous benefit for patients.

And we'll see the continued uptake of valve Ursa and provide a in medical devices were very pleased and just to put it into some context for the could the analyst community here in 2017, we grew 1.6% and 27 2018, I'm sorry, we grew 2.7% and now we're up to 3.9% and we're not done.

So we're going to continue to accelerate growth be towards that a you know in the middle of the market range that we believe a is on the horizon for 2020, and that's before we have the opportunity to launch what we think will be a very differentiated offering around digital robotic surgery in consumer again as Alex mentioned in some of that.

His remarks, we have focused on profitability. There are we focused putting investment behind our stronghold categories of skin health and self care, so that would be tylenol and mode trend for self care of email and neutrogena for skin health.

Those brands continue to do extremely well I would suspect we grow more in line with the market for that category, except for the SKU rationalization will we'll be looking to de prioritize some less productive brands.

Okay, and then just Joe just one quick question follow up on a on margins.

And so many years, you've had sort of other income headwinds you've been not offset if it's more significant SNA gains driving margins, you're talking about about a 100 basis points of margin expansion 2020.

Medical devices for the JV agreement continues to track well. Other just you spending dynamics are more visibility on sort of 100 basis points of underlying margin expansion in 2020 headwinds and Tailwinds, we should we thinking about thanks so much.

Yeah, I know, Chris you want to add something just wanted to amplify and consumer just examples about tylenol and neutrogena for the full year. This past year neutrogena at 6% growth Tylenol and 9% growth just to build and we were sharing on consumer right. Okay. Thanks, Chris with respect to margin expansion, David I think we would look to certainly manufacturing capabilities and.

Proving our productivity there I would point to the consumer SKU rationalization to design behind that is specifically to improve profitability and then we'll continue to look.

At other opportunities for enabling functions.

Across finance HR information technology, and procurement to to get savings. So we think we're in pretty good shape to deliver that for 2020 .

Great. Thanks, David I appreciate the questions. Rob next question. Please.

Your next question comes from Kristen Stewart with Barclays.

Hi, Thanks for taking my question, just one clarification the extra week with the SKU rationalization, it's a net impact overall its 50 to 100 to the top line is that correct.

Thats correct. Okay. Perfect just wanted to clarify that and then I'm just big picture I guess question, just Sam portfolio and capital allocation I know you had mentioned just in terms of.

Yes model need to take into consideration with the share count no further share repurchase activity you guys are in a pretty good position, obviously from a share.

Sorry cash flow perspective, generating 20 billion. This year it sounds like your expectation is to pay out the opioid settlement.

But I guess why not get more aggressive from a share repurchase perspective, I'm, just how should we think about capital allocation going forward.

Hey, Chris then this is Alex Thank you very much for the question and look we're a.

We're really proud of our.

Strong performance across across our businesses and frankly as it relates to our capital allocation model. This year and we're very confident in it going forward.

As we mentioned in the results earlier, if you think about that free cash flow spinoff that we had a in 2019 I think it a it's indicative of not only great discipline across our various lines and used you see the pan out in front of view.

Overall, it was quite healthy, but it's also important to note that we did that in the context of also continuing to invest in more than 11 acquisitions or about six licensing agreements, where we invested almost seven and a half billion dollars just in the course of the year. So as we've talked about in the past.

We'll continue to invest in our brands and in research and development at an appropriate rate. If you go back over the last four years make if you add the numbers up an R&D, we've invested more than $45 billion during that timeframe and and we think that based upon the number of new product launches a in our farm our medical the.

Vice business and our consumer business.

We've gotten a good return on that we've continued to keep a healthy dividend at the same time, we realize how important that is a during that same timeframe for years, it's a pretty similar number to R&D, it's about $40 billion to $45 billion.

And and of course after that we always take a look at value creating acquisitions.

And again during that same timeframe I think the number comes to about $50 billion that we've invested.

Over the past year of note now was.

You might say the additional investment that we have made and Rs and we think combining that with a you know the later buyout that we did with the verb with Bourbon Verily is the right thing. If you. If you think ahead and medical devices are probably few things that are going to represent a more secular shift in that domain then.

The shift into digital and robotic surgery, and bringing those together, we think creates a very exciting opportunity for us.

But we also continue to do a value, creating tuck in opportunities as well as our pharmaceutical business as we just talked about the ended the year. We brought in to really exciting compounds brick you map in particular I end up both a assets as well as other conditions. We think you know represents a great opera.

Unity and it's certainly in an area, where we've got a lot of capability and a lot of expertise.

And and and finally, we talk about share repurchases and I think we demonstrated over the last four or five years or that will certainly employee share purposes or share repurchases and when we think that were undervalued, particularly in a significant way I N and again I think an outcome of the way that we manage our overall.

And now.

It means that we can do these things simultaneously its not necessarily in order and we continue do we expect to continue that strategy going forward.

Okay perfect. Yeah, Chris then just a quick comment out and thanks for noticing the comments around share count.

You know I got that tip, my hat and complement the investment community because when we go through the the consensus PNM now the income in terms of absolute dollars was almost spot on it was the early close in fact, and then where the the disconnect came in the form of share count where the average share count using consensus was about 14 million shares less.

Which translates to about five or six cents. So we thought we were very much in line with what consensus expectations were and out while we don't provide guidance assuming any share repurchase that's not currently authorized it seems that a few analysts may have made that assumption.

Okay.

Okay. Thanks very much.

Thank you Christian Rob next question. Please.

Next question is from the line of Josh Jennings with Cowen.

Hi, good morning, Thanks for taking the questions.

First just on robotics, and clearly you put a stake in the ground and with investments.

Pursuing leadership in digital surgery ecosystems, but just wanted to see if I understood, we're going to get a big update at the med device day in May, but if you could wet our appetite at all today just give any updates on.

Aggressively or its launch timelines for worth of taxi and then any indications are that you see where robotics is not play today that could come into play over the next three to five years in your portfolio and then second question is just for Joe and Alex I guess is just on.

The other income line is been a focus I think the concerns are where that could fall off.

Next year, where the out years and can you talk about your process for portfolio review and then pruning a big underperforming assets are assets on fit under your roof.

If you could just talking about that process and how regimented is there a formula is there 1% of the portfolio that gets pruned every year or is it just a strategic an opportunistic annually. Thanks. Thanks for taking the questions I apologize for the background noise.

Hey, Josh. Thank you very much after the question look I'm really glad that you.

Mentioned, I robotics and digital in terms of an entire platform for us because of course, that's exactly what it is and you know, let's start first with our acquisition of ourself and overall, what we would say it's off to a great start, whereas we couldn't be more thrilled to have the a the robotics pioneer and former CEO .

So Fred mold and his team at JNJ. The monarch platform is off to a very good start it's going to play a critical role and our lung cancer initiative and out when you just look at the science and the technology and what it can do with the distal parts of the long what it brings in terms of potentially ablation.

The leveraging it with our new wave technology, and even longer term I, having the potential to dispense oncolytic viruses and a you know treating cancer and very in new and unique ways is exciting ER physicians have performed more than 2000, bonkowski procedures with them on our platform.

And you know, we're really pleased with what we're saying with it.

Second you saw announcement on verb.

And we think combining Rs and verb I really helps ensure that you know we Ah we have a very strong role in the next generation in the digital surgery, a platform and our ongoing development. Our teams are working now together and it really comprehensive.

Why Oh, we do look.

Sorry for that feedback.

But we do look at this as a platform that is something that will be in place for the next several decades. A therefore, it's really important that we stepped through this a in the right way and now what I would say is the early results from the collaboration on the partnership that we're seeing between these teams is.

Very encouraging and that's why we're excited to give you. This preview that Joe mentioned on May 13th in New York, because we think it well provide you know very clear transparent kind of tangible evidence of I've not only the machines, but also the digital platform a component of this as well.

Well.

Next we're really excited about the progress is being made with vallis in our orthopedics robotics platform as well, it's an exciting technology, a we think that it's going to offer a portable low cost system, it's easy to use a will improve accuracy.

Got it also is a nice combination to ensure the surgeon remains intimately involved and death, we look at the training and technical support and it's something that will be easily coordinated between oh ours and surgeon I. So we're progressing towards the mid year 2020 regulatory submission for that so really if you just step.

Back and you think about what we have going with Rs and monarch. If you think about the plans now that we have a place vallis in orthopedics and then longer term you know as we bring out that next generation of digital on robotics platform more broadly across surgery, how we're very excited about it.

And Josh to address your question regarding the management of our portfolio. So I would say, it's a it's a rigorous it's not formulaic, though so we meet as a management team and Executive Committee a monthly on what additions or deletions from our portfolio makes sense and and makes sense I probably should be defined in terms of.

We have aspirations and all the markets we plan to be there number one number two in that space with the promise of bringing better solutions in that space to patients and consumers across the globe.

We have plans in place for all of our businesses to do that but after a period of time, where those plans don't come to fruition, we'll assess other alternatives I would say under Alex's leadership, we've gotten very disciplined in this this rigor and that's proved to be a pretty productive I think in terms of how.

We've been able to take underperforming businesses turned that into gains and reinvest back and businesses in areas that we think we've got to a differentiate it right to win.

Thanks, Josh I appreciate the questions. Rob next question. Please.

Your next question is from Matt Miksic with credit Suisse.

Hi, Thanks for taking the question. So just had one follow up on on one of your business lines in med devices.

In orthopedics clearly.

It looks like you are able to deliver a pretty solid improvement and.

In.

In these in the U.S. and just was wondering if you'd be willing to offer any color on.

The spine growth within the sort of spine and other category like which parts of that were.

Were the drivers of the decline and then I had one follow up if I could for Alex on a on digital health.

So thanks for the question, Matt I'll get to speak with you. So we are very proud of the nice performance. If you look that was a declining business in 2018, we've had almost a two point improvement there. So the teams done a very nice job, we have attune, both us and the primary as well as the revision platform available for patients. We've also.

Made an entry into the Cementless side of the business, which as you know is the fastest growing piece of that business and as Alex mentioned, we look forward to what villus could do on the horizon with respect to spine. I think you have to take into account the impact of in 2018, a U.S. rebate adjustment which impact.

The comparative growth about 250 basis points, if you look at.

The growth on the U.S. it was probably about half of the decline of what you saw a based on that comparison.

We continue to see a pretty good growth outside the U.S., specifically in Asia Pacific I don't know, Chris if there's any other commentary in spine out yeah, Matt I'd, just say if you adjust for that I would say the business is stabilized at low single digit declines where we're seeing success is where we have new innovation in particular in degenerative spine with.

ER or three D. cage and are ready for Prime systems I think the next level of improvements will come from Symphony system and posterior cervical which was launched later this year. So we really didn't get that benefit of this year at all and we'll expect to see that continued improvement through next year and beyond.

That's great and then just to follow up I appreciate the update as an overview on on the robotic surgery strategy, Alex but I guess one of the things that we've noticed is just how quickly and I realize it sort of.

But as where do you term and we see it in a lot of magazines, but and but artificial intelligence in digital health for whatever reason.

Implementation and innovation, but it seems to be moving.

Perhaps the fastest of the categories of digital surgery, and digital health and just wondering.

What are your competitors is is partnered with the smaller innovator in that space around stroke, what I'm sure you're watching it im sure Youre, making investments in looking at it just curious if you could give us an update or a preview perhaps on which we'll talk about in the strain.

Sure.

Thanks again for the question, Matt look I there are few areas across our different innovation, our technology platforms that are not being touched by some of this new technology, whether its AI, whether its and now whether its digital whether it's the cloud I mean, if you think about just our pharmaceutical portfolio for example.

And you talk to Paul Stoffels over time, Almond or bill hide I think what they would tell you is one of the most important area supporting that as our data sciences capabilities and the insights that we can gain from reviewing these large datasets and coming in and developing much better.

Her insights frankly is helping lead us to a much faster and more productive.

Identification of new targets and it certainly is helping us when we apply those same skills and capabilities of the clinical development programs as you work with hospitals and large medical systems and you can review Medical Health Records. For example in a much more detailed way in terms of patient selection and track.

Taking a through through development and so we're certainly excited about there as it relates to medical devices and we've we've done I think very consistent and in sharing our thinking that again. This next generation is certainly about the robotics component that help.

Facilitate perhaps having more consistency in the at an exact procedure, perhaps getting into a tighter space or having having better access Ah, but we think longer term the digital AI component of that in terms of health.

Being pre operatively, a in developing a very detailed plan even have a even being applied intra operatively in terms of additional guidance systems and by the way then that you know they not only to help a surgeon I get to a particular area, but it could also be to help him or her stay away from air.

He is a that may and could.

Caused a problem.

And so a and then of course, how that information can be utilized by large health care systems to really ensure that they've got the most kind of effective.

And efficient and value added a health care delivery programs in place, we think will be more important than ever. So hence our reason for partnering with that verb and barely a and alpha that in a building those capabilities and and again, it's something that.

More broadly across Johnson and Johnson, we're spending a lot of time thinking about how all those capabilities are we are going to become more and more a part of our of our doing business of are doing research and development across each one of our sectors.

Thanks, Matt I appreciate the question.

Rob next question please.

Your next question is from Danielle Antalffy with SVB Leerink.

Hey, good morning, guys. Thanks, much for taking the question.

Just wanted to talk a little bit more about medical devices. Specifically you know you guys saw pretty strong sales growth acceleration on an operational adjusted basis. This year.

We think about the next year, you know I know actually a sudden capacity, it's not linear linear quarterly, but I suspect we should be looking for another uptick can you help talk about that and what specifically will be the drivers in in 2020 of that.

Sure Danielle. Thank you very much for the question look where a again, we're really proud of the progress that actually and our team has made over the last several years Joe took you through.

The improvement from 2017 to 18 to 2019, and we certainly expect that trajectory to continue in the coming years, if I just got to zero down for a moment, though on 2019, we saw first half growth of about 3.8% and we saw growth in the second half at 4%.

And while there is all the lumpiness in the quarters and consistent with Ashley's comments and look we're still taking a look at Q4, we think that the the timing of the holidays and a few other things that we always have to be careful what you attribute a but if you just look at the number of days, but between some of those we think that that could.

Potentially have had an impact but it really doesn't change the overall trend of accelerated growth and second half versus first half now if we look at our business. It's it's really being driven by a number of factors in our surgery business.

What you're saying is strong performance in areas like electrophysiologist, not or 14% growth in this quarter with great New technology, we expect a continuous launch in the coming year as well a with new products. You also saw good performance in our energy business.

So just about 3% growth and biosurgery coming in at about 4% growth. You know, we think one of the growth drivers frankly is just over coming our supply issue in 2020 that probably cut our biosurgery growth rate in half, especially in the latter part of the year. So we think once we work our way through that Ah, that's going to be a growth driver.

For Us a you know our our circular stapler launch is also going wild we're going to lap the recall as well that we had in the past year. So we think those are definitely drivers in our core surgery business.

If we look at orthopedics here too we've seen this steady cadence of improvement our knee business attune the launch of a some outlets. The revision is going very well any think about it we turn that from a being down almost a half a percent 2%.

Do you know growing at 1.4% or in this quarter, which you know again shows physicians, increasing confidence on that platform and out and we're starting to see an uptake again in attune primaries and so we're we're really pleased to see that and then of course, our hip performance coming in at over four per.

On a strong trauma at about two or two and a half we think is pretty consistent what the market Chris address some of the issues in spine and how we see that moving forward.

And then of course, there's vision care.

And I think what we see in vision care is fundamentally strong performance in contact lens, you saw about 3% growth overall in our contact lens business, but what's important to note. There is we had 9% growth in the United States. So the transition lands the a stick lens daily disposables continue to go well you know frankly, we've been.

Disappointed in some of our surgical performance, particularly in the U.S.. We've got plans in place to address that if you look at the ongoing rollout that we're going to have with attacking us and the symphony in the synergy. We're we're very optimistic a that it's going to make us more competitive not only in the ace dig area, but.

At really across that entire platform. So.

We're confident that that's going to lead to you know continued growth trends as we go through 2020, and certainly setting ourselves up for even continued growth beyond that as well. Thank you so much.

Thanks, Daniel appreciate it.

Next question please.

Next question is from Terence Flynn with Goldman Sachs.

Hi, good morning, Thanks for taking the questions maybe just to for me you guys presented additional data at Ash from your Bcm, a car T program in myeloma and recently got breakthrough designation or planning to file for approval later this year.

I would love your initial thoughts on overcoming some of the hurdles faced by other car T drugs and longer term, where you see this drug playing a role in the treatment paradigm.

The second question relates to the FDA announcement of a meeting next month on testing methods for a specified talc I was just wondering if the companies participating and then what you think the key issues are that are going to be discussed there. Thank you.

Sure Terrence. Thank you very much and I look let me take the first one regarding the car T data at Ash Yeah.

I'm sure you saw when we released the data.

We were out we're very excited when we saw those results and again here too I think it's maybe important to just step back and think about the steps that our team has taken over the last several years regarding car T therapy and out when you look at the different development programs that are out there how we were able to.

To support or source this from large and.

The way that we were able to accelerate the development timelines or the ongoing are in great work that our supply chain is doing as well to ensure that we've got a as the.

Strong integrity of that supply chains dependability, that's put in place.

We're really proud of the progress they made I think the results that we shared at Ash, you know demonstrate our increasing confidence and by the way. We think this is great news for patients, particularly those who have failed multiple other treatment lines in a very difficult to treat condition like multiple myeloma.

And and as we think about it going forward.

We think that this is truly an opportunity to transform the way pain patients are treated in the space. We've got a lot of confidence in our reimbursement teams I think we demonstrated.

In other areas that we can work with payers in a very collaborative way. We're also innovative not only in the products that we're bringing but frankly in the reimbursement programs that we introduced as well.

And and we we intend to work just that way with payers and providers both in the United States, but also abroad ultimately to make sure that this therapy is available for patients that they can get access to it and a that it's a it's not only as effective as of the data that you that we saw at ash, but.

It's also cost effective to the overall health care system.

But as you want it sure on parents with respect to the meeting a I believe its next month February 4th regarding testing methods around talc, we certainly welcome any discussion around a the safety and efficacy of the other.

Of the product specifically, we will not be active participants at that meeting. However, I can say that our current internal testing methods or exceed that of current FDIC standards for cosmetic talc.

Great. Thank you turns appreciate the questions Rob we have time for one last question.

I used that last question will be coming from Louise Chen with Cantor Fitzgerald.

Hi, Thanks for taking my questions here. So my first question for you and what your view on M&A. It this year and what areas you're most interested in it that pharma consumer or devices or all the above and then my second question is how optimistic are you regarding a universal settlement for opioid. Thank you.

Okay. Let me take the first part of that Louise. Thanks, a lot for the question look I think we demonstrated in that 2019 as I mentioned earlier.

We remained active really across all three areas that I think we did 11 acquisitions six licensing agreements and putting more than $7 billion, where the capital to work.

We.

I have continued I think our pattern.

Tuck in acquisitions, where we get new technologies as you saw that we did with both that X biotech and other opportunities in our pharmaceutical business. We would expect to continue that Oh. You know we also did had a fair amount of activity in our medical device group led by.

Our us that we did earlier in the year and and then when our consumer group of course that was led by Dr. Slob, though a which also gave us a great a toehold in you might say into the premium beauty segment, particularly particularly in Asia.

With plans to expand that into the United States. So we'll be looking across all three of our segments are but we would expect there to be an ongoing cadence of M&A activity in those different areas.

And Luisa with respect to the opioid settlements so.

We continue to work with the negotiating committee.

Of the state Attorney General's to finalize the agreement in principle I would say we remain optimistic I am confident that the agreement is a moving forward, but certainly can't predict when that agreement in principle will be finalized. So we'll continue to monitor that engage as needed a and hopefully come to a resolution.

Thanks, Luis appreciate it thanks to everyone for your questions and continued interest in our company apologies to those we couldn't get too because of time, but don't hesitate to reach out to the investor relations team as needed I'll now turn the call back to Alex just for some closing comments well. Thank you everybody for your ongoing support across 2019, as we mentioned earlier, we're very poor.

Out of our strong performance.

But we're even more excited and more confident that what the prospect sold for 2020 and beyond I think we had a chance to review.

A lot of the opportunities that lie in front of us and we look forward to continuing to keep you updated throughout the year as we progress through our plan. So thank you very much everybody and have a great day.

Thank you. This concludes todays Johnson <unk> Johnson's fourth quarter 2018 earnings Conference call you may now disconnect.