Q2 2020 Johnson & Johnson Earnings Call
I would now let's turn the conference call over to Johnson and Johnson you may begin.
Operator: I would now like to turn the conference call over to Johnson & Johnson. You may begin.
Good morning, this is Chris the warfare.
Chris Schott: Good morning. This is Chris Delorfus, Vice President of Investor Relations for Johnson & Johnson. Welcome to our Company's Review of Business Results for the second quarter of 2020. I hope everyone is healthy and continues to remain safe during these times. Joining me on the call today to address Johnson & Johnson's response to the global coronavirus pandemic along with our second quarter results are Dr. Paul Stoffels, Vice Chairman of the Executive Committee and Chief Scientific Officer, and Joe Walk, Executive Vice President, Chief Financial Officer. During the Q&A portion of the call, Alec Skorsky, Chairman of the Board of Directors and Chief Executive Officer, and Joaquin Duado, A few logistics before we get into the details.
Nice President of Investor Relations for Johnson and Johnson.
Welcome to our company's review of business results for the second quarter of 2020.
One is healthy continues to remain safe during these times.
Joining me on the call today to address Johnson <unk> Johnson's response to the global Corona virus pandemic, along with our second quarter results are Dr. Paul Scholes.
Vice Chairman of the Executive Committee and Chief Scientific Officer.
Walker Executive Vice President Chief Financial Officer.
During the Q and a portion of the cool Alex Gorsky Chairman of the board of Directors and Chief Executive Officer, and Joaquin Duato Vice Chairman of the Executive Committee will also join pool, Joe and myself.
Logistics 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 Web site at Investor Dod change <unk> Dot Com, where you could also find additional materials, including today's presentation and associated schedules.
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 the cautionary statement included in today's presentation, which identifies certain factors that may cause the company's actual results to differ materially from those
Please note. The today's presentation includes forward looking statements.
We encourage you to review the cautionary statement included in today's presentation, which identifies certain factors that may cause the companys actual results to differ materially from those projected in particular, there are significant uncertainty about the duration and contemplated impact of the cope with 19 pandemic. This means the results could change.
Chris Schott: In particular, there is significant uncertainty about the duration and contemplated impact of the COVID-19 pandemic. This means the results could change at any time, and the contemplated impact of COVID-19 on the company's business results and outlook is a best estimate based on the information available as of today. Our SEC filings, including our 2019 Form 10-K and subsequent Form 10-Qs, 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.
At any time and the contemplated impact of cope with 19 on the company's business results and outlook is the best estimate based on the information available as of today's date.
Personally see filings, including our 2019 form 10-K.
Subsequent form 10-Q's, along with reconciliations or the non-GAAP financial measures utilized for today's discussion to the most comparable GAAP measures are also available at Investor Dot chain, Jay Dot com.
Several their products and compounds discuss today are being developed in collaboration with strategic partners.
Chris Schott: Several of the products and compounds discussed today are being developed in collaboration with strategic partners, relations from other companies. This slide acknowledges those relationships. Moving to today's agenda, I will cover consolidated and segment sales information along with some operational highlights from the P&L results for the corporation and the three business segments. Next, Paul will provide an update on our vaccine platform, including our efforts to develop and manufacture a COVID-19 vaccine. Finally, Joe will conclude by providing insights on our cash position and how we think about our capital allocation during this time. He will then provide an update on our full-year guidance, and the remaining time will be available for your questions. We anticipate the webcast will last about 75 minutes.
Well license from other companies.
This slide acknowledges those relationships.
During today's agenda I will cover consolidated and segment sales information along with some operational highlights from the PML results for the Corporation and the three business segments next Paul will provide an update on our vaccine platform, including our efforts to develop and manufacture a cobot 19 vaccine.
Finally, Joe will conclude by providing insights on our cash position and how we think about our capital allocation. During this time.
He will then provide an update on our full year guidance.
The remaining time will be available for your questions.
We anticipate the webcast will last about 75 minutes.
Worldwide sales were $18.3 billion for the second quarter of 2020, a decrease of 10.8% versus the second quarter of 2019.
Chris Schott: Worldwide sales were $18.3 billion for the second quarter of 2020, a decrease of 10.8% versus the second quarter of 2019. Operational sales growth, which excludes the effect of translational currency, decreased 9% as currency had a negative impact of 1.8 points. In the U.S., sales decreased 8.3%.
Operational sales growth, which excludes the effect of translational currency decreased 9% as currency had a negative impact of 1.8 points.
In the U.S. sales decreased 8.3%.
In regions outside the U.S. reported decline was 13.4% however, operational sales decline outside the U.S. was 9.6% with currency negatively impacting our reported Oh U.S. results by 3.8 points.
Chris Schott: In regions outside the U.S., our reported decline was 13.4%. However, operational sales decline outside the U.S. was 9.6%, with currency negatively impacting our reported OUS results by 3.8 points. Excluding the net impact of acquisitions and divestitures, adjusted operational sales decline was 8.8% worldwide, 8.1% in the U.S., and 9.4% outside the U.S. Results were negatively impacted by the COVID-19 pandemic, but we did see improvement throughout the quarter as countries and states began to reopen. China, for example, returned to growth in the second quarter, led by a strong rebound in our medical devices segment. TURNING NOW TO EARNINGS, For the quarter, net earnings were $3.6 billion, and diluted earnings per share was $1.36, versus diluted earnings per share of $2.08 a year ago, excluding after-tax intangible asset amortization expense and special items for both periods. Adjusted net earnings for the quarter were $4.4 billion, and adjusted diluted earnings per share was $1.67, representing decreases of 36% On an operational basis, adjusted diluted earnings per share declined by 34.5%.
Excluding the net impact of acquisitions and divestitures adjusted operational sales decline was 8.8% worldwide, 8.1% in the U.S. and 9.4% outside the U.S.
Results were negatively impacted by the covert 19 pandemic. However, we did see improvement throughout the quarter, that's countries and states began to reopen.
China for example returned to growth in the second quarter led by strong rebound of our medical devices segment.
Turning now to earnings.
For the quarter net earnings were $3.6 billion and diluted earnings per share was $1.36 cents versus diluted earnings per share of $2, an eight cents a year ago.
Excluding after tax intangible asset amortization expense and special items for both periods adjusted net earnings for the quarter were $4.4 billion and adjusted diluted earnings per share was $1.67 cents, representing decreases up 36% and 35.3% respectively.
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On an operational basis adjusted diluted earnings per share declined 34.5%.
Beginning with consumer health I would now comment on business segment sales performance for the second quarter highlighting items that build upon the slides you have in front of you <unk>.
Chris Schott: Beginning with consumer health, I will now comment on business segment sales performance for the second 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 second quarter of 2019 and therefore exclude the impact of currency translation. I will also be providing additional insights using our best estimates on the impacts of COVID-19 on our performance in the areas where it had the largest influence.
Unless otherwise stated percentages quoted represent the operational sales change in comparison to the second quarter of 2019.
And therefore excluded the impact of currency translation.
I will also be providing additional insights using our best estimates on the impacts of covert 19 to our performance in the areas, where it had the largest influence.
Worldwide consumer health sales totaled $3.3 billion declining 3.6% with operational growth in the U.S. of 1.3% and the decline outside the U.S. of 7.4%.
Chris Schott: Worldwide consumer health sales totaled $3.3 billion, declining 3.6%, with operational growth in the U.S. of 1.3% and a decline outside the U.S. of 7.4%. Our consumer health segment realized a negative estimated impact associated with COVID-19 of about 700 basis points. This impact was the result of consumers stocking products during the first quarter and lower consumption due to government lockdowns during the second quarter.
Our consumer health segment realized a negative estimated impact associated with coping 19 of about 700 basis points.
This impact was the result of consumers stocking products during the first quarter and lower consumption due to government lockdowns during the second quarter.
Our year to date growth was 3.6% and normalizes for some of the timing of consumer stocking that occurred in the first quarter.
Chris Schott: Our year-to-date growth was 3.6% and normalizes for some of the timing of consumer stocking that occurred in the first quarter. Excluding the negative impact of COVID-19, our consumer health segment delivered solid performance. We continued strong performance in our USOTC and WorldCare businesses.
Excluding the negative impact of coping 19, or consumer health segment delivered solid performance, but continued strong performance in our U.S. So do you see an oral care businesses.
Over the counter medicines grew globally almost 11%.
Chris Schott: Over-the-counter medicines grew globally by almost 11%, with about 30% growth in the U.S. and a 5% decline outside the U.S. In the U.S., we estimate about two-thirds of the growth was due to the COVID-19 pandemic as we continue to see strong demand and share gains for adult Tylenol. Additional brands driving growth include U.S. Pepsit due to share gains from a competitive withdrawal from the market and continued strong performance of Zarbis Naturals. Outside the U.S., declines were primarily driven by COVID-19 restrictions, most notably in China, partially offset by an increase in anti-smoking consumption. Our oral care franchise was positively impacted by COVID-19.
With about 30% growth in the U.S. kind of 5% decline outside the U.S.
In the U.S., we estimate about two thirds of the growth was due to the covert 19 pandemic as we continue to see strong demand and share gains for adult tylenol.
Additional brands driving growth include U.S. pepcid due to share gains from a competitive withdrawal from the market and continued strong performance. It was arby's naturals.
Outside the U.S. declines were primarily driven by covert 19 restrictions, most notably in China, partially offset by an increase in anti smoking consumption.
Oral care franchise was positively impacted by Cobot 19, as the franchise grew 6.3% from strong demand of adult LISTERINE, primarily in the U.S. across multiple channels.
Chris Schott: As the franchise grew, 6.3% from strong demand for adult Listerine, primarily in the U.S., across multiple channels. Growth outside of the U.S. was also driven by Asia-Pacific from promotional activities and new product launches. The skin health and beauty franchise declined 14.3% and was the franchise that was most negatively impacted by COVID-19 due to changes in consumers' skin health and beauty routines. The U.S. declined by 19.2 percent from reduced consumption of sun care, cosmetics, and facial care products, impacting the Neutrogena and Aveeno brands. Outside the U.S., our skin health and beauty franchise declined by 8.2 percent, primarily due to the COVID-19 impact in Asia Pacific and SKU rationalization initiatives in EMEA. And in our remaining consumer health franchises, Baby Care, Women's Health, and Wound Care Other all declined primarily due to COVID-19. Global baby care declined 11.6% when adjusted to exclude the impact of the baby center divestiture.
Growth outside of the U.S. was also driven by Asia Pacific from promotional activities and new product launches of adult LISTERINE.
The skin health and beauty franchise declined 14.3%.
Was the franchise. It was most negatively impacted by Copel 19, due to changes in consumers skin health and beauty routines.
The U.S. declined by 19.2% from reduced consumption of Sun care cosmetics, and facial care products impacting the neutrogena and the vino brands.
Outside the U.S., our skin health and beauty franchise declined by 8.2% primarily from the covert 19 impact in Asia Pacific and skew rationalization initiatives in a manner.
And on our remaining consumer health franchises baby care Women's health and wound care. Other all declined primarily due to cope with 19.
Global Baby care declined 11.6% when adjusted to exclude the impact of the Baby Center divestiture.
The U.S. grew when you exclude the impact to the Baby Center divestiture, primarily due to increased covert 19 demand.
Chris Schott: The U.S. grew when you excluded the impact of the baby center divestiture, primarily due to increased COVID-19 demand. However, the increased demand in the U.S. was more than offset by the negative impact of COVID-19 outside the U.S., primarily in Asia-Pacific. The slower performance outside the U.S. was also negatively impacted by the skew rationalization program and the lapping of Johnson's restaged launch in EMEA. However, globally, we continue to see strong growth in Aveeno babies.
The covert 19 increased demand in the U.S. was more than offset by the negative impact of Coca 19 outside the U.S.
Similarly in Asia Pacific.
A slower performance outside the U.S. was also negatively impacted by the skew rationalization program and lapping of Johnson's restage launch in AMEA.
Globally, we continue to see strong growth in a vino baby.
Moving onto the pharmaceutical segment.
Chris Schott: Moving on to the pharmaceutical segment. Worldwide pharmaceutical sales of $10.8 billion grew 3.9%, enabled by growth across all regions and in all key therapeutic areas, except for the cardiovascular, metabolism, and other therapeutic areas due primarily to biosimilar competition on Procrete. We realize double-digit growth in eight key products. Sales grew in the U.S. by 5.8% and outside the U.S. by 1.4%.
Worldwide pharmaceutical sales of $10.8 billion grew 3.9% enabled by growth across all regions and in all key therapeutic areas, except for the cardiovascular metabolism and other therapeutic area due primarily to biosimilar competition on Procrit.
We realized double digit growth and he products.
Sales grew in the U.S. by 5.8% and outside the U.S. by 1.4%.
Our growth in the quarter was negatively impacted by cobot 19, driven by delayed diagnosis and slower new patient starts due to office closures and access to physician administered drugs as well as the phasing impact of stocking in the first quarter.
Chris Schott: Our growth in the quarter was negatively impacted by COVID-19, driven by delayed diagnosis and slower new patient starts due to office closures and access to physician-administered drugs, as well as the phasing impact of stocking in the first quarter. The products most impacted by COVID-19 were Darzalex, Imbruvica, Stelara, Tremfya, Invegas-Astana, and our Pul And we estimate the impact on these products to be worth roughly 300 to 350 basis points to our worldwide pharmaceutical growth. Despite this impact, global operational growth for the first half of the year was strong at 7%, which remains above expected market growth.
The products most impacted by Cobot 19 were Darzalex Imbruvica stelara from fire Invega, Sustenna and our pulmonary hypertension portfolio and we estimate the impact on these products to be worth roughly 300 to 350 basis points to our worldwide pharmaceutical growth.
Despite this impact global operational growth for the first half a year is strong at 7%, which remains above expected market growth.
Well not significant in total our second quarter results did include favorable prior period pricing adjustments in the U.S. So is there also and invokana, partially offset by a negative adjustment to stelara.
Chris Schott: While not significant in total, our second quarter results did include favorable prior-period pricing adjustments in the U.S. for Xarelto and Invicana, partially offset by a negative adjustment to Stelara. Our oncology portfolio delivered another strong quarter with worldwide growth of 5.7%. Our prior year results included a favorable one-time adjustment for Darzalex related to the completion of pricing and reimbursement discussions in certain European countries. Excluding this impact, growth for the total oncology portfolio was about 9% for the quarter, or 15% on a year-to-date basis. Darzalex continued its strong performance, growing 18.8% globally.
Our oncology portfolio delivered another strong quarter with worldwide growth of 5.7%.
Our prior year results included a favorable onetime adjustment for darzalex related to the completion of pricing and reimbursement discussions in certain European countries. Excluding this impact growth for the total oncology portfolio was about 9% for the quarter were 15% on a year to date basis.
Darzalex continued its strong performance growing 18.8% globally.
Excluding the previously mentioned onetime adjustment worldwide growth was about 33%.
Chris Schott: Excluding the previously mentioned one-time adjustment, worldwide growth was about 33%, and excluding the negative impact of COVID-19, we estimate that Darzalex growth would have been more in line with previous quarters. The U.S. grew 32.9%, with strong growth across all lines of therapy, driven by the new frontline indications for multiple myeloma.
And excluding the negative impact of coated 19, we estimate the darzalex growth would have been more in line with previous quarters.
The U.S. grew 32.9% with strong growth across all lines of therapy.
Driven by the new frontline indications for multiple myeloma.
During the quarter, we've lost a subcutaneous formulation in the U.S. and Europe.
Chris Schott: During the quarter, we launched a subcutaneous formulation in the U.S. and Europe and an Innovative Fixed-Dose Formulation, which can be administered in three to five minutes and offers a clinically meaningful reduction in infusion and administration-related reactions. We are pleased with the uptake of this new product and the benefit it provides to our patients and healthcare providers. Imbruvica grew 17% 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. While negatively impacted by delayed diagnosis and the reversal of Q1 stocking related to COVID-19 in the quarter, Imbruvica growth year-to-date is strong at over 25% as Imbruvica remains the best-in-class BTK inhibitor and is the new and total patient share leader in CLL line 1, CLL line 2+, and MCL line 2+.
And innovative fixed dose formulation, which can be administered in three to five minutes and offers a clinically meaningful reduction in infusion and administration related reactions.
We're pleased with the uptake of this new product and the benefit it provides to our patience and health care providers.
Imbruvica grew 17% 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.
Well negatively impacted by delayed diagnosis and the reversal of Q1 stocking related to covert 19 in the quarter.
Imbruvica growth year to date is strong at over 25% as Imbruvica remains the best in class BTK inhibitor and is the new and total patient share leader in CLL line, one CLL wanting to plus and mcl wanting to plus.
Early that continued its strong launch trajectory with sales more than doubling versus prior year.
Chris Schott: Erleada continued its strong launch trajectory with sales more than doubling versus the prior year. During the quarter, we presented results at the annual ASCO conference from the final analysis of the pivotal Phase III Spartan study, demonstrating that Erleada significantly improved overall survival in patients with non-metastatic castration-resistant prostate cancer. Slightly offsetting these results were declines in Zytiga and Velcade, primarily due to generic competition. Moving now to immunology.
During the quarter, we presented results at the annual ASCO conference from the final analysis of the pivotal phase three Spartan study demonstrating that our lead us significantly improved overall survival in patients with non metastatic castration resistant prostate cancer.
Slightly offsetting these results were declines is I tiga and Velcade, primarily due to generic competition.
Moving now the immunology globally sales grew 3% in the second quarter, driven by strong double digit performance of Stelara and term fire.
Chris Schott: Globally, sales grew 3% in the second quarter, driven by the strong double-digit performance of Stelara and Tremfya. Internationally, sales grew double digits at 11%, offsetting a slight decline in the U.S. of under 1%. Second quarter growth for our immunology portfolio, as well as the overall market, was impacted by COVID-19, related delayed diagnosis, access, and the impact of first quarter stock. Year-to-date immunology growth is 7.9% worldwide and U.S. growth is 5.1%. Stelara growth of about 10% was driven by continued share gains in Crohn's disease with about a 7-point share increase in the U.S. and growth from the recently Solar growth was negatively impacted by a prior-period price adjustment impacting growth by over 250 basis points globally and was negatively impacted by COVID-19.
Internationally sales grew double digits at 11% offsetting a slight decline in the U.S. of under 1%.
Second quarter growth for our immunology portfolio as well the overall market was impacted by covert 19 related delayed diagnosis access and the impact of first quarter stocking.
Year to date immunology growth is 7.9% worldwide and U.S. growth is 5.1%.
So our growth of about 10% was driven by continued share gains in crohns disease with about a seven point share increase in the U.S. and growth from the recently approved ulcerative colitis indication.
So our growth has negatively impacted by your prior period price adjustment impacting growth by over 250 basis points globally and was negatively impacted by covert 19.
On a year to date basis still our growth remained strong at about 20% globally.
Chris Schott: On a year-to-date basis, Stelara growth remains strong at about 20% globally. Tremfya, the first-in-class, market-leading IL-23 inhibitor therapy, grew 46% globally and achieved roughly a 10% share of the psoriasis market in the U.S., which is up about three points from the second quarter of 2019. We are excited to share that Tremfya received FDA approval earlier this week for adult patients with active psoriatic arthritis.
From five to the first in class market, leading I, all 23 inhibitor therapy grew 46% globally and achieve roughly a 10% share the psoriasis market in the U.S., which is up about three points from the second quarter of 2019.
We're excited to share the term fire received FDA approval earlier this week for adult patients with active sorry attic arthritis.
Sales growth was partially offset by continued erosion of remicade of about 14% from share loss due to alternative mechanisms of action and bio similars.
Chris Schott: Sales growth was partially offset by continued erosion of Remicade of about 14% due to share loss due to alternative mechanisms of action and biosimilars. In neuroscience, our paliperidone long-acting portfolio performed well, growing almost 9%, led by double-digit U.S. growth of 13.8% due to market growth in the U.S., along with share gains for Invega Sustana and Invega Trinza. We continue to progress the launch of Spravato where the unmet need remains high.
In newer science, our pallet paradigm long acting portfolio performed well growing almost 9% led by double digit U.S. growth of 13.8% due to market growth in the U.S., along with share gains for Invega Sustenna and Invega Trinza.
We continue to progress the largest bravado, where the unmet need remains high.
It infectious diseases, our portfolio grew 4.7% led by strong growth of some tusa and Toluca for HIV, partially offset by cannibalization and increase generic competition and other products.
Chris Schott: In infectious diseases, our portfolio grew 4.7%, led by strong growth of Somtuza and Jaluka for HIV, partially offset by cannibalization and increased generic competition in other products. Our total pulmonary hypertension portfolio posted double-digit growth of 15%, driven by strong growth of Opsumet and Uptravi of 17.6% and 39.5%, respectively, driven by increased market penetration and share growth. I'll now turn your attention to the medical devices segment.
Our total pulmonary hypertension portfolio posted double digit growth a 15%.
Driven by strong growth of up summit, and Uptravi of 17.6% and 39.5%, respectively, driven by increased market penetration and share growth.
I'll now turn your attention to the medical devices segment.
Worldwide medical devices sales were $4.3 billion declining by 32.7% due to the negative impact of coated 19, restricting elective procedures across all regions.
Chris Schott: Worldwide medical devices sales were $4.3 billion, declining by 32.7% due to the negative impact of COVID-19 restricting elective procedures across all regions. Sales declined in the U.S. by 39.6% and declined 26.4% outside the U.S. Given the negative impact of COVID-19 across all platforms, my commentary will focus on key trends in each platform.
Sales declined in the U.S. by 39.6% and declining 26.4% outside the U.S.
Given the negative impact of covert 19 across all platforms. My commentary will focus on key trends in each platform.
As expected our Q2 results included one additional selling day versus prior year positively impacting results by about 50 basis points.
Chris Schott: As expected, our Q2 results included one additional selling day versus the prior year, positively impacting results by about 50 basis points. We expect a minor benefit in Q3 from selling days. Interventional solutions declined by 20.5% globally, with a U.S. decline of 30.5% and an O.U.S. decline of 10.9%. Interventional solutions saw improvement throughout the quarter, returning to growth in June at almost 3%. China had a particularly strong recovery, growing double digits in the quarter. The U.S. returned to growth in June, led by electrophysiology performance.
We expect a minor benefit in Q3 from selling days.
Interventional solutions declined by 20.5% globally with the U.S. decline of 30.5% and Oh U.S. decline of 10.9%.
Interventional solutions saw improvement throughout the quarter returning to growth in June at almost 3%.
China had a particularly strong recovery growing double digits in the quarter.
The U.S. returned to growth in June led by Electrophysiologist performance.
Procedures in Electrophysiologist over the last two weeks of the month averaged 91% of pre cove at levels across the U.S. with the northeast part of the country recovering at the slowest rate primarily due to the New York City Metro area.
Chris Schott: Procedures in electrophysiology over the last two weeks of the month averaged 91% of pre-COVID levels across the U.S., with the northeast part of the country recovering at the slowest rate, primarily due to the New York City metro area. Orthopedics declined by 33.9 percent in the quarter due to market declines from restrictions on deferrable procedures and reductions in general activity such as travel and recreation that negatively impacted trauma. The U.S. saw the largest recovery of all regions, with June declining less than 8% versus prior year, as U.S. HIPs grew in high single digits and U.S. trauma was flat. Knees and spine also showed improvement globally throughout the quarter, with June declines of around 21% and 15%, respectively. For the quarter, U.S. pure price improved slightly versus previous quarters across all platforms. Moving on to the results for the surgery business,
Orthopedics declined by 33.9% in the quarter due to market declines from restrictions on deferrable procedures and reductions in general activity, such as travel and recreation that negatively impacted trauma.
The U.S. saw the largest recovery of all regions with June declining less than 8% versus prior year as U.S. hips grew high single digits and U.S. trauma was flat.
Knees in spine also showed improvement globally throughout the quarter with June declines of around 21% and 15% respectively.
For the quarter U.S. pure price improved slightly versus previous quarters across all platforms.
Moving to the results for the surgery business advanced surgery declined by 22.9% with worldwide energy and Endocutters declining about 27% for the quarter and less than 20% in the month of June.
Chris Schott: Advanced surgery declined by 22.9%, with worldwide energy and endocutters declining about 27% for the quarter and less than 20% in the month of June. Biosurgery declined less than 13% in Q2, as results were positively impacted by almost 9 points due to the recovery from the Surgiflow stop shipment in Q2 2019. However, biosurgery returned to growth in the month of June, led by the U.S. and Asia-Pacific.
Biosurgery declined less than 13% in Q2 as results were positively impacted by almost nine points due to the recovery from the surgeon flow stop shipment in Q2 2019.
I have started to return to growth in the month of June led by the U.S. and Asia Pacific.
General surgery declined 39.5%.
Chris Schott: General Surgery declined 39.5%. In addition to the negative impact of COVID-19, global sales were negatively impacted by 10 points due to an unfavorable prior period pricing adjustment in the U.S. The impact was primarily related to COVID-19 providing enhanced insight into the level and mix of inventory in our distributor channel, resulting in the need to increase our reserves. Wound closure declined almost 28% for the quarter, with June declining 17%. Vision declined by 39.3% in total, with contact lenses declining 33.6% and surgical declined 55.2%. Contact lenses were negatively impacted by COVID-19, which resulted in fewer new wearers entering the category due to the shutdown of optical stores and lower consumption for existing wearers as people spent more time at home. The e-commerce channel, which primarily serves existing wearers, is estimated to have a slight decline versus the second quarter of the prior year, representing significant outperformance compared to other channels. Contact lens performance is recovering overall as geographies start to open back up, with June declining approximately 26% versus the prior year.
In addition to the negative impact of Cobot 19, global sales were negatively impacted by 10 points due to an unfavorable prior period pricing adjustment in the U.S.
The impact was primarily related to covert 19, providing enhanced insight into the level and mix of inventory in our distributor channel, resulting in the need to increase our reserves.
Wound closure declined almost 28% for the quarter with June declining 17%.
Vision declined by 39.3% in total with contact lenses declining 33.6% in surgical declining 55.2%.
Contact lenses was negatively impacted by Copel 19, which resulted in less new wearers entering the category due to the shutdown of optical stores and lower consumption for existing wears as people spent more time at home.
The E Commerce channel, which primarily serves existing wears is estimated to have a slight decline versus the second quarter of prior year, representing significant outperformance compared to other channels.
Contact lens performance is recovering overall as geography start to open back up with June declining approximately 26% versus prior year.
I will now provide some commentary on our earnings for the quarter.
Chris Schott: I will now provide some commentary on our earnings for the quarter. Regarding our consolidated statement of earnings for the second quarter of 2020, please direct your attention to the box section at the bottom of the schedule. You will see that we have provided our earnings adjusted to exclude intangible amortization expense and special items. As reported this morning, our adjusted EPS of $1.67 reflects a reported decline of 35.3% and an operational decline of 34.5%. 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 decreased, primarily driven by COVID-19 period costs and fixed cost de-leveraging in the medical devices business. Selling, marketing, and administrative margins declined, driven by the negative impact of medical device sales partially offset by favorable segment mix. Expense Leveraging in the Pharmaceutical Business Optimized Brand Marketing Expenditures in the Consumer Health Business. We continue to invest in research and development at competitive levels.
Regarding our consolidated statement of earnings for the second quarter of 2020. 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 $1.67 cents reflects that reported decline a 35.3%.
On an operational decline of 34.5%.
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 leveraged primarily driven by Copel 19 period costs and fixed cost deleveraging in the medical devices business.
Selling marketing and administrative margins declined driven by the negative impact of medical device sales, partially offset by favorable segment mix expense leveraging in the pharmaceutical business and optimize brand marketing expenditures in the consumer health business.
We continue to invest in research and development a competitive levels investing 14.8% of sales this quarter.
Chris Schott: Investing 14.8% of sales this quarter, this was higher than the second quarter, 2019, by 180 basis points, driven by the negative COVID-19 impact on medical device sales and segment MEC. The other income and expense line showed a net expense of $24 million in the second quarter of 2020 compared to a net income of $1.7 billion last year. This was primarily driven by the ASP divestiture gain of $2 billion in the second quarter of 2019. Regarding taxes in the quarter, our effective tax rate declined from 20.4% in the second quarter of 2019 to 8% in the second quarter of 2020 as a result of recording additional adjustments to the transitional provision of Swiss tax, which benefited the rate by approximately 7.5 points. We expect no further adjustments to the transitional provisions of Swiss tax reform and 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 16.7% vs. 19.3% in the same period last year, primarily driven by Swiss tax reform adjustments.
This was higher than the second quarter 2019 by 180 basis points driven by the negative covert 19 impact on medical device sales and segment mix.
The other income and expense line showed net expense of 24 million in the second quarter of 2020 compared to the net income of $1.7 billion last year.
This was primarily driven by the ASP divestiture gain of $2 billion in the second quarter of 2019.
Regarding taxes in the quarter, our effective tax rate declined from 20.4% in the second quarter of 2019% to 8% in the second quarter of 2020 as a result of recording additional adjustments to the transitional provision of Swiss tax, which benefited the rate by approximately seven point.
Five points.
We expect no further adjustments to the transitional provisions of Swiss tax reform and 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 16.7% versus 19.3% in the same period last year, primarily driven by Swiss tax reform adjustments.
Let's now look at adjusted income before tax by segment.
Chris Schott: Let's now look at adjusted income before tax by segment. In the second quarter of 2020, adjusted income before tax for the enterprise declined versus the second quarter of 2019 by 29.1%. Looking at the adjusted pre-tax income by segment, pharmaceutical margins improved by 250 basis points to 44.1%, primarily driven by favorable product mix and Selling and Marketing Expense Leveraging. Medical devices declined to 1.2%, driven by COVID-19 impacts on the business, including significant sales declines coupled with continued overhead costs and idle manufacturing expenses. Additionally, 2019 results included a gain of approximately $2 billion related to the divestiture of the ASP business. Consumer margins improved by 310 basis points to 24%, driven by planned prioritization and optimization of brand marketing expenses. That concludes the sales and P&L highlights for Johnson & Johnson for second quarter 2020. I'm now pleased to turn the call over to Paul.
In the second quarter of 2020 adjusted income before tax for the enterprise declined versus the second quarter of 2019% to 29.1%.
Looking at the adjusted pre tax income by segment.
Pharmaceutical margins improved by 250 basis points to 44.1%, primarily driven by favorable product mix and selling and marketing expense leveraging.
Medical devices declined to 1.2% driven by covert 19 impacts on the business, including significant sales declines coupled with continued overhead cost and idle manufacturing expenses.
Additionally, 2019 results included the gain of approximately $2 billion related to the divestiture of the ASP business.
Consumer margins improved by 310 basis points to 24% driven by plan prioritization and optimization of brand marketing expenses.
That concludes the sales and Pino highlights for Johnson and Johnson second quarter 2020, I'm now pleased to turn the call over to Paul.
Thank you Chris Good morning, everyone I'm pleased to provide an update on our vaccine program, particularly our progress on the development of a corporate 19 vaccine.
Paul Stoffels: Thank you, Chris, and good morning everyone. I am pleased to provide an update on our vaccine program, particularly our progress in the development of a COVID-19 vaccine. As you know, we announced our lead COVID-19 vaccine candidate on March 30th, and since then, we have made significant progress. We have seen strong preclinical data so far, which were published in the journal Science in May. These data validated the preclinical vaccine challenge model and showed that the prototype DNA vaccine... was able to create strong immunity. Based on these data, in interactions with regulatory authorities, we were able to accelerate the clinical development program of our COVID-19 vaccine candidate. Since then, we have initiated a study of a final Ad26 vaccine candidate in non-human primate challenge models.
As you know we announced their lead corporate 19 vaccine candidate on March stuff you.
And since then we've made significant progress.
We have seen strong preclinical data so far which were published in the journal finds in May.
These days that validates the preclinical vaccine challenge model and showed the propane DNA vaccines were able to create strong immunity.
Based on these data and interactions with regulatory authorities, we were able to accelerate the clinical development program, although corporate banking vaccine candidate.
Since then we have initiated the study of a final occupancy six vaccine candidate in non human Primate Challenge model.
These results will be published in a major scientific journal in the coming weeks.
Paul Stoffels: These results will be published in a major scientific journal in the coming weeks. Based on this total package of results, we are very comfortable moving forward with Phase I-IIa studies later this month. This represents an acceleration of our timeline from our original date of September to the end of July. These studies will establish both the safety and immunogenicity of a vaccine candidate, as well as evaluate the single dose and the booster dose regimen. The trials will be conducted in more than 1,000 healthy adults aged 18 to 55 years, as well as adults aged 65 years and older. Our study sites are located in the U.S. and Belgium.
Based on disposable pockets of results, we're very comfortable moving forward with phase one through eight studies later this month.
This represents an acceleration of our fine wine from our original date of September through the end of July.
These studies will establish both the safety and Immunogenicity of our vaccine candidate as well as evaluate the single dose and the booster dose regimen.
The trials will be conducted the more than thousand healthy adults, aged 18 to 55 years as well as adults, aged 65 years and old.
Our study sites are located in the U.S in Belgium. We're also planning for a phase two study in the Netherlands, Spain, and Germany and plan to conduct the phase one study in Japan.
Paul Stoffels: We are also planning a Phase II study in the Netherlands, Spain, and Germany and plan to conduct a Phase I study in Japan. We anticipate the initiation of the trial on July 22nd in Belgium and the following week in the U.S. We are also in discussions with the National Institute of Health with the objective to start the Phase 3 clinical trial ahead of its original schedule, potentially in late September, to evaluate the effectiveness of our vaccine. We are using epidemiological data to predict and plan where our studies should take place.
We anticipate the initiation of the trial on July 20 seconds in Belgium, and following week in the U.S.
We're also in discussions with the National Institute of well with the objective to spark the phase three clinical trial ahead of its original schedule potentially in late September to evaluate the effectiveness of our vaccine.
We are using immunological data to predict.
Wherever studies should take place.
We also announced that the parallel with the clinical development, we are working to expand with global manufacturing capacity to be able to deliver more than 1 billion doses of our corporate 19 vaccine by the end of Twentytwenty while.
Paul Stoffels: We also announced that in parallel with clinical development, we are working to expand our global manufacturing capacity to be able to deliver more than 1 billion doses of our COVID-19 vaccine by the end of 2021. We have made excellent progress on this front as well. In addition to building out our internal manufacturing capabilities, we entered into collaborations with Emergent BioSolutions and Catalang Biologics and others to support commercial manufacturing of the vaccine. As you have heard me say previously, our COVID-19 vaccine program is leveraging Janssen's adenovector technology, which provides the ability to rapidly develop new vaccine candidates. The same technology was used to construct our HIV, RSV, and Zika vaccine candidates and to develop our Ebola vaccine regimen. We have just received a marketing authorization from the European Commission for the Prevention of Ebola Virus Disease.
We have made excellent progress on this front last fall.
In addition to building out our internal manufacturing capabilities, we entered into collaborations with emergent biosolutions and capital on biologics and others to support commercial manufacturing of the vaccine.
As you have heard me say previously our corporate 19 vaccine program is leveraging Yonathan Adenovector technology that provides the ability to a topic lead developed new vaccine candidates.
The same technology was used to construct our HIV RSV and Zika vaccine candidates and to develop on any ballpark seen right from wrong. We just received marketing authorization from the European Commission for the prevention of Ebola virus disease.
The.
Paul Stoffels: The EMA approval is the culmination of work that began in response to the West Africa Ebola epidemic in 2014. Achieving major regulatory approval in this time frame is a tremendous accomplishment. The approval marks the first major regulatory approval of a vaccine developed by Janssen, confirming the potential of radinovector technology. To date, more than 80,000 people have been vaccinated using this vaccine technology. As we have previously shared, we are also working on an HIV vaccine and are pleased to report that we have reached an important milestone. Earlier this month, our Imbokodo trial, taking place across sub-Saharan Africa, reached an important milestone with all people having completed all-study vaccination despite difficult COVID-19 circumstances, and we expect the outcomes of this study in the next two years.
Approval is the combination of work that we gone into this falls to the West Africa bullet epidemic in 2014.
Achieving major regulatory approval in this timeframe is a tremendous accomplishment.
The approval marks the first major regulatory approval of a vaccine developed by Yonathan confirming the potential of our de Novo Pic technology.
Today more than 80000 people have been vaccinated using this vaccine technology.
As we have previously shared we are also working on HIV vaccine and are pleased to report that we have reached an important milestone.
Earlier this month in book, although trial, taking place across sub Saharan Africa reached an important milestone with all people having completed all the vaccination despite difficult corporate 19 circumstances.
And we expect the outcomes of this study in the next two years.
Together with our partners at the NIH and the Gates Foundation, we now have the most advanced HIV candidate in clinical development.
Paul Stoffels: Together with our partners at the NIH and the Gates Foundation, we now have the most advanced HIV candidate in clinical development. These recent milestones strengthen our confidence in our vaccine technology. The work we are doing today to help address the COVID-19 pandemic builds on more than 130 years of Johnson & Johnson's leadership in public health. We believe we have a responsibility to step in and invest in solutions for global public health crises and are proud to be contributing to the global response to COVID-19. Our efforts to expedite the development of a COVID-19 vaccine and to identify potential treatments are enhanced by multiple collaborations with government Thank you. Joe, I will now turn it over to you.
These recent milestones trunk than our confidence in our vaccine technology.
The work we are doing today to help address the corporate 19 pandemic built on more than 130 years of Jones than Johnson's leadership in public health.
We believe we have a responsibility to step in and invest in solutions for global public health crisis, and thought process to be contribution to the global response to covert 19.
Our efforts to expedite the development of a corporate 19 vaccine and the to identify potential treatments are enhanced by multiple collaborations with Kaufman academia health authorities and all this worldwide and we are working with them to ensure the broadest possible access to people around the world. Thank you Joe I will now turn.
It over to you.
Thank you Paul not only for that encouraging update but to you and your team for leading the rapid and responsible advancement of our cobot 19 vaccine candidate. It is one of many actions that illustrate how Johnson and Johnson is deploying our range of capabilities to tackle the coven 19 endemic as we aspire to do across health care for patients and consumers who.
Joseph J. Wolk: Thank you, Paul, not only for that encouraging update but for leading the rapid and responsible advancement of our COVID-19 vaccine candidate. It is one of many actions that illustrate how Johnson & Johnson is deploying our range of capabilities to tackle the COVID-19 pandemic, as we aspire to do across healthcare for patients and consumers who count on us each and every day. Good morning, everyone, and thank you for joining us today.
Count on us each and every day.
Good morning, everyone and thank you for joining us today I hope you and those close to you continued to be safe and healthy.
Joseph J. Wolk: I hope you and those close to you continue to be safe and healthy. While the second quarter was strong relative to expectations, the main message my colleagues and I want you to take away from today's call is that the long-term fundamentals of Johnson & Johnson's business remain strong, and our expectations of where the business is heading have not changed. An indicator of that strength is our balance sheet, so let me briefly touch upon our cash position and capital allocation thoughts before getting into guidance commentary. We ended the quarter in a net debt position of $11 billion, made up of cash and cash equivalents of $19 billion and debt of $30 billion.
While the second quarter was strong relative to expectations. The main message my colleagues and I want you to take away from today's call is that the long term fundamentals of Johnson <unk> Johnson's business remains strong and our expectations of where the businesses heading have not changed.
An indicator of that strength is our balance sheet. So let me briefly touch upon our cash position and capital allocation thoughts before getting into guidance commentary.
We ended the quarter in a net debt position of $11 billion made up of cash and cash equivalents of $19 billion and debt of $30 billion. We did issue commercial paper in the quarter for additional liquidity at favorable interest rates commensurate with our financial strength.
Joseph J. Wolk: We did issue commercial paper in the quarter for additional liquidity at favorable interest rates commensurate with our financial strength. However, our long-term capital allocation strategy remains intact. We'll continue to prioritize investing in innovation, returning capital to shareholders by paying dividends and increasing them annually, as we have done for 58 years, and then capitalizing on strategic acquisition opportunities that fortify our existing portfolio while simultaneously compensating shareholders for the risks we bear on their behalf. Earlier, Chris provided specific commentary related to COVID-19 impacts that our business experienced in the second quarter. I will now provide some industry context regarding the COVID-19 pandemic and what that may mean to our business going forward. With respect to the healthcare industry, we are encouraged to see many procedures starting to return versus what we saw in the back half of the first quarter across the globe. For example, according to IQVIA, office visits are down approximately 10-15% as of late June compared to the earlier stages of the pandemic in mid-April when they were down almost 70%. So, still down, but showing improvement.
Our long term capital allocation strategy remains intact, we will continue to prioritize investing in innovation, returning capital to shareholders by paying dividends and increasing them annually as we have done for 58 years, and then capitalizing on strategic acquisition opportunities that fortify our existing portfolio while simultaneously.
Compensating shareholders for the risks we bear on their behalf.
Earlier, Chris provided specific commentary related to covert 19 impacts that our business experienced in the second quarter I will now provide some industry context regarding the cobot 19 pandemic and what that May mean to our business going forward.
With respect to the health care industry, we are encouraged to see many procedures starting to return versus what we saw in the back half of the first quarter across the globe.
For example, according to like here the office visits are down approximately 10% to 15% as of late June compared to the earlier stages. Other pandemic in mid April when office visits were down almost 70%.
So still down but showing improvement.
This is an indicator for a pharmaceutical and medical device segments.
Joseph J. Wolk: This is an indicator for the pharmaceutical and medical device segment. Johnson & Johnson is developing programs to alleviate patient concerns related to elective surgeries and procedures, as well as helping the overall industry treat patients with new public education materials and resources that increase patient confidence and inspire people to prioritize their health. In the consumer, based on U.S. Nielsen data, we saw the categories we compete in decline in April by 10%.
Johnson and Johnson is developing programs to alleviate patient concerns related to elective surgeries and procedures as well as helping the overall industry treat patients with new public education materials in resources that increased patient confidence and inspire people to prioritize their health.
In consumer based on Us Nielsen data, we saw the categories. We compete in decline in April by 10%.
However June data suggest those categories declined, but with an improving trend falling just 2% to 3%.
Joseph J. Wolk: However, June data suggests those categories declined, but with an improving trend falling just 2 to 3%. With that high-level backdrop, I will now update you on how we are thinking about performance for the balance of 2020. Our objective with guidance, as always, is to transparently provide information that is useful for you, identifying key assumptions and highlighting factors less clear that may influence our current full-year outlook. Similar to our guidance update in April, it is important to caveat that the impact of the pandemic is very fluid and likely to continue evolving over the coming weeks and months. As such, our perspective relies upon numerous internal and external sources to help inform financial projections related to our near-term outlook. What does that include?
With that high level backdrop, I will now I'll update you on how we're thinking about performance for the balance of 2020.
Our objective with guidance as always is to transparently provide information that is useful for you identifying key assumptions and highlighting factors less clear that may influence our current full year outlook.
Similar to our guidance update in April it is important to caveat that the impact of the pandemic is very fluid and likely to continue evolving over the coming weeks and months.
As such our prospective relies upon numerous internal and external sources to help inform financial projections related to our near term outlook.
What does that include.
Our assumptions consider external expert assessments related to the macro impact of cobot 19, and potential negative consequences. It may have on the overall health care system on the number of insured individuals and evolving consumer and patient spending in addition to the frame of mind related to health care behavior when it comes to.
Joseph J. Wolk: Our assumptions consider external expert assessments related to the macro impact of COVID-19 and potential negative consequences it may have on the overall healthcare system, on the number of insured individuals, and evolving consumer and patient spending, in addition to the mindset related to healthcare behavior when it comes to, for instance, elective procedures and office visits. We are also relying on numerous conversations that Alex, Ashley, and our medical device leaders are having with hospital system administrators and surgeons related to capacity, preparedness for potential spikes of the virus, the improvements that have been implemented to treat COVID-19 patients, and the economics of their institutions. Lastly, we review extensive analytics on our business that account for individual weekly hospital trends. Taking these quantitative and qualitative factors into account, let's dive into our updated 2020 guidance, beginning with our pharmaceutical business. Our expectations for our pharmaceutical business remain unchanged.
So for instance, elective procedures and office visits.
We're also relying on numerous conversations that Alex actually in our medical device leaders are having with hospital system administrators and surgeons related to capacity that preparedness for potential spikes of the virus. The improvements that have been implemented to treat cobot 19 patients and the economics of their institutions.
Lastly, we review extensive analytics on our business that account for individual weekly hospital trends.
Taking these quantitative and qualitative factors into account, let's delve into our updated 2020 guidance beginning with our pharmaceutical business.
Our expectations for our pharmaceutical business remain unchanged in Q2, we did experience reduced patient interactions with health care providers, which impacted new patient starts and lower activity for physician administered drugs, but we are seeing improvement in recent weeks for those areas.
Joseph J. Wolk: In Q2, we did experience reduced patient interactions with healthcare providers, which impacted new patient starts and lower activity for physician-administered drugs, but we are seeing improvement in recent weeks for those areas. As you recall, Q1 was very strong, with a modest piece of that strength attributable to pharmacy providers offering longer prescription durations, which slightly impacted Q2 results negatively. All in all, the strength of our pharmaceutical portfolio that addresses significant patient needs gives us confidence to expect above-market growth in 2020 once again in regard to our consumer health segment. Here, too, we see no changes to the expectations we had at the beginning of the year.
You May recall Q1 was very strong with a modest piece of that strength attributable to pharmacy providers offering longer prescription durations, which slightly impacted Q2 results negatively all in all the strength of our pharmaceutical portfolio that addresses significant patient need gives us confidence to expect above mark.
But growth in Twentytwenty once again.
Regarding our consumer health segment.
Here too we see no changes to the expectations, we had at the beginning of the year, we're off to a fast start in over the counter medicines and oral care with those franchises growing year to date two to three times versus what we grew in 2019, reflecting some increased cobot 19 demand.
Joseph J. Wolk: We are off to a fast start in over-the-counter medicines and oral care, with those franchises growing year-to-date two to three times versus what we grew in 2019, reflecting some increased COVID-19 demand. However, as Chris shared, that growth is partially offset by results in other categories, namely skin health and beauty, primarily due to COVID-19. We are proceeding as planned with the SKU Rationalization Program mentioned in January to improve future operating margins.
As Chris shared that growth is partially offset by results in other categories, namely skin health beauty, primarily due to covert 19.
We are proceeding as planned with the SKU rationalization program mentioned in January to improve future operating margins.
Shifting to medical devices changes from the guidance we offered in April our driven by what we have learned since then and similar to the first quarter. These assumptions are the most ambiguous at this time.
Joseph J. Wolk: Shifting to medical devices, changes from the guidance we offered in April are driven by what we have learned since then, and similar to the first quarter, these assumptions are the most ambiguous at this time. As expected, the medical device industry continues to experience near-term negative impacts while elective procedures are deferred and hospital resources are redeployed to address COVID-19. We assumed the most significant negative impact on medical devices would occur in the second quarter. That is still our expectation. In April, based on data available at the time, we assumed a weighted average decline across all markets and all procedures in the second quarter of 40% to 60% versus our original expectations to start the year. As you can see on this slide, total medical devices performed better than that assumption as economies around the world began opening sooner than anticipated, but they were still down approximately 35% in the quarter. Importantly, we are encouraged by the improvement we saw in each month in the second quarter, with the month of June being the least down by approximately 25% versus our original expectation. Not surprisingly, urgent procedures declined at a lesser rate than procedures considered deferrable.
As expected the medical device industry continues to experience near term negative impacts while elective procedures are deferred and hospital resources are redeployed to address cobot 19.
We assume the most significant negative impact to medical devices would occur in the second quarter that is still our expectation.
In April based on data available at the time, we assumed a weighted average decline across all markets and all procedures in the second quarter of 40% to 60% versus our original expectations to start the year.
As you can see on this slide total medical devices performed better than that assumption as economies around the world began opening sooner than anticipated, but was still down approximately 35% in the quarter.
Importantly, we are encouraged by the improvement we saw in each month in the second quarter with the month of June being down the least at approximately 25% versus our original expectations.
Not surprisingly urgent procedures declined at a lesser rate than procedures consider deferrable.
As we think about the remainder of 2020 the ramp up the recovery is the most difficult variable to estimate.
Joseph J. Wolk: As we think about the remainder of 2020, the ramp-up to recovery is the most difficult variable to estimate. When we provided guidance in April, we expected the impact of COVID-19 in medical devices to linger throughout Q2 and Q3, with a recovery in Q4. However, as just noted, we experienced a faster recovery than anticipated, and thus the backlog of patients we originally predicted in Q4 as a result of pent-up demand is now presumed to occur earlier in the year. Additionally, given China was the first country impacted and Japan and Korea were seeing early success in containing the virus, we bucketed these three markets together when providing guidance in April. As you can see, China has been the first market to recover and return to double-digit growth versus the prior year in Q2.
When we provided guidance in April we expected the impact of covert 19 in medical devices to linger throughout Q2, and Q3 with a recovery in Q4.
However, as just noted we experienced a faster recovery than anticipated and that's the backlog of patients. We originally predicted in Q4 as a result of pent up demand is now presumed to occur earlier in the year.
Additionally, given China was the first country impacted in Japan, and Korea, we're seeing early success and containing the virus. We bucketed. These three markets together when providing guidance in April.
As you can see China has been the first market to recover and returned to double digit growth versus prior year. In Q2, However, Japan and Korea saw new cases rise early in the quarter and implement that restrictions, resulting in declines consistent with the rest of total medical devices.
Joseph J. Wolk: However, Japan and Korea saw new cases rise early in the quarter and implemented restrictions resulting in declines consistent with the rest of total medical devices. Similarly, the bucket of countries we defined as major markets saw some countries like Germany outperforming our overall medical devices business, whereas other markets, such as the U.S., declined 40% versus our original expectations to start the year. Clearly, the countries bucketed together in our April framework are performing differently from each other and are no longer the best representation of how our business will perform going forward. Additionally, the dynamics within a country can be very different across communities.
Similarly, the bucket of countries, we defined as major markets saw some countries like Germany outperforming our overall medical devices business, whereas other markets such as the U.S. declined 40% versus our original expectations to start the year.
Clearly the country's bucketed together in our April framework are performing differently from each other and therefore are no longer the best representation of how our business will perform going forward.
Additionally, the dynamics within a country can be very different across communities.
Our evolving detailed procedural model allows us to forecast at a granular level within each country as such we're not relying on the previous regionally based buckets and instead of providing our expectations for Q3 in Q4 for total medical devices to provide visibility to the impact in a simplified manner.
Joseph J. Wolk: Our evolving, detailed procedural model allows us to forecast at a granular level within each country. As such, we are not relying on the previous regionally-based buckets and instead are providing our expectations for Q3 and Q4 for total medical devices to provide visibility for the impact in a simplified manner. In Q3, we now expect a decline of 10% to 25% versus our original expectations to start the year, a smaller decline than we incorporated in our April guidance. In Q4, we are now assuming a decline of 15% to 0%, consistent with my remarks from a moment ago where the pent-up demand we were anticipating largely occurs throughout quarters 2 and 3.
In Q3, we now expect a decline of 10% to 25% versus our original expectations to start the year, a smaller decline than we incorporated in our April guidance.
In Q4, we're now assuming a decline of 15% to zero percent consistent with my remarks from a moment ago, where the pent up demand we were anticipating largely occurs throughout quarters, two and three.
Joseph J. Wolk: Considering all these factors, we estimate a negative operational sales impact of approximately $3.8 billion to approximately $5.3 billion in the medical devices forecast below our original January guidance. While there are many moving parts, the impact in medical devices is the sole change to our prior operational sales guidance for the enterprise. We often get asked about a second wave of COVID, and our thinking continues to be that if that occurs, it should not have the same level of global impact that's been experienced in the last four months. This assumption is based on opinions shared by various experts, as they believe, as do we, that if this occurs, the world will be much better prepared. How so?
Considering all these factors, we estimate a negative operational sales impact of approximately $3.8 billion to approximately $5.3 billion to the medical devices forecast below our original January guidance.
While there are many moving parts the impact in medical devices is the sole change to our prior operational sales guidance for the enterprise.
Now, we often get asked about a second wave of coded are thinking continues to be that if that occurs it should not have the same level of global impact that's been experienced in the last four months.
This assumption is based on opinions shared by various experts as they believe as do way that if this occurs the world is much better prepared.
Now so.
Joseph J. Wolk: Testing is more readily available. Remarkably, over 700,000 tests now occur daily in the U.S. alone. There is an adequate supply of necessary medical equipment. Isolation and other preventative measures are being implemented quickly with more precision. Treatment protocols continue to improve, and there may be therapeutic options available. Finally, a portion of the population will have developed antibodies.
Testing is more readily available remarkably over 700000 tests now a car daily in the U.S. alone.
There is adequate supply of necessary medical equipment.
Isolation and other preventative measures are being implemented quickly with more precision.
Treatment protocols continue to improve and there may be therapeutic options available finally, a portion of the population will have developed antibodies.
Joseph J. Wolk: While one death is too many, with a rapidly declining death rate related to the virus, the healthcare system is in a much better position than when the virus first appeared. Therefore, while we actively monitor the rising case rate, our premise is that procedures and doctor visits will be largely permissible in the second half of this year. So let's summarize our medical device outlook. We still estimate that the most significant negative impact occurred in Q2.
Well, one death is too many with a rapidly declining death rate related to the virus. The health care system is much better position than when the virus first appeared therefore, while we actively monitor the rising case rate. Our premise is that procedures and doctor visits will be largely permissible in the second half of this year.
So, let's summarize our medical device outlook, we still estimate the most significant negative impact occurred in Q2.
But the impact to both Q2 and Q3 is now expected to be less than what we were anticipating in April.
Joseph J. Wolk: But the impact of both Q2 and Q3 is now expected to be less than what we were anticipating in April. This upside is partially offset in Q4 compared to our April guidance as that predicted bolus of patients is now assumed to have occurred earlier in the year. We are seeing signs of recovery, and while the next few months and quarters contain uncertainty, the long-term underlying fundamentals remain solid. And, most importantly, we continue to see tremendous potential over the long term to serve our patients and customers. Given all these factors, we would be comfortable with your models reflecting the following.
This upside is partially offset in Q4 compared to our April guidance as that predicted bolus of patients is now assume to have occurred earlier in the year.
We are seeing signs of recovery and while the next few months in quarters contain uncertainty the long term underlying fundamentals remain solid.
And most importantly, we continue to see tremendous potential over the long term to serve our patients and customers.
Given all these factors, we would be comfortable with your models, reflecting the following.
Adjusted operational sales of minus 0.8% to positive 1.0% incorporating the latest range of negative medical device operational sales impact of approximately $4 billion to approximately $5 billion versus January guidance.
Joseph J. Wolk: Adjusted operational sales of minus 0.8% to positive 1.0%, incorporating the latest range of negative medical device operational sales impact of approximately $4 billion to approximately $5 billion versus January guidance. Moving on to operational sales, our guidance is $81 billion to $82.5 billion, or minus 1.3% to a positive 0.5%. 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 1.13, there is an estimated negative impact of foreign currency translation of approximately 130 basis points versus the negative 200 basis points provided in our April guidance, resulting in an estimated reported sales growth between minus 2.6% to minus 0.8% compared to 2019, or $79.9 billion to $81.4 billion.
Moving on to operational sales our guidance is $81 billion to $82.5 billion were minus 1.3% to a positive 0.5%.
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 1.13, there's an estimate at negative impact of foreign currency translation of approximately 130 basis points versus the negative 200 basis points provided in our April guidance.
Resulting in an estimate at reported sales growth between minus 2.6% to minus 0.8% compared to 2019 or $79.9 billion to $81.4 billion.
We are maintaining our expectation for operating margins with a decline year over year of 100 basis points as well as April guidance ranges of net other income and net interest expense.
Joseph J. Wolk: We are maintaining our expectation for operating margins with a decline year over year of 100 basis points as well as April guidance ranges of net other income and net interest expense. However, our effective tax rate guidance for 2020 is now estimated to be 16.5% to 17.5%, tighter than the previous range. Given those updates, we are comfortable with adjusted earnings per share guidance ranging from $7.85 to $8.05 on a constant currency basis. This reflects an operational or constant currency decline of 9.6% to 7.3%.
Our effective tax rate guidance for 2020 is now estimated to be 16.5% to 17.5% tighter than the previous range.
Given those updates we're comfortable with adjusted earnings per share guidance, ranging from $7, an 85 cents to $8.05 on a constant currency basis.
This reflects an operational or constant currency decline of 9.6% to 7.3%.
Well not predicting currency movements, but to provide some insights on the potential impact on EPS. Our reported adjusted EPS would be negatively impacted by approximately 10 cents per share versus our April guidance impact of a negative 15 cents.
Joseph J. Wolk: While not predicting currency movements, but to provide some insight on the potential impact on EPS, our reported adjusted EPS would be negatively impacted by approximately $0.10 per share versus our April guidance impact of a negative $0.15. Accounting for that, we would be comfortable with your models reflecting reported adjusted EPS ranging from $7.75 to $7.95, a range of minus 10.7% to minus 8.4%. I know many of you are interested in our thoughts beyond 2020, so I thought I would say a few words on our very early thinking on select topics for next year. In our pharmaceutical business, we don't anticipate new biosimilar or generic competitors and expect another year of above-market performance, largely driven by increased penetration and new indications across our existing diversified portfolio led by key products such as Darzalex, Imbruvica, Tremfya, Stelara, and Erleada.
Accounting for that we would be comfortable with your models, reflecting reported adjusted EPS ranging from $7.75 to $7, a 95 cents a range of minus 10.7% to minus 8.4%.
I know many of you are interested in our thoughts beyond 2020, So I thought I would say a few words on very early thinking on select topics for next year.
In our pharmaceutical business, we don't anticipate new biosimilar or generic competitors and expect another year of above market performance, largely driven by increased penetration and new indications across our existing diversified portfolio led by key products, such as Darzalex Imbruvica from fire still.
And ER leader.
In our consumer health business, we will continue to focus on delivering solid growth in our core strongholds LTC and skin health and continued expansion of the E Commerce channel.
Joseph J. Wolk: In our consumer health business, we will continue to focus on delivering solid growth in our core strongholds of OTC and skin health and continued expansion of the e-commerce channel. In medical devices, based on what we know today, we expect procedures to be largely permissible throughout the year, and given COVID-19's impact on 2020, we expect to deliver robust, double-digit operational sales growth. Regarding the P&L for 2021, while not providing guidance at this very early stage, I will share that we are expecting other income and expense to be consistent with the guidance I just shared for 2020. In addition, while we continue to manage our portfolio with rigor, emphasizing platforms where we can optimize our success, we are planning to treat future significant divestiture gains as a special item going forward. We would expect to improve operating margins from this year's level, given higher sales, as well as realizing benefits from our SKU Rationalization Initiative in Consumer Health. And finally, as a reminder, when comparing revenue next year versus this year, our 2020 fiscal calendar has the benefit of an additional 2 to 3 shipping days associated with a 53rd week.
In medical devices based on what we know today, we expect procedures to be largely permissible throughout the year and getting cobot nineteens impact on 2020, we expect to deliver a robust double digit operational sales growth.
Regarding the PNM for 2021, well not providing guidance at this very early stage I will share that we are expecting other income and expense to be consistent with the guidance I just shared for 2020.
In addition, while we continue to manage our portfolio with rigor emphasizing platforms, where we can optimize our success, we're planning to treat future significant divestiture gains as a special item going forward.
We would expect to improve operating margins from this year's level, given higher sales as well as realizing benefits from our SKU rationalization initiative in consumer health.
And finally as a reminder, when comparing revenue next year versus this year. Our 2020 fiscal calendar has the benefit of an additional two to three shipping days associated with a 50 Threerd week.
Robust plans are being developed and will be finalized as we move throughout 2020.
Joseph J. Wolk: Robust plans are being developed and will be finalized as we move throughout 2020. We anticipate strong EPS growth in 2021 on an operational basis, given some of the dynamics at play in 2020, and commit to providing updates as appropriate on future earnings calls. Let me conclude my prepared remarks with our key developments in the quarter.
We anticipate strong EPS growth in 2021 on an operational basis, given some of the dynamics at play in 2020 and commit to providing updates as appropriate on future earnings calls.
Let me conclude prepared remarks with our key developments in the quarter as we look at our pipeline, we have been able to advance a majority of our portfolio. Despite cobot 19, but I'd like to highlight a few items.
Joseph J. Wolk: As we look at our pipeline, we have been able to advance a majority of our portfolio despite COVID-19, but I'd like to highlight a few items, beginning with the pharmaceutical pipeline. In addition to the progress Paul referenced in the development of our COVID-19 vaccine candidate, we had a number of approvals in the second quarter, as shown on this slide, several ahead of their PDUFA dates. Most notable are Tremfya for active psoriatic arthritis in the U.S. Darzalex subcutaneous formulation in the U.S. and E.U., Imbruvica frontline and CLL combo with rituximab in the U.S., and the Ebola vaccine in the E.U. We updated our filing timeline slightly for our BCMA CAR-T. We remain on track to initiate the U.S. regulatory application by year-end 2020 and have updated the timing of the EU submission to early 2021, which accounts for comprehensive manufacturing and commercial plans.
Beginning with the pharmaceutical pipeline. In addition to the progress Paul referenced on the development of our Cobot 19 vaccine candidate we had a number of approvals in the second quarter included on this slide several ahead of their produced the dates most notable archer on fire for active psoriatic arthritis in the U.S.
Marginal ex subcutaneous formulation in the U.S. and you.
Imbruvica frontline in CLL combo with top some AD in the U.S. and the a bowl of vaccine in the deal.
We updated our filing timeline slightly for our DCM a car T. We will remain on track to initiate the U.S. regulatory application by year end 2020, and have updated timing of the use submission to early 2021, which accounts for comprehensive manufacturing and commercial plans.
You will also note that we are no longer filing niraparib in line three metastatic castration resistant prostate cancer.
Joseph J. Wolk: You will also note that we are no longer filing norepirib in line 3 metastatic castration-resistant prostate cancer. The data from the Phase II Galahad study did demonstrate a highly competitive efficacy and safety profile for norepirib, which supported FDA breakthrough therapy designation. However, recent approvals of other agents in this class have removed the path to gain accelerated approval for norepirib based on this single-arm study.
The data from the phase two Galahad study did demonstrate a highly competitive efficacy and safety profile for Niraparib, which supported FDA breakthrough therapy designation.
However, recent approvals of other agents in this class have removed the path to gain accelerated approval for Niraparib based on the single arm study.
Joseph J. Wolk: Considering this development, we will not be moving forward with regulatory submissions with Galahad, but Naraparib remains an important part of our prostate cancer pipeline with $1 billion plus revenue potential. Turning to medical devices, we continue to advance our innovation agenda with some notable achievements in the quarter, such as USFDA breakthrough designation for Monarch-enabled new wave ablation technology. CE-Mark for Heliostar, our single-shot balloon catheter, and CE-Mark for QDOT, a microcatheter enabling better lesion treatment, just to highlight a few. We also continue to advance our digital surgery offerings. Since launch, there have been over 3,200 lung biopsies completed using the Monarch system.
Considering this development, we will not be moving forward with regulatory submissions with galahad, but niraparib remains even important part of our prostate cancer pipeline with 1 billion plus revenue potential.
Turning to medical devices, we continue to advance our innovation agenda with some notable achievements in the quarter such as USSD, a breakthrough designation for monarch enabled new wave ablation technology.
CE Mark for Helio Star, our single shot balloon catheter and CE Mark for Q Dot a microcatheter, enabling better lesion treatment just to highlight a few.
We also continued to advance digital surgery offerings since launch there had been over 3200 lung biopsies completed using the monarch system. We will also expand the system with multi specialty applications with Endourology next in line for US approval for the treatment of kidney stones, a market that is almost.
Joseph J. Wolk: We will also expand the system with multi-specialty applications, with Endurology next in line for U.S. approval for the treatment of kidney stones, a market that is almost twice the size of the one we are in today. We continue to make great progress towards a second half 2020 U.S. regulatory submission for our orthopedic robotic solution as part of our Velys digital surgery platform, first in these coming out of our acquisition of OrthoTax. In general surgery, we will incorporate elements from the general surgery robotic platforms of both VRB and ORAS, which we believe enhances our value proposition and increases our ability to create a differentiated platform for surgeons. We continue to have ongoing conversations with regulatory authorities around the world, and based on these conversations, we will not be following a 510K regulatory pathway in the U.S. After analyzing time to market compared to overall value proposition, our goal is to We continue to be very excited about the overall program, and our continued investment here will offer a differentiated and competitive product to the market with better outcomes for patients. The new timelines are based on what we know today, reflecting a world that is very different than what it was just a few short months ago.
Twice the size of the one we are in today.
We continue to make great progress towards a second half 2020, U.S. regulatory submission for our orthopedic robotic solution as part of our Dallas Digital surgery platform first in knees coming out of our acquisition of ortho taxi.
In general surgery, we will incorporate elements from the general surgery robotic platforms are both verb and Rs.
Which we believe enhances our value proposition and increases our ability to create a differentiated platform for surgeons.
We continue to have ongoing conversations with regulatory authorities around the world and based on these conversations we will not be following a five 10-K regulatory pathway in the U.S.
After analyzing time to market compared to overall value proposition. Our goal is to initiate first in human studies with our robotic solution in the second half of Twentytwenty too. We continue to be very excited about the overall program and our continued investment here will offer a differentiated and competitive product to the market with better out.
Comes for patients the new timelines are based on what we know today, reflecting a world that is very different than what it was just a few short months ago.
One item occurring after the second quarter close and not listed on this slide was Johnson and Johnson Development Corporation sale of the equity position in endorse here.
Joseph J. Wolk: One item occurring after the second quarter closed and not listed on this slide was Johnson & Johnson Development Corporation's sale of the equity position in Eidos. As part of the Actillion acquisition in 2017, you may recall that we employed an innovative deal structure resulting in the formation of a new company, which is now established. We remain very excited about our ongoing partnership with Idorsia on assets like Panesimod and the prosthesis. Before I hand the call back to Chris, I want to express our sincere gratitude to our 132,000 associates around the world. Johnson & Johnson's strong foundation begins with their tireless efforts to ensure the safety and well-being of all Americans.
As part of the activity in acquisition in 2017, you may recall that we employed an innovative deal structure, resulting in the formation of a new company, which is now established we remain very excited about our ongoing partnership with endorse you on assets like but that's some odd and a prostacyclin.
Before I hand, the call back to Chris I want to express our sincere gratitude to our 132000 associates around the World Johnson and Johnson strong foundations begins with their tireless effort and unwavering dedication to elevating the standards of health care and a tumultuous year. They remain focused on credo values and meeting coming.
Chris Schott: [inaudible] Chris, I'll return to you to begin the Q&A portion. Thanks.
Fitments to patients doctors and nurses employees parents and children communities and shareholders without them, our current and future success would not be possible.
Operator: Thank you, Joe. We will now move to the Q&A portion of the webcast. Operator, can you please provide instructions for those on the line wishing to ask a question?
Chris back to you to begin to Q and a portion.
Thank you Joe we will now move to the tune a portion of the webcast. 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 Chris Schott with JPC.
Ladies and gentlemen, if you'd like to ask a question at this time. Please press Star then one on your telephone keypad, if you'd 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.
Chris Schott: Great. Thanks so much for the questions and all the color today. Just two for me.
Great. Thanks, so much for the questions and and all the color today I'd just two for me can you maybe first talk about you addressed the potential for second wave, but any early read in terms of what you're seeing in some of the regions in the U.S. that are seeing a rapid increase in coated cases are those still states still seeing a recovery and procedure volumes.
Alex Gorsky: Can you maybe first talk about, I think you addressed the potential for a second wave, but any early reading in terms of what you're seeing in some of the regions in the U.S. that are seeing a rapid increase in COVID cases? Are those states still seeing a recovery in procedure volumes, or are you starting to see some slowdown in volumes in some of those regions? And then my second question was on the vision business and just elaborate on some of the trends and how you're thinking about recovery there. It seems like that's one of the segments of the market that might be seeing a bit of a lagging recovery versus some of your other device businesses, and I was just interested in how you think about that franchise over the coming quarters. Thanks so much. Hey Chris, this is Alex. Can you hear me okay on the audio? We can!
Are you starting to see some slowdown in volumes and some of those regions and then my second question was on the vision business and just elaborate in some of the trends and how you're thinking about recovery. There. It seems like that's one of the segments of the market there might be seeing a bit of a lagging recovery versus somebody or other device businesses and just interested in how your how you're thinking about that that franchise over the coming quarters. Thanks. So much.
Okay.
Hey, Chris This is Alex can you hear me okay on the idea.
We have oh, Okay, Chris first of all thank you very much for the question and look before I start off answering directly.
Alex Gorsky: Okay, Chris, first of all, thank you very much for the question and, look, before I start off answering directly to your question, I just want to continue to acknowledge the great work of our colleagues across Johnson & Johnson, as we just shared with you in the second quarter. And while we're going to be reviewing a lot of statistics and a lot of facts and a lot of figures on this call today, I also think it's always important to acknowledge the direct impact that COVID-19 has had on patients, has had on family, and friends for all of us in some way. And also, I'd be remiss if I didn't do a shout out for the frontline healthcare workers, the doctors, the surgeons, the nurses, the assistants who have been coming in for the last five months dealing with an unprecedented pandemic, learning in real time and adjusting as necessary, literally working 24-7. And finally, our own J&J workers, nearly one-third of our workforce, who have continued to show up to ensure that we could have a supply of our products, as well as continue the important research into development, not only on our vaccine but on so many other therapeutics, devices, and consumer products for patients and consumers around the world.
Your question I, just want to I continue to acknowledge the great work of our colleagues across Johnson and Johnson as we just shared with you in the second quarter and while we're going to be reviewing a lot of statistics and a lot of facts that a lot of figures on the call. Today. I also think it's always important to acknowledge the direct impact that covered 19 has had on.
Patients has had on family and friends for all of Us in some way and.
And also I'd be remiss, if I didn't do a shout out where the frontline healthcare workers the doctors that the surgeons and nurses. They assistants, who has been showing up for the last five months dealing with just an unprecedented pandemic.
Learning real time, and adjusting as necessary literally working 24, seven and finally, our own JNJ workers.
Nearly one third of our workforce. So continued to show up to ensure that we could have supply of our products as well as continue to the important research and development not only on our vaccine, but on so many other therapeutics devices and consumer products for patients and consumers around the world.
Alex Gorsky: So, Chris, as I've reached out and been able to connect with CEOs of hospital systems across the United States, but also more broadly with other administrators around the world, as we've taken a look at the data, you know, clearly, we believe that the virus's spread has accelerated, particularly in the South, the Southeast, the Southwest, and the Far West. What they are seeing in the hospital right now is clearly a resurgence over previous rates. Similar to Joe's earlier comments, the general sentiment is that they are better prepared in hospitals, but it's important to note that in certain counties, certain cities, and localities, be it Dade in Florida, Miami, Palm Beach, areas around Dallas, excuse me, Houston, San Antonio, San Diego, and Los Angeles, that the rates are increasing at a very significant rate. I think the general sentiment is that they are better prepared in terms of the kind of equipment that they have on hand. Testing still depends on where you are.
So Chris as I've reached out and been able to connect with Ceos of hospital systems across the United States, but also more broadly with other administrators around the world as we've taken a look at the data clearly we believe that the viruses as spread has accelerated particularly in the.
South southeast and southwest and far West what were but they are seeing at a hospital right now is clearly a resurgence over the previous rates.
Similar to Joe's earlier comments.
General sentiment is that they are better prepared in the hospitals.
But it's important to note that in certain in certain county, certain cities and localities via Dade and Florida, Miami Palm Beach areas around the Dallas Oh.
Excuse me Houston San Antonio.
San Diego Los Angeles that.
The rates are increasing at a very significant rate.
I think the general sentiment in that or they are better prepared in terms of or the kind of equipment that they have on hand, I testing I still depends on where you are while testing rates have increased dramatically. There are still there still remains spot voyages in particular areas and other areas, where hospitals have ramped up around last.
Alex Gorsky: While testing rates have increased dramatically, there still remain shortages in particular areas and other areas where hospitals have ramped up their own laboratory capabilities combined with others, and they think that they are getting the results in a reasonable period of time. And of course, they've got better protocols in place in terms of understanding whether it's treating with dexamethasone, anticoagulants, and other approaches that are leading to better outcomes. I think the things that we're going to continue to watch very closely are the exact incidence rate and how that unfolds in the coming weeks and months. We think it's going to be critical. I mean, thus far, as we alluded to, the death rates and hospitalization rates have not at all increased, have not been the same as we saw very early, but the next few weeks are going to be critical. And obviously, we're going to have to watch that very closely.
For Tory capabilities.
Combined with others, they think that they're getting the results and at reasonable period of time.
And of course, they've got better protocols in place in terms of understanding whether its treating with dexcom, Arizona anti coagulate Ensign and other approaches that are leading to better outcomes.
I think the things that were there continue to watch very closely is the exact incidence rate at and how that unfolds in the coming weeks and months, we think it's going to be critical I mean, that's far as we alluded to the the death rates and hospitalization rates had.
Not at while increasing has not been the same as we saw very early but.
The next few weeks are going to be critical and obviously, we're gonna have to watch that very closely.
Alex Gorsky: I think something else that the hospitals are keeping a close handle on is staffing because, in many cases, just as they were beginning to ramp back up with elective procedures and bring back staffing, now they're having to, in many cases, reallocate it based upon the surge that they're seeing take place. I think the other important factor is that they learned a lot about reopening their surgical suites and also how to create additional space for ICU and CCU patients. They've seen some of the detrimental effects of these delayed procedures, so they, as much as possible, you know, want to try to continue ensuring patients can get access to those procedures, even while managing the pandemic. But again, depending on where they are, there have been some areas where they've shut down elective procedures and they're managing it, you know, based upon the caseload they're seeing.
And I think something else with the hospitals or.
Taking a close handle on our AD that staffing because in many cases, just as they were beginning to ramp back up with elective procedures.
And bring staffing back on now they're having to in many cases reallocated based upon the surge that they're saying take place I think the other important factor they learned a lot about reopening up there a their surgical suite.
And and also how to create additional space for IC you NCC patients are they seeing as some of the detrimental effect of these delayed procedures. Therefore, they as much as possible you don't want to try to continue ensuring the patients can get access to those are procedures even while.
Managing the pandemic again, depending on where they are in there had been some areas, where they shut down elective procedures and they're managing it based upon the caseload, they're saying that they at the overall response, if I back up just one more step if we look at the data through the end of June I think Chris alluded to this and his remarks as well as Joe.
Alex Gorsky: So that's an overall response. If I back up just one more step, if we look at the data through the end of June, I think Chris alluded to this in his remarks as well as Joe, across the United States, in the majority of the surgical categories that we're operating in, we're seeing about a return to 85 to 90 percent of what we did pre-COVID baseline periods. Thank you.
Well across the United States in the majority of the surgical categories that were operating at we're saying about the return to 85% to 90% of what we did pre cobot baseline period.
But obviously, we're going to watch that closely as we watch the numbers in the air as I mentioned.
Joseph J. Wolk: Hey Chris, this is Joe. Maybe just to pick up with respect to your questions around vision care specifically. So, you know, contact lenses went down a little bit over 30% in the quarter. Clearly, the impact of COVID-19 as there are just simply fewer new wearers entering the category due to a shutdown of optical stores, but also lower consumption for existing wearers as people, you know, adopt shelter in place measures and stay at home. The e-commerce channel, which primarily serves existing wearers, was also down when you compare it to the second quarter of last year, but we are seeing an improved performance. So, if you look at June, contact lenses were down almost 25% versus the prior year. So, you're seeing that same quarterly improvement throughout the month, the monthly improvement throughout the quarter with respect to contact lenses. In terms of vision surgery, I would say that's probably one of the most deferrable procedures out there. And so, as we start to see elective procedures become more common, we would expect that to return as well.
Increased at least as of late and in the coming weeks.
Thank you.
Chris This is Joe maybe just to pick up a with respect to your questions around vision care. Specifically, so you know contact lenses that was down a little bit over 30% in the quarter, a clearly the impact of cobot 19, as there's just simply less new wearers entering the category due to a shutdown of optical stores, but also lower consumption.
For existing where it is as people side.
Shelter in place measures and stay at home the ecommerce channel.
Which primarily serves existing whereas was also down when you compare to the second quarter of last year, but we are seeing an improved performance. So if you look at June contact lenses was down almost 25% versus the prior year. So you're seeing that same quarterly improvement throughout the <unk> the monthly improvement throughout the quarter.
With respect to contact lenses in terms of vision surgical I would say, that's probably one of the most deferrable procedures out there and so as we start to see elective procedures become more prevalent we would expect that to return as well.
Yeah, Chris I'd, just add on vision care I think when you think of our contact lens business going forward as we've had consistent strong performance there with at or above market performance levels. The past four years and have had a very strong cadence of innovation and 2019 transition transition light intelligent technology 2021.
Joseph J. Wolk: Yeah, Chris, I would just add on VisionCare. I think when you think of our contact lens business going forward, we've had consistent strong performance there with at or above market performance levels for the past four years and have had a very strong cadence of innovation. 2019, Transition Light Intelligent Technology. In 2020, we're excited about our Acuvue TheraVision First Anti-Allergy Contact Lens and then did receive FDA Breakthrough Device Designation on our Myopia Control Lens. So it's a franchise that we feel very strong about going into the future.
We're excited about our accu third revision first anti allergy contact lens and then did receive FDA breakthrough device designation on our myopia control and so it's a franchise that we feel very strong about going into the future.
Operator: Thanks for the questions. Operator, next question, please. Your next question is from...
Thanks for the questions. Operator next question please.
Next question is for David Lewis with Morgan Stanley.
David Risinger: Your next question is from David Lewis with Morgan Stanley. Good morning.
Paul Stoffels: Thanks for taking the questions. Maybe one for Paul on vaccines and a quick commentary on recovery for Joe. Paul, just to start off on vaccines for a second here, just the two quick ones. Our sense is the FDA wanted hundreds of exposures before allowing phase 3 trials. So I guess, what's your confidence that you're going to have the data needed to start those phase 3 trials later this year? And then a lot of investors are focused on sort of humoral versus cellular immunity. I just wonder if you could talk about the durability of neutralizing antibodies and whether we should expect a CD8 response. And, frankly, does that matter in your view?
Good morning, Thanks for taking the questions maybe one for Paul on vaccines in a commentary on recovery for Joe.
Paul just to start on vaccines for second year. Just two quick ones. You are census, DFT wanted hundreds of exposures before allowing phase two trials I guess, what's your confidence are going to have the data needed to start. This phase three trials later this year and then a lot of investors are focused on sort of hero versus secular immunity I just wonder if you could talk to the durability of neutralizing antibodies.
Whether we should expect CDAV response and in fact, it does that matter in your view and then a quick recovery counted for Joe.
Paul Stoffels: And then a quick recovery comment for Joe.
Yes.
Oh.
Paul Stoffels: Um, well, first of all, on experience to start a clinical trial, we have developed a vaccine platform over the last 6-7 years, and we now have more than 80,000 people who have been vaccinated by our platform, and that is for RSV, Zika, HIV, Ebola, and that gives us very good comfort that we have a safe platform. In addition to that, we have been able to use a high dose in RSV and Zika, at 1,10,11. For those who know what that means, it's the highest dose you can administer but with almost no fever. So we will be able to administer a very high single dose, which will be enabled in our Zika and in our RSV, and will elicit a very strong neutralizing antibody response as well as a cellular immunity response with one single dose.
Well first of them all.
Let me experience to start to clinical trial, we have developed a vaccine platform over the last six seven years and we have now more than 80000 people, who have been fractionated buyer platform and that is in artistry in in Zika in HIV unit Bull and that gives a very good comfort that we have a safe platform. In addition to Doug.
We have been able in art as for you and Zika to use the high goes up one fund 11 for those who know what that means.
Is that there's a highest dose you can administer but with almost no fever. So we will be able to administer very high single dose, which will be less enablement and notice Zika and new note out as Freeview elicits, a very strong neutralizing antibodies antibody response as well of the seller immunity response, but one single dose.
Whether we need to boost approved durability, we have learnt that enable all be appfluent Upton, although that maybe yes, but not immediately we are going to test a booster dose of us restarts about three think more that we will have to boost one year or two year softer the signal high dose so you're going to learn falls and with a singer.
Paul Stoffels: Whether we need to boost for durability, we have learned from Ebola, and we have learned from others, that maybe yes, but not immediately. We are going to test a boosted dose as we start, but we think more that we will have to boost one year or two years after the single high dose. So we are going to learn fast, and with a single dose phase 1 study, we should be able to start mid-September with the experience we have, and that's in full discussion with the regulatory authorities around the world.
All those.
The phase one study, we should be able to start mid September with you experienced behalf and up to full discussion with regulatory authorities around the worlds.
Paul Stoffels: David, what is your second point?
David Your second point.
Joseph J. Wolk: Back to you there on your question about recovery. Operator. Rob, are you there?
Right.
Your question on recovery.
Operator.
Yes, I'm here.
Let's move onto the next question, we can always some back to David.
Operator: Let's move on to the next question. We can always come back to David if need be.
David if need be sure. Your next question comes from Larry Biegelsen with Wells Fargo.
Larry Biegelsen: Sure, your next question comes from Larry Beagleson with Wells Fargo.
Joseph J. Wolk: Good morning. Thanks for taking the question. I'll ask one recovery and one vaccine question as well. Just on the recovery, thanks so much for the data, Al.
Good morning, Thanks for taking the question I'll ask one recovery one vaccine question as well I'm just on the recovery. Thanks, so much for the.
The data Alex just you know when you talk about the end of June 85% to 95% of pre covert.
Joseph J. Wolk: When you talk about the end of June, 85-95% of pre-COVID,
Levels and the Spike in cases in the South are you seeing other parts of the world.
Joseph J. Wolk: Levels and you know the spike in cases in the south. Are you seeing other parts of the world?
Joseph J. Wolk: you know offset that, and so in other words, you're still seeing improvements in trends through mid-july, and then second, for Paul, when are we going to see the initial human clinical data?
Offset that and so in other words, you're still seeing improvements in trends.
Through mid July and then second for Paul when are we going to see the initial human clinical data and you Didnt mention when you expect a availability of the vaccine I think your prior.
Paul Stoffels: You know, you didn't mention when you expect the availability of the vaccine. I think your prior comments were maybe early 2021. Are you still going to seek EUA approval?
Comments, where maybe early 2021 are you still going to seek.
Approval based on the phase one two trial or do you think you'll need to phase three data for approval. Thanks for taking the questions.
Paul Stoffels: Do you need approval based on the Phase 1-2 trial, or do you think you'll need the Phase 3 data for approval? Thanks for taking the time to answer my question.
Let me, let me respond the first and then I'll ask Paul obviously to cover the second.
Paul Stoffels: Let me respond to the first and then I'll ask Paul, obviously, to cover the second. The data that we're citing, we're trying to provide the most up-to-date information we have, which basically goes with the data through the latter part of June and, I think, for the first couple of days in July. And if we look across the world, we see, basically, the majority of countries are up over 85%. And what I mean by that is, if we're tracking their weekly recovery rate, and we compare that to the pre-COVID period, and we adjust for that over a several-week period, those numbers are in the, I would say, north of 80% to 85% range.
Like the data that we are citing we're trying to provide the most up to date information, we had which basically goes with the data through the latter part of June I think for the first couple of days in July and if we look across the world.
We see basically most of the majority of countries up over 85% rigor and what I mean by that is if we're tracking.
There are weekly a recovery rate and we compare that to pre coded period, and we we adjust or that over a several week period.
Those numbers are in the you I would say north of 80% to 85% range, but what outlier to that is the UK UK is still below 50% and.
Paul Stoffels: The one outlier to that is the U.K. The U.K. is still below 50%. And, again, we're clearly developing the ability to track this not only on a country and a region basis, but in the United States, literally on a state, a county, city, and individual hospital basis. And, again, there are differences at each one of those levels, but at an overall country level, if we take about the top 12 markets around the world, I would say the overwhelming majority of them are north of 85%, with the outlier being the U.K.
Again, we're.
Clearly developing the ability to track this not only on a country in a region basis, but the United States on the literally on a state accounting infinity and individual hospital basis.
And and again there are there are differences at each one of those levels, but at an overall country level. If we take about the top 12 markets around the world.
The the overwhelming majority of them are north of 85% with the out lighter outlier being the UK.
Larry I think on that one of China's a good example, where we continue to see very good progress on momentum with double digit growth in recent times here in Q2.
Paul Stoffels: Larry, I think on that one China is a good example where we continue to see very good progress and momentum with double-digit growth in recent times here in Q2.
Paul Stoffels: On your vaccine questions, Larry, first, I want to add that neutralizing antibodies and T cell immunity are important, you know, for not just the response but also for durability. Our initial data on phase 1 will be available in the second half of September, and they will become the basis for our phase 3 study. And that will start mid to end September; that's the goal; with a large number of people included and a simple design with a single dose, we could have data before the year end, or at the latest early next year. And availability of the vaccine will start early next year. We'll have some dosages before the year end, which will be used for clinical trials and maybe for other reasons, but the larger quantity will start in the first quarter of next year, and then we'll deliver up to a billion doses of the vaccine. And all of that is in place; we have the manufacturing sites, we have the filling sites, we have everything that's needed to deliver that 1 billion vaccines and more next year.
But on your vaccine question, Larry first to want to also come out with up neutralizing antibodies and.
So immunity is important for for not just for the response, but also for durability.
Our initial data on the phase one will be available second half of September which they will before because of the basis for a phase three study industrial Stark mid to end September that's the goal.
The large number of people included in the second and the simple designed with a single dose we could have data before year end or the latest early next year than availability over vaccine will be starting early next year, we'll have some dose which was before the year ends which will be used for clinical trials and maybe for all the reasons, but.
The larger quantity will start first quarter next year and done in the yet we will deliver up to 1 billion barrels at each of our vaccine and all of that is in place. We have the manufacturing sites. We have the filling sides. We have everything what's needed to deliver that 1 billion vaccines and more next year.
Paul Stoffels: Larry, thanks for the questions. Rob, next question, please.
Larry Thanks for the questions. Rob next question. Please.
My question is from the line of Kristen Stewart with Barclays.
Operator: Your next question is from the line of Kristen Stewart with Barclays.
Unknown Attendee: Hi guys, thanks for taking the question and thanks for participating.
Hi, Thanks, guys. Thanks for taking the question. Thanks for all you guys are doing quite cobot.
Alex Gorsky: Thank you for all you guys are doing to fight COVID. I just had a question and will follow up on just the robotics platform. I was wondering if you could just provide a little bit more details. It sounded to me that you were redesigning, if I heard you right, the program to integrate the two systems. Could you just provide a little bit more details on that and just the timing? I just want to make sure I understand the comments and the prepared remarks. Thanks again.
Just had a question following up just on me and robotics platform wondering if you could just provide a little bit more detail it sounded to me.
That you were redesigning if I heard you right. They program to integrate the T systems. It could you just provide a little bit more details on that front end, just a timing I just want to make sure I understand.
That comments in the prepared remarks, thanks again.
Sure sure Chris and his Alex in the first of all I just want to restate.
Our excitement about the overall digital space and when we look at at the potential of this market and currently being less than 5% penetrated and and understandably a that's indicative of some markets in the United States at well over 50% or certain procedures, but on a global basis, we think there's just tremendous growth off.
Alex Gorsky: Sure, Chris, and this is Alex. You know, first of all, I just want to restate our excitement about the overall digital space, and when we look at the potential of this market currently being less than 5% penetrated, and understandably, that's indicative of some markets in the United States at well over 50% for certain procedures, but on a global basis, we think that there is just tremendous growth opportunity. And I also think it's important to note that we continue to see really good uptake with our Monarch system. We're going to expand the system with multiple specialty applications, with embryology next in line for U.S. approval, and the treatment of kidney stones, and that market, in itself, is about twice the size of where we are today.
Opportunity.
Two if you just look at the acceleration of technology.
We're also seeing and.
Really that say, what Ben the driving force behind our investment both and RF, but also our partnership with verb and barely and as we brought those different capabilities those different technologies together I think it's a actually reinforce the potential.
Possibilities that we see in surgery for the future and Dan and I also think it's important to note that we.
We continue to see really good uptake with our monarch system.
We're going to expand the system with multiple specialty applications with Endo Urology next in line for US approval for the treatment of kidney stones and that market in itself is about twice the size of where we are today.
Alex Gorsky: We're making good progress even as our teams deal with the COVID-19 situation on the general surgery robotic platforms, and that's for both VIRB and ARIS. We think that it clearly enhances not only the capabilities but our value proposition and our ability long-term to really create and launch a differentiated platform. As Joe and, I believe, Chris may have alluded to earlier in their points, we continue to have ongoing conversations with regulatory authorities around the world. We will not be following a 510K regulatory pathway for the U.S., and after analyzing time to market compared to the overall value proposition, look, our goal is to initiate first-in-human studies with our robotic solution in the second half of 2022. And again, we think there is significant potential.
We're making good progress.
Even with the as our teams deal with it covered 19th situation on the general surgery robotic platforms and Thats for both urban Rs. We think that a clearly it happens not only the capabilities that our value proposition.
And our ability long terms are really create and and launch a differentiated platform.
As.
Joe I believe Chris May have alluded to earlier in their <unk> points. We continue to have ongoing conversations with regulatory authorities around the world. We will not be following a five 10-K regulatory pathway for the U.S. and after analyzing time to market compared to the overall value proposition look our goal is to initiate.
First in human studies with our robotics solution in the second half of 2022.
And again, we think there is significant potential we continue to be impressed.
Alex Gorsky: We continue to be impressed by the technological advancements we're seeing with both the VIRB and Verily and the ARIS combination. Our teams are making very good progress, you know, as we speak, and we'll be providing more information as well on a digital, and we'll be providing you with some further updates regarding a more focused digital review in the coming months, so stay tuned. But I think we're as excited as ever about the possibility and the potential of this market.
By the technology advancements were saying a with both the Bourbon barrel any the ours combination our teams are making very good progress a you as we speak and and world will be providing more information as well on our digital.
And we'll be providing you. Some further updates regarding a more focused digital review in the coming month, so stay tuned, but I think where as excited as ever about the profitability and the potential in this market.
Alex Gorsky: Thanks, Kirsten. I appreciate the question. Rob, next question, please.
Thanks, Kristina I appreciate the question. Rob next question. Please next question is coming from Matt Miksic with credit Suisse.
Operator: The next question is coming from Matt Miksic with Credit Suisse. Hey, good morning.
Hey, good morning, Thanks for taking the questions. So just when one clarification on the recovery.
Matt Miksic: Thanks for taking the question. So, just one clarification on the recovery. So, I emphasize this one topic, but it sounds like, you know, the fourth quarter expectations came down, as you're describing a little bit, just on the, you know, backlog, not being as strong, given the strength and recovery that we saw in June. And, you know, are your assumptions for the back half and for Q3, Q4 based on sort of the trends exiting June? And, Alex, as you point out, we need to watch carefully over the next several weeks. Is that sort of the setup for the back half? And then maybe, if that does, if we pause here at all in the next month or two, is it fair to say that, you know, I guess, are we looking at making up those, does the backlog go back up, and this sort of brings up Q4, Q1. Is that the right sort of way to think about the flow of procedures? And I have one follow-up question for Paul on vaccines.
And besides this one this one a topic that but it sounds like you know the fourth quarter expectations came down as you are describing a little bit just just on the.
Backlog not not being as strong given the strength and recovery that we saw in June.
Your assumptions for the back half and for Q3 Q4 based on sort of the trends exiting June.
And Alex as you point out you know we need to watch carefully over the next several weeks.
Is that sort of the set up for the back half and then maybe.
Is that.
If we pause here at all in the next month or two is it fair to say that you know I guess, we looking at making up those are just the backlog go back up and is sort of brings up Q4 Q1 is at the right sort of way to think about the flow of of procedures and I won't fall for for poly vaccines.
Joseph J. Wolk: So Matt, this is Joe. Thanks for the question. You're thinking about it appropriately. So we took down the fourth quarter simply because that pent-up demand or that backlog that we thought would occur from a deferment of procedures in Q2 and Q3 when we issued guidance in April is, quite frankly, not occurring. That's a good thing for patients but for the healthcare system that there are not some unintended consequences with the deferral of very, very important procedures. You know, the model going forward is based on the best information we had coming out of June. So yes, it would reflect that. And I think that it's probably a fair assumption or premise to say that if we had a slowdown here as cases rise in select areas, that slowdown would probably be compensated for with an improvement in the outlook for Q4, possibly Q1, depending on how long elective procedures are not permitted.
So Matt this is Joe Thanks for the question, you're you're thinking about it at appropriately. So we took down in the fourth quarter simply because that pent up demand or that backlog that we thought would occur from a deferment of procedures in Q2 in Q3, when we issued guidance in April.
Is quite frankly, not occurring that's a good thing for certainly patients, but for the healthcare system that there's not some unintended consequences with the deferral of very very important procedures.
You know the model going forward is based on the best information, we had coming out of June. So yes. It would reflect that and I think thats, probably a fair assumption or or premise to say that if we had a slowdown here as a cases rise in select areas that that slowdown would probably be compensated.
With a an improvement to the outlook for Q4, possibly Q1, depending on how long elective procedures are.
Joseph J. Wolk: Again, I do want to emphasize that collectively as a society, as a healthcare system at large, we're much better prepared, and when there are isolation measures that are put in place, they're much more selective than maybe the universal approach we were looking at back at the end of March or early April. So I think it would have less of an impact, but I don't think it's unfair to think that that impact, if negative, would come back in a positive way at some point later in the future.
Not permitted a again I do want to emphasize that collectively as a society as a health care system at large we're much better prepared and when there are a isolation measures that are put in place. It's much more selective than maybe the universal approach we were looking at.
Back at the end of March or early April So I think it would be less of an impact, but I don't think it's unfair to think that that impact if negative would come back in a positive way at some point later in the future.
Hey, Matt. This is Alex I think I think one other factor that we're going to have to watch closely is also whats happening more broadly with the economy unemployment insurance rates and coverage as we head into Q4.
Alex Gorsky: Hey Matt, this is Alex. I think one other factor that we're going to have to watch closely is what's happening more broadly with the economy, unemployment, and insurance rates and coverage as we head into Q4. And I think, again, the next few weeks and the next couple of months will be very important in determining that, but that's another factor that we're watching. Of course, that's not the case outside the United States.
And I think again the next few weeks and the next couple of months, we'll be very important and determining that but that's another factor that we're walking that we're watching of course, that's not the case outside the United States or whatever.
Paul Stoffels: It's about 50% of our business, but in the U.S., that's another figure that we're going to have to watch closely. Thanks. And then to follow up, a super helpful color for Paul on vaccines. Just it sounds like the immunogenicity is on track, you know, as you're moving it to first in human studies. I guess it may be too early to answer this question, but any color or thoughts at this point on what level of protection this antibody creation can give us at this point? Or what do we know? And what do you expect to learn maybe over the next several months in terms of action?
50% of our business, but in the U.S., that's something that's another.
Figure that we're going to have to watch closely.
Thanks, and then the follow up at Super helpful color on for Paul and vaccines just.
It sounds like the Immunogenicity is on track.
As you are moving it to first in human studies.
I guess it maybe too early to answer this question, but you had any any color thoughts at this point on you know what level of protection.
Does anybody create creation can give us at this point or what do we know and what do you expect to learn maybe over the next several months in terms of actual protection.
Paul Stoffels: Well, in non-human primates and in animal models, you can get to a high level of protection, so it's difficult to extrapolate to humans, but typically, we have a good correlation between animal models and all of our experiments with RSV, HIV, Ebola, and Zika. So we should expect significantly above 50% what the barrier is for the FDA. I think you should expect 70-80 in that range at least, and that is also the statistics that will go into the studies. So let's hope we reach that because that could create herd immunity, and we could, hopefully, put a stop to the disease.
Well in non human primates and in animal models, you can get too high level protection. So we are difficult to export extrapolates too to humans, but typically we have a good correlation between animal models and.
In all of her experiments with RSV HIV double line.
So we we should expect significantly above 50%.
Well the.
The barriers for the FDA I think you should expect 70 80 in that range at least end up is also this was the statistics, which will go into the studies.
Herd immunity and recruit hopefully get still put to stop to the diseases. So let's.
Let's hope for a very good from neutralizing antibody level protecting people up a fairly high level folk.
Operator: Thanks, Matt. I appreciate the questions. Rob, next question, please. The next question is from...
Thanks I appreciate the questions. Rob next question. Please.
My question is from Bob Hopkins with Bank of America.
Bob Hopkins: The next question is from Bob Hopkins with Bank of America. Oh, thanks for taking the question. I'll just ask one as a follow-up on the guidance, and thank you for providing that.
Oh, Thanks for taking the question and I'll just ask a one as a follow up on the on the guidance and thank you for providing that.
So just on the on the fourth quarter guidance for devices it sounds like.
Joseph J. Wolk: So just on the fourth-quarter guidance for devices, it sounds like, you know, the reduction from previous commentary is really just a function, as you said, of better trends in deferred procedures here in Q2 and Q3. I'm curious, does that Q4 guidance that you provided of minus 15 to zero assume a slowdown, you know, from current trends due to the spread of COVID in the U.S. over the last couple weeks? Or are you assuming that your kind of current trends will continue? Just want to get a sense of whether you assume in that zero to 15 that things get worse as we go forward or not.
The reduction from previous commentary is really just a function as he said of better trends in deferred procedures here in Q2 in Q3, I'm curious does that Q4 guidance that you provided of minus 15 to zero does that assume a slowdown.
Current trends due to the spread of code in the U.S. over the last couple of weeks or are you assuming that you kind of current trends continue just want to get a sense for whether you assume it had year to 15 that things get worse.
As we go forward or not.
Joseph J. Wolk: Yes, Bob, I would say that it probably looks at trends the way they were occurring more at the end of June. That's the best data, official data, that we have.
Yes, so so Bob I would say that it probably looks at trends the way they were occurring more at the end of June that's the best data official data that we had so we rely on certainly the IDH Emmy model, but also a studies that are being done and analytics from you CLA MIT and various.
Operator: So we rely on the IHME model, but also studies that are being done and analytics from UCLA, MIT, and various other sources. As Alex mentioned, the outreach that he's had personally, that Ashley has had personally, and other medical device leaders in our company to the customers themselves to understand what's going on on the ground is probably the most insightful, qualitative analysis we put into our modeling, and that's been extremely helpful. So I would say it's largely based on the trends that we saw at the end of June. And again, I do want to caution folks that while we are seeing a rise in cases, it is in very select communities, in very select states. So again, it's not that same universal approach, and given the size of the business in medical devices, it would have a relatively minor impact on our thinking should one of those areas slow down versus what the dynamic was at the end of March and early April.
Other sources sources as Alex mentioned, the outreach a that he's had personally that actually has had personally in other medical device leaders in our company to the customers themselves to understand what's going on in the ground is probably the most insightful a qualitative a analysis, we put into our modeling.
Okay, and that's been extremely helpful. So I would say, it's largely based on the trends that we saw at the end of June and again I I do want to caution folks that why we are seeing a rising cases, it isn't very select a communities and very select states. So again, it's not that same universal approach and to the you know the size of.
The business in medical devices. It would have a relatively minor impact in our thinking should one of those areas slowdown versus what the dynamic was at the end of March in early April.
Louise Chen: Thanks, Bob. I appreciate the question. Rob, next question, please.
Thanks, Bob appreciate the question.
Rob next question. Please your next question is from Louise Chen with Cantor Fitzgerald.
Joaquin Duato: Your next question...
Joseph J. Wolk: Your next question is from Louise Chen with Cantor Fitzgerald. Hi, thanks for taking my questions here.
Hi, Thanks for taking my questions here. So my first question is just on this new to brand prescription pick up how much of an improvement have you seen are there any metric that you can provide here and how landfall throughout the rest of the year in your mind and then second question is how should we think about how much of your increase in your 2020 financial guidance.
Joaquin Duato: So my first question is just on this new-to-brand prescription pickup. How much of an improvement have you seen? Are there any metrics that you can provide here? And how will it unfold throughout the rest of the year in your mind? And then second question is, how should we think about how much of your increase in your 2020 financial guidance was already captured or incorporated into the second quarter 20B? Thank you.
This already captured are incorporated into the second quarter 20 be thank you.
Joaquin Duato: Joaquin, maybe you want to answer the Nuda brand?
[noise] Lucky maybe you want to I answered the new to brand.
Joaquin Duato: Yeah, thank you. Let me take a look at the new-to-brand data. Overall, what we have seen in both prescriptions and new-to-brand is that they are still below pre-COVID levels, about 9% in overall prescriptions and about 30% in new-to-brand. And I'm talking about the market now, in general. But what we are seeing is, during the quarter, constant improvement. So the trends are still improving, and we are seeing particularly positive trends in oncology, where diagnostics, visits, and IV drug administrations have already returned to pre-pandemic levels.
Yeah. Thank you, let me take the new to brand data, albeit old what we have seen in both prescriptions and new to brand. He is that they yet it's still to be low pretty colby levels about 9% in little bit Isle prescriptions on about 30% in new to brand I'm talking about market now in.
Generally, but we are seeing needs.
During the quarter, our constant improvement so that things are they still improving and we are seeing about equally positive things in oncology we add.
We add diagnostics VC I may be did I mean, you stations have already returned to deplete bummed indicators.
Joaquin Duato: Thanks, Joaqun. And, Luis, with respect to your question about how much has already been captured with the second quarter results, I think if you just look purely at the numbers, a lot of the guidance uptake was dependent upon, at least for the top line, on the results of the second quarter, specifically in medical devices. From our April guidance, we kind of knocked out the worst-case scenario, if you will, and we also saw a little bit of improvement with currency translation as well. With respect to earnings on the bottom line, as you know, I think coming into the call, at least as of Monday's data, it suggested we beat by roughly $0.20 per share on the bottom line. We've taken our guidance up operationally by $0.10, as we're going to continue to look and challenge our teams for good, solid investments for the balance of this year that will strengthen 2021 and beyond. And that's kind of how we're thinking of this going forward.
Thanks, Joaquin and Louise with respect to your question about how much has already been captured with the second quarter results. I think if you just look purely at the numbers a lot of the guidance uptake was dependent upon lease for top line on the results of the second quarter, specifically in medical devices from our April guidance, we kinda and.
Knocked out the worst case scenario, if you will and we also saw a little bit of improvement with currency translation as well with respect to earnings in the bottom line as you know I think coming into the call at least as of Monday's of data. It suggests that we beat by roughly 20 cents per.
Share on the bottom line, we've taken our guidance up operationally 10 cents.
As we are going to continue to look in challenge our teams for a good solid investments for the balance of this year that fortify 2021, and beyond and that's kind of how we're thinking of that's going forward.
Operator: Yeah, I would also add that with respect to our own brands, what we are seeing both in immunology and oncology is that we continue to gain share both in total TRXs and in new to brand. For example, when you look at Stelara in Crohn's disease, our year-over-year share gain has been 6.8 points. And when you look at our actual share in overall Crohn's disease is 16%, and our new to brand share is 17.7%. So when you look at our share trends, both in immunology and in oncology, in total TRXs and in new to brand share, in both cases, we see share gains.
Yes, I would also add that weve aspects of our own buttons, what we are seeing both in immunology and oncology is that we continued to gain share. Both in total DRD exists on on in new to brand for example, when you've got to stay Lada incrementally these fees our year over year she.
Gain has been 6.8 points on when you look at our actual share in overall grown DCC, 16% and our new to brand Shelly is 17.7%. So when you look at that were shared at the end both immunology and oncology at in total Trx is on the news.
Brian share in both cases, we see share gains.
Terence Flynn: Thanks, Louise. I appreciate the question. We have time for one more question. Rob, could you introduce the next question, please?
Thanks Louise appreciate the question we have time for one more question Rob could you introduced the next question. Please share Sir Your next question comes from Terence Flynn with Goldman Sachs.
Joseph J. Wolk: Sure, sure. Your next question comes from Terrence Flynn with Goldman Sachs.
Joaquin Duato: Thanks for taking the time to speak with us.
Hi, Thanks for taking the question.
Joaquin Duato: Thanks for taking the question. Appreciate the early insights on 2021, but just, I might have missed it, but any thoughts on how we should think about margins, maybe relative, I know this year is kind of an outlier, but relative to prior years, and then would welcome your latest perspective on any impact you're seeing with respect to payer mix from elevated unemployment and how this might impact 2021. I know, Alex, you touched on this a little bit, but maybe anything you're seeing at this point and how you're thinking about that right now. Thank you.
Appreciate the early insights on 2021, but just I might have missed it but any thoughts on how we should think about margins maybe relative I know this years kind of an outlier, but relative to prior years and then would welcome your latest perspective on any impact you're seeing with respect to payer mix from elevated unemployment and how this might impact 2021 I know.
Alex you touched on this a little bit, but maybe anything you're seeing at this point and how you're thinking about that right now. Thank you.
Joaquin Duato: To Terence, I'll answer in terms of operating margin first before turning it over to Joaquin for some of the parameters. In terms of margins, you're absolutely right, this is a year that's a little bit abnormal, to say the least, so we would expect margin improvement from this year. I would point to a number of initiatives that we already have in place that should continue to yield better margins, specifically in our consumer unit, where we have a SKU rationalization program that should be fully executed by the end of this year. That will help improve margins. And then some broader supply chain initiatives that we have with respect to our partnership with Jable, largely in our medical device unit. So we would anticipate that there would be margin improvement. We're still going to look to prioritize investment in R&D. I think it was a very strong sign for the company that our level of R&D investment in the second quarter of this year was actually slightly higher than what it was last year, despite the work-from-home dynamic. We continue to progress our pipeline across all three of our businesses.
Terrence I I'll answer in terms of operating margin first before turning it over to Joaquin for some of the payer mix in terms of margins. Yet you. This right that you're absolutely right. This is a a and in a year, that's a little bit or abnormal to say the lease. So we would expect margin improvement off of this year I would point to is.
Initiatives that we had already in place that should continue to.
Yields better margins, specifically in our consumer unit, where are we did have a SKU rationalization program with should be fully executed by the end of this year that will help improve margins and then some broader supply chain initiatives that we had a with respect to our partnership with the chaebol largely in our medical device unit.
So we would anticipate that there would be margin improvement, we're still gonna look to prioritize investment in R&D I think it was a very strong signed for the company that our level of R&D investment in the second quarter of this year was actually slightly higher than what it was last year. Despite the work from home dynamic we continue to.
Progress our pipeline across all three of our businesses.
Joaquin Duato: So, regarding our payer mix, just for background, our payer mix now is about 50% commercial and about 43% Medicare and Medicaid, Medicare being 37%, and Medicaid 6%, so a very well diversified payer mix. At this point, we have not seen any major changes in our payer mix yet, so we have not seen those changes. Depending, as Alex mentioned before, on the economic recovery and the resulting employment rate, we could expect in the second half of the year an increase in Medicaid, health exchanges, and also uninsured numbers, which will also create affordability problems. But again, at this point, we have not seen changes in our payer mix yet.
So did you got to be now watered pay your mix, yes for background our pay your mix now, it's about 50% commercial and about 40%, 40%, Medicare Medicaid and Medicare to being 57% Medicaid experts and so I bedi will diversify pay you.
At this point, we have not seen any major changes in that were paid your mix get so we have not seen those changes depending I filings referred before on the economic recovery on the recycling and blowing invade weak we'd expect indicative of the year an increase in Medicaid health exchanges.
North shore uninsured numbers, which we also create affordability programs, but again at this point, we have not seen changes in our payer mix.
Great. Thanks walking appreciate it turns thank you and as always thanks to everyone for your questions and your continued interest.
Operator: Thanks, Joaquin. I appreciate it. Terrence, thank you. And, as always, thanks to everyone for your questions and your continued interest. If we weren't able to get to your question at this time, obviously, please reach out to the Investor Relations team. And then I'll just turn it over to Alex now for a final comment.
If we weren't able to get to your question at this time, obviously, please reach out to the Investor Relations team and then I'll just turn it over to Alex now just for final comments.
Well, Thank you, Chris and look let me, a and where we started and thank all of you for your ongoing support.
Alex Gorsky: Well, thank you, Chris, and look, let me end where we started and thank all of you for your ongoing support, and also thank all of our colleagues at Johnson & Johnson who have been working around the clock over the past several quarters to ensure that we can continue to serve all of our credo stakeholders, the patients, the doctors, the surgeons, mothers and fathers that depend on us, who are ensuring that our employees have got a safe environment, the Will you also agree that the transparency and the strength of our results in the second quarter reinforce, I think, the core philosophy of Johnson & Johnson and that, whether it be in good times or challenging times like these, our strategy, our business model, and our value system will ensure that we're able to navigate through in a way that's best for everyone?
And also thank all of our colleagues at Johnson and Johnson.
I've been working around the clock over the past several quarters to ensure that we can continue to serve all of our credo stakeholders. The patient the doctors the surgeons mothers and fathers that depend on us.
Our ensuring that our employees have got a safe environment are the communities, where we serve and ultimately to you our shareholder.
Hopefully you also agree that the transparency and the strength of our results and the second quarter reinforce a I think they are the core philosophy of Johnson and Johnson and that in that whether it be in good times are challenging times like these that our strategy our business model and our value system a willing.
Sure the we're able to navigate through a in a way that best for everyone. So thank you all we're committed to keeping you updated on the progress that we're making it our various programs and as we get more information and thank you very much everyone stay healthy and phase day Bye for now.
So thank you. We're committed to keeping you updated on the progress that we're making in our various Stay healthy and stay safe initiatives. Bye for now. Thank you. This concludes today's Johnson & Johnson second quarter 2020 earnings conference call. You may now disconnect.
Thank you. This concludes today's Johnson and Johnson second quarter 2020 earnings Conference call you may now disconnect.