Q2 2019 Earnings Call

[music] good morning, welcome to Johnson <unk> Johnson's second quarter 2019 earnings Conference call.

Unknown Attendee: Good morning. This is Chris Velourfas, Vice President of Investor Relations for Johnson & Johnson. Welcome to our company's review of business results for the second quarter of 2019. Joining me on today's call is Jill Wolk, Executive Vice President and Chief Financial Officer. Additionally, during our Q&A session, Joe and I will be joined by Joaquin Duato, Vice Chairman of the Executive Committee, and Dr. Paul Stoffels, Vice Chairman of the Executive Committee and Chief Scientific Officer. This is a great opportunity for you to engage with our Vice Chairman and not only obtain insights into the drivers of our current performance related to their areas of expertise but also hear their perspective on our approach to innovation and building differentiated capabilities that we expect to A few logistics before we get into the details.

All participants will be in listen only mode until the question answer session of the conference.

This call is being recorded if anyone has any objections you may disconnect at this time.

If you experienced technical difficulties during the conference you May press star zero to reach the operator.

I would now let's turn the conference call over to Johnson and Johnson you may begin.

Good morning. This is christophe surface, Vice President of Investor Relations for Johnson and Johnson welcome to our company's review of business results for the second quarter of 2019.

Joining me on today's call is Joe Walk Executive Vice President Chief Financial Officer.

Unknown Attendee: This review is being made available via webcast, accessible through the Investor Relations section of the Johnson & Johnson website at www.investor.jnj.com, where you can also find additional materials, including today's presentation and associated schedules. Please note that today's presentation includes forward-looking statements. We encourage you to review this cautionary statement regarding such statements included in today's presentation, as well as the company's Form 10-K, which identifies certain factors that may cause the company's actual results to differ materially from those projected. Our SEC filings, including our 2018 Form 10-K and our most recent 10-Q, along with reconciliations of non-GAAP financial measures utilized for today's discussion to the most comparable GAAP measures are also available at JNJ.com

Additionally, during our Q and a session Joe and I will be joined by Joaquin Duato, Vice Chairman of the Executive Committee and Dr., Paul Stoffels, Vice Chairman of the Executive Committee and Chief Scientific Officer.

This is a great opportunity for you to engage with our vice chairman and not only obtain insights into the drivers of our current performance related to their areas of expertise.

But also hear their perspective on our approach to innovation.

In building differentiated capabilities that we expect to enable continued strong performance over time, a few logistics before we get into the details.

This review is being made available via webcast accessible through the Investor Relations section of the Johnson and Johnson website at Investor Day, JNJ Dot Com, where you can also find additional materials, including today's presentation and associated schedules.

Unknown Attendee: Several of the products and compounds discussed today are being developed in collaboration with strategic partners or licensed from other companies. This slide acknowledges those relationships. Regarding today's agenda, Joe will first provide some perspective on our overall results for the second quarter. I will then review the sales and P&L results for the corporation and the three business segments. Joe will conclude by providing insights on our cash position, capital allocation deployment, and our updated guidance for 2019, along with some considerations for the balance of the year. The remaining time will be available for your questions. We anticipate the webcast will last about 75 minutes. I'm now pleased to turn the call over to Joe Waltz.

Please note that today's presentation includes forward looking statements. We encourage you to review this cautionary statement regarding such statements included in today's presentation.

As well as the company's Form 10-K , which identifies certain factors that may cause the company's actual results to differ materially from those projected.

Our SEC filings, including our 2018 Form 10-K .

And our most recent 10-Q.

Along with reconciliations of non-GAAP financial measures.

Utilized for todays discussion to the most comparable GAAP measures.

We are also available at Investor Day JNJ Dotcom.

Josh Jennings: Great, Chris. Good morning, everyone. Thank you for your interest in Johnson & Johnson. I'm pleased to discuss with you our solid results for the second quarter and how our performance during the first half of 2019 positions us well for the rest of the year and beyond. During the quarter, we continued to deliver growth across the three segments of our broad-based business while also optimizing our portfolio and making progress against long-term strategies. Revenue and earnings per share were in line with our expectations. As expected, we did experience sales deceleration from the first quarter primarily due to the impact of generic and biosimilar competition in our pharmaceutical business.

Several other products and compounds discussed today are being developed in collaboration with strategic partners or licensed from other companies.

This slide acknowledges those relationships.

Regarding todays agenda.

Joe will first provide some perspective on our overall results for the second quarter.

I will then review the sales NPL results for the Corporation and the three business segments.

Joe will conclude by providing insights on our cash position capital allocation deployment and our updated guidance for 2019, along with some considerations for the balance of the year.

The remaining time will be available for your questions. We anticipate the webcast will last about 75 minutes.

Josh Jennings: Income in the first half of 2019 provides us with the opportunity to continue investing to fortify, accelerate, and potentially add to our pipelines across all three segments. We are committed to driving solid financial and operational performance for our shareholders while also delivering on our responsibilities to patients, employees, and communities as outlined in our Credo. Chris will provide additional franchise and product detail, but let me provide some high-level framing.

Im now pleased to turn the call over to Joe walk.

Great crash. Good morning, everyone. Thank you for your interest in Johnson and Johnson I'm pleased to discuss with you our solid results for the second quarter and how our performance during the first half of 2019 positions us well for the rest of the year and beyond.

During the quarter, we continued to deliver growth across the three segments of our broad based business, while also optimizing our portfolio and making progress against long term strategies.

Josh Jennings: Our pharmaceutical business continues to deliver strong growth across our oncology, pulmonary hypertension, and immunology portfolios. We are particularly pleased with the success of Darzalex, Stelara, Imbruvica, and the Invega portfolio. As highlighted during our May Pharmaceutical Business Review, our performance demonstrates our ability to consistently obtain approval for new products and line extensions. Additionally, once again, our performance was driven by volume of transformational medicines that address high unmet medical needs rather than price. In our consumer segment, we accelerated growth in the second quarter in our stronghold beauty lines of Neutrogena and Aveeno. We are also pleased with the contributions from newly acquired businesses Dr. Shilabo and Zarby's.

Revenue and earnings per share were in line with our expectations.

As expected we did experience sales deceleration from the first quarter, primarily due to the impact of generic and Biosimilar competition in our pharmaceutical business.

Income in the first half of 2019 provides us the opportunity to continue investing to fortify accelerate and potentially add to our pipelines across all three segments.

We are committed to driving solid financial and operational performance for our shareholders. While also delivering on our responsibilities to patients employees and communities as outlined in our credo.

Chris will provide additional franchise and product detail, but let me provide some high level framing.

Our pharmaceutical business continues to deliver strong growth across our oncology pulmonary hypertension and immunology portfolios.

Josh Jennings: This growth more than offsets the one-time impacts related to seasonality and inventory levels we mentioned during our first quarter call. We expect to deliver competitive growth relative to the market for the year. In our medical devices segment, we did incur some isolated supply disruptions in the quarter, which Chris will outline, and the impact limited growth by one point. Accounting for that, we grew above 4% in line with last quarter, and we are on track towards our goal of exceeding last year's performance. We continue to enhance our leadership positions in platforms such as electrophysiology, energy, and endocutters. Orthopedics grew modestly during the quarter, in line with Q1, led by hips and trauma.

We're particularly pleased with the success of Darzalex, Stelara Imbruvica and the Invega portfolio.

As highlighted during our May pharmaceutical business review, our performance demonstrates our ability to consistently obtain approval for new products and line extensions. Once again, our performance was driven by volume of transformational medicines that address high unmet medical need rather than price.

In our consumer segment, we accelerated growth in the second quarter in our stronghold beauty lines of Neutrogena NVNO. We're also pleased with the contributions from newly acquired businesses Dr. Shi. Labo ends are these this growth more than offset the onetime impacts related to seasonality and inventory levels. We mentioned during our first quarter call.

We expect to deliver competitive growth relative to the market for the year.

In our medical devices segment, we did incur some isolated supply disruptions in the quarter, which Chris will outline and the impact limited growth by one point.

Josh Jennings: That being said, we remain intent on improving our performance in orthopedics and the segment at large. Turning to earnings, earnings per share was favorably impacted by a significant gain recorded in other income, specifically the approximately $2 billion pre-tax gain related to the sale of the advanced sterilization products business. We closed this transaction in early April, and as mentioned during the first quarter call, this gain comprises a large majority of our other income guidance for the full year 2019. Other income for 2019 is on par with levels experienced in 2015 and consistent with past practice. We intend to utilize these gains to invest in opportunities that increase shareholder value and better position the business for long-term success. I'll now turn the call back to Chris to discuss second quarter sales drivers, as well as highlight notable line items in our P&L, before I return with some comments regarding our cash position, capital allocation priorities, and guidance.

Accounting for that we grew about 4% in line with last quarter and we are on track towards our goal of exceeding last years performance.

We continue to enhance our leadership positions in platforms, such as electrophysiology energy and Endocutters.

With the predicts grew modestly during the quarter in line with Q1 led by hits and trauma that being said, we remain intent on improving our performance in orthopedics and the segment at large.

Turning to earnings.

Earnings per share was favorably impacted by a significant gain recorded in other income specifically the approximately $2 billion pre tax gain related to the sale of the advanced sterilization products business. We close this transaction in early April and as mentioned during the first quarter call. This gain comprises a large majority of our other income guidance for the full year 2019.

Unknown Attendee: Thank you, Joe. Worldwide sales were $20.6 billion for the second quarter of 2019, a decrease of 1.3% versus the second quarter of 2018. Operational sales growth, which excludes the effect of translational currency, increased 1.6%, as currency had a negative impact of 2.9 points. In the U.S., sales decreased 2.2%; in regions outside the U.S., our reported growth declined by 0.3%. Operational sales growth outside the U.S. was 5.5%, with currency negatively impacting our reported OUS results by 5.8 points. Excluding the net impact of acquisitions and divestitures, adjusted operational sales growth was 3.7% worldwide, flat in the U.S., and 7.6% outside the U.S. Turning now to earnings. For the quarter, net earnings were $5.6 billion, and diluted earnings per share was $2.08, versus diluted earnings per share of $1.45 a year ago.

Other income for 2019 is on par with levels experienced in 2015 and consistent with past practice, we intend to utilize these gains to invest in opportunities that increase shareholder value and better position the business for long term success.

I'll now turn the call back to Chris to discuss second quarter sales drivers as well as highlight notable line items in RPL before I return with some comments regarding our cash position capital allocation priorities and guidance.

Thank you Joe.

Worldwide sales were $20.6 billion for the second quarter of 2019, a decrease of 1.3% versus the second quarter of 2018.

Operational sales growth, which excludes the effect of translational currency increased 1.6% as currency had a negative impact of 2.9 points.

In the U.S. sales decreased 2.2%.

In regions outside the us our reported growth declined by 8.3%.

Operational sales growth outside the us was 5.5% with currency negatively impacting our reported EPS results by 5.8 points.

Excluding the net impact of acquisitions and divestitures.

Adjusted operational sales growth was 3.7% worldwide.

Unknown Attendee: Excluding the after-tax intangible asset amortization expense and special items for both periods, adjusted net earnings for the quarter were $7 billion, and adjusted diluted earnings per share was $2.58, representing increases of 21.5% and 22.9%, respectively, compared to the second quarter of 2018. On an operational basis, adjusted diluted earnings per share grew 25.2%. Beginning with consumer, 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 2018, and therefore exclude the impact of currency translation. Worldwide consumer segment sales totaled $3.5 billion, growing at 4.6% Excluding the net impact of acquisitions and divestitures, adjusted operational sales growth was 2.3%, with strong growth in the U.S. of 4.4%, due primarily to strong performance in our beauty franchise. Growth outside the U.S. was 0.7%.

Flat in the us and 7.6% outside the U.S.

Turning now to earnings for the quarter net earnings were $5.6 billion in diluted earnings per share was $2.08 versus diluted earnings per share of one dollar and 45 cents a year ago.

Excluding the after tax intangible asset amortization expense and special items for both periods adjusted net earnings for the quarter were $7 billion and adjusted diluted earnings per share was $2.58, representing increases of 21.5% and 22.9% respectively compared to the second quarter of 2018.

On an operational basis adjusted diluted earnings per share grew 25.2%.

Beginning with consumer I will now comment on business segment sales for the second quarter highlighting items that build upon the slide you have in front of you.

Unless otherwise stated percentages quoted represent the operational sales change in comparison to the second quarter of 2018, and therefore exclude the impact of currency translation.

Worldwide consumer segment sales totaled $3.5 billion growing at 4.6%.

Excluding the net impact of acquisitions and divestitures.

Adjusted operational sales growth was 2.3% with strong growth in the us a 4.4% due primarily to strong performance in our beauty franchise.

Growth outside the us was 0.7%.

Unknown Attendee: Consumer continues to grow share in the e-commerce channel, outpacing category growth rates in that channel with strong double-digit growth across all regions. The Beauty Franchise grew 10.7%, or about 5% adjusted to exclude the impact of the acquisition of Dr. Salabo and the Nizoral and ROK divestitures. Our priority brands Neutrogena and Aveeno delivered strong performance results due to share growth combined with strong sales in our club and e-commerce channels in the U.S. Share growth in Neutrogena was realized in the Facial Moisturizing Treatment and Sun Protection categories. Aveeno was further aided by retail stocking for the hair products launch.

Consumer continues to grow share in the E Commerce channel outpacing category growth rates in that channel with strong double digit growth across all regions.

The beauty franchise grew 10.7% or about 5% adjusted to exclude the impact of the acquisition of Dr. Salobo and the NYSE overall and rock divestitures.

Our priority brands Neutrogena NVNO delivered strong performance results due to share growth combined with strong sales in our club and ecommerce channels in the U.S.

Share growth Neutrogena was realized in the facial moisturizing treatment and Sun protection categories.

The Vienna was further aided by retail stocking for the air products launch.

Unknown Attendee: OGX and Maui Moisture brands continue to experience solid growth, primarily resulting from new market expansions. Over-the-counter medicines grew 2.8% globally, or 1% when adjusted to exclude the impact of the Zarbis acquisition, which continues to perform well. In the U.S., OTC adjusted operational sales growth was just over 2% and is a growing share. However, the U.S. was negatively impacted by retail inventory factors.

Gx and Maui moisture brands continue to experience solid growth, primarily resulting from new market expansions.

Over the counter medicines grew 2.8% globally or 1% when adjusted to exclude the impact of this arby's acquisition, which continues to perform well.

In the us ODC adjusted operational sales growth was just over 2% and is growing share.

However, the us was negatively impacted by retail inventory factors.

Unknown Attendee: Zyrtec was a core contributor to sales growth and grew market share. Additionally, children's Motrin and Tylenol in pediatric analgesics delivered strong sales and share growth. Adult Tylenol also continues to drive significant share growth with consumption well outpacing the category, realizing double-digit consumption growth driven by rapid-release gel and Tylenol arthritis products. However, Tylenol sales declined slightly this quarter as its consumption was more than offset by the lapping of the supply disruption associated with Hurricane Maria and the sell-through of 2018 elevated retail inventory levels that occurred in response to seasonal and other retailer stocking dynamics. Concluding the consumer segment, baby care grew 2.2% globally. This growth is primarily due to lapping retail destocking and other events associated with the Johnson's Baby relaunch in the U.S. The Johnson's relaunch is stabilizing performance in all markets where it has been relaunched.

Xbiotech was a core contributor to sales growth and grew market share.

Additionally, children's mode trend and tylenol in pediatric analgesics delivered strong sales and share growth.

Adult Tylenol also continues to drive significant share growth with consumption well outpacing the category realizing double digit consumption growth driven by rapid release gel and tylenol arthritis products.

However, tylenol sales declined slightly this quarter as this consumption was more than offset by the lapping of the supply disruption associated with Hurricane Maria and the sell through of 2018 elevated retail inventory levels that occurred in response to seasonal and other retailers stocking dynamics.

Including the consumer segment Baby care grew 2.2% globally.

Growth is primarily due to lapping retail destocking and other events associated with the Johnsons baby relaunch in the us the Johnsons relaunch of stabilizing performance in all markets, where it has been re launched moving onto our pharmaceutical segment.

Unknown Attendee: Moving on to our pharmaceutical segment, worldwide pharmaceutical sales of $10.5 billion grew 4.4%, enabled by double-digit growth in nine key products. Sales were aided by one-time favorable pricing adjustments outside the U.S., worth almost 100 basis points worldwide, primarily driven by Darzalex. Sales declined in the U.S. by 2% and increased outside the U.S. by 12.9%.

Worldwide pharmaceutical sales of $10.5 billion grew 4.4% enabled by double digit growth in non key products sales were aided by onetime favorable pricing adjustments outside the us worth almost 100 basis points worldwide, primarily driven by Darzalex.

Sales declined in the us by 2% and increased outside the us by 12.9%.

Unknown Attendee: Generic competition for Zytiga negatively impacted our worldwide and U.S. growth by about 300 and 500 basis points, respectively. However, our strong portfolio of products and commercial capabilities has enabled us to deliver global growth at competitive levels despite significant biosimilar and generic headwinds. Our Oncology Therapeutic Area delivered another strong quarter with worldwide growth of 14.1%. Darzalex continued its strong performance, growing about 57% globally, or about 41% when removing the impact of a favorable one-time adjustment related to the completion of pricing and reimbursement discussions in certain European countries. The U.S. grew 24% and continues to benefit from strong market growth and about a 3-point increase in U.S. market share across all lines of therapy. The continued strong double-digit growth outside the U.S. is driven by increased penetration and share gains across the 40 AMEA countries where it is commercially available, as well as Latin America and the Asia-Pacific region.

Generic competition for sites negatively impacted our worldwide in us growth by about 305 hundred basis points respectively.

Our strong portfolio of products and commercial capabilities has enabled us to deliver global growth at competitive levels, Despite significant biosimilar and generic headwinds.

Our oncology therapeutic area delivered another strong quarter with worldwide growth of 14.1%.

Darzalex continued its strong performance growing about 57% globally, we're about 41% when removing the impact of a favorable onetime adjustment related to the completion of pricing and reimbursement discussions in certain European countries.

The U.S. grew 24% and continues to benefit from strong market growth and about a three point increase in us market share across all lines of therapy.

The continued strong double digit growth outside the us is driven by increased penetration and share gains across the 40 AMEA countries, where it is commercially available as well as Latin America, and the Asia Pacific region.

Unknown Attendee: Of note, just last week, we filed a regulatory submission for the subcutaneous formulation of Darzalex for multiple myeloma in the U.S. Imbruvica grew over 39% globally, driven largely by market share gains and strong market growth across multiple indications in the U.S., along with strong uptake outside the U.S. in the European and Asia-Pacific markets. In the U.S., based on first-quarter data across all indications and lines of therapy, Imbruvica gained approximately 3 points of market share and continues to be the new patient and total patient share leader in chronic lymphocytic leukemia, which gained almost 8 points of market share in line 1 therapy. Worldwide Zytiga growth declined by about 20%, with declines of 59% in the U.S. driven by generic competition, which was partially offset by growth of about 25% outside the U.S. Strong sales growth in Europe and Asia were driven by market growth and share gains, primarily from the expanded indication in metastatic, high-risk, castration-sensitive prostate cancer based on the Latitude Clinical Trial.

Of note just last week, we filed a regulatory submission for the subcutaneous formulation of Darzalex for multiple myeloma in the U.S.

Imbruvica grew over 39% globally, driven largely by market share gains and strong market growth across multiple indications in the us along with strong uptake outside the us in the European and Asia Pacific markets.

In the US based on first quarter data across all indications and lines of therapy Imbruvica gained approximately three points of market share and continues to be the new patient and total patient share leader in chronic lymphocytic leukemia, which gained almost eight points of market share in line one therapy.

Worldwide by ticket growth declined by about 20% with declines of 59% in the us driven by generic competition, which was partially offset by growth of about 25% outside the U.S.

Strong sales growth in Europe , and Asia were driven by market growth and share gains primarily from the expanded indication in metastatic high risk castration sensitive prostate cancer based on the latitude clinical trial.

Unknown Attendee: In non-metastatic castration-resistant prostate cancer, we continue to be pleased with the launch progress of Erleada, which gained almost four points of market share in the U.S., with the penetration of prescribers split almost evenly among urology and oncology practices. We are also pleased with the early launch progress in EMEA, where Erleada is now available in five countries. During the quarter, we filed regulatory submissions in the U.S. and Europe for metastatic castration-sensitive prostate cancer. Furthermore, we are pleased with the early launch progress of Valversa for the treatment of adults with locally or advanced metastatic urethelial cancer.

In non metastatic castration resistant prostate cancer, we continue to be pleased with the launch progress of our leader, which gained almost four points of market share in the us with the penetration of prescribers split almost evenly among urology and oncology practices.

We are also pleased with the early launch progress in EMEA, where LIBOR is now available in five countries.

During the quarter, we filed regulatory submissions in the us and Europe for metastatic castration sensitive prostate cancer.

Further we are pleased with the early launch progress of bell versa for the treatment of adults with locally or advanced metastatic urothelial cancer.

Unknown Attendee: Our immunology portfolio delivered global sales growth of just under 6 percent, driven by continued strong performance in Stelara with growth of 18 percent, primarily from the Crohn's disease indication. We remain very pleased with the uptake of Stelara and Crohn's disease, where market shares increased by over six points in the U.S. compared to the second quarter of 2018. Sales growth is partially offset by continued erosion of Remicade of 15% due to increased discounts and modest share loss in the U.S. due to alternative mechanisms of action and biosimilars. Lastly, Tremfya totaled $235 million globally and is experiencing strong demand with over 35,000 patients on therapy. Tremfya achieved a 7.6% share of the psoriasis market in the U.S., which is up three points from the second quarter of 2018.

Our immunology portfolio delivered global sales growth of just under 6% driven by continued strong performance in stelara with growth of 18%.

Primarily from the Crohns disease indication.

We remain very pleased with the uptake of solar in Crohns disease, where market shares increased by over six points in the us compared to the second quarter of 2018.

Sales growth was partially offset by continued erosion of remicade of 15% due to increased discounts that modest share loss in the us to alternative mechanisms of action and bio similars.

Lastly term fire totaled $235 million globally and is experiencing strong demand with over 35000 patients on therapy try achieved a 7.6% share of the psoriasis market in the US which is up three points from the second quarter 2018.

Unknown Attendee: In infectious diseases, our portfolio grew 5.4%, led by strong growth of Simtuza and Jaluka for HIV, partially offset by cannibalization and increased market competition in other products. In neuroscience, our paliperidone long-acting portfolio performed well, growing about 16%, with higher market share driven by increased new patient starts and strong persistency. In addition, we are pleased with the launch performance of Spravato for treatment-resistant depression. There are more than 1,600 sites certified with the REMS program, and new treatment centers are being added daily.

In infectious diseases, our portfolio grew 5.4% led by strong growth of some tusa and Toluca for HIV, partially offset by cannibalization an increased market competition in other products.

In more science, our pellet baritone long acting portfolio performed well growing about 16% with higher market share driven by increased new patient starts and strong persistency. In addition, we are pleased with the launch performance us bravado for treatment resistant depression.

There are more than 1600 site certified with the Rems program and new treatment centers are being added daily.

Unknown Attendee: In our cardiovascular metabolism and other product portfolio, we did experience declining sales of 14.7%, primarily driven by declines in Xarelto, Invokana, and by a similar competition for Procred. Xarelto continues to increase TRX share, however, the share uptake was offset by the increase in the legislative rate for the donut hole from 50% to 70%, along with higher Medicare and donut hole utilization, resulting in an overall decline in We've seen a positive response to Xarelto's new 2.5 mg vascular dose for the CAD and PAD indication, and while we expect the penetration of this expanded patient population to occur over time, we are confident in the value this indication provides to patients.

In our cardiovascular and metabolism and other product portfolio, we did experienced declining sales of 14.7% primarily driven by declines are alto invokana and biosimilar competition for Procrit.

So we're also continues to increase Trx share. However, the share uptake was offset by the increase in the legislative rate for the donut hole from 50% to 70% along with higher Medicare and donut hole utilization.

Resulting in an overall decline in their alto of 19% this quarter.

We've seen a positive responses are altos, new 2.5 milligram vascular dose for the cat and pad indication and while we expect the penetration of this expanded patient population to occur over time.

We are confident in the value of this indication provides patients.

Unknown Attendee: Our total pulmonary hypertension portfolio grew by 6%, with strong performance in both Upsummit and Uptravi growing by about 15% and 19%, respectively, on a global basis. Both benefited from further market penetration and increased share. This growth was partially offset by Triclir, which was negatively impacted by the recent generic entry into the U.S., as well as continued generic competition outside of the U.S. Now, I'll now turn your attention to the medical devices segment.

Our total pulmonary hypertension portfolio grew by 6% with strong performance in both up summit and Uptravi growing by about 15% and 19% respectively on a global basis.

Both benefited from further market penetration and increase share.

This growth was partially offset by higher clear, which was negatively impacted by the recent generic entry in the us as well as continued generic competition outside of the U.S.

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

Unknown Attendee: Worldwide medical devices sales were $6.5 billion, declining 4.1%, excluding the net impact of acquisitions and divestitures, primarily the divestitures of LifeScan and ASP. Adjusted operational sales growth was 3.2% worldwide. As Joe mentioned, we did have some isolated supply challenges in the quarter that negatively impacted growth by about 100 basis points worldwide.

Worldwide medical devices sales were $6.5 billion declining 4.1%.

Excluding the net impact of acquisitions and divestitures, primarily the divestitures of Lifescan NSP adjusted operational sales growth was 3.2% worldwide.

As Joe mentioned, we did have some isolated supply challenges in the quarter that negatively impacted growth by about 100 basis points worldwide.

Unknown Attendee: Adjusting for this, medical devices would have delivered growth of just over 4%, consistent with the first quarter and representative of the continued progress being made to improve performance in this segment. Interventional solutions grew about 16% globally, led by continued strength in our electrophysiology business, achieving more than 16% growth worldwide, continuing its trend of double-digit growth. Growth is strong in all regions, driven by our newer product offerings in ablation and advanced catheters, contributing to atrial fibrillation procedural market growth. Additionally, we delivered a fourth straight quarter of double-digit growth in our Serenovus business, driven by new product innovation, including EmboTrap for the treatment of ischemic stroke, as well as strong market growth. Vision growth of 1.5% was driven by contact lenses, which grew almost 3% globally, led by daily disposables and astigmatism lenses in the Oasis family.

Adjusting for this medical devices would have delivered growth of just over 4% consistent with the first quarter and representative of the continued progress being made to improve performance in this segment.

Interventional solutions grew about 16% globally led by continued strength in our electrophysiology business, achieving more than 16% growth worldwide.

Continuing its trend of double digit growth.

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

Additionally, we delivered a fourth straight quarter of double digit growth in our service business driven by new product innovation, including Mboe trapped for the treatment of his scheming stroke as well as strong market growth.

Vision growth of 1.5% was driven by contact lenses, which grew almost 3% globally led by daily disposables and astigmatism lenses in the waste his family.

Unknown Attendee: Our contact lenses business remains strong, with year-to-date growth of just under 5% in both the U.S. and O.U.S. Orthopedics growth remained consistent versus Q1 of 2019, with growth of 0.6% or 0.9% when adjusting for acquisitions, divestitures, and selling days. We continue to make progress to improve growth in this franchise, and we remain committed to executing our innovation and commercial plans that aim to improve performance. HIPS grew 3.3%, which we expect to represent above-market performance globally, driven by our leadership position in the anterior approach and continued strong demand for our primary stem, Actis, which is now our number one selling stem in the U.S. Additionally, our concise surgical impactor, designed to replace the handheld mallet, is The U.S. growth rate of 3.3% is expected to be in line with the market and accelerate for the third consecutive quarter.

Our contact lenses business remained strong with year to date growth of just under 5% in both the us and will use.

Orthopedics growth remained consistent versus Q1 of 2019 with growth of 8.6%, we're 0.9% when adjusting for acquisitions divestitures and selling days, we continue to make progress to improve growth in this franchise and we remain committed to executing our innovation and commercial plans that aim to improve performance.

Hips grew 3.3%, which we expect to represent above market performance globally, driven by our leadership position in the anterior approach and continued strong demand for our primary stem activists, which is now our number one selling stem in the U.S. Additionally, our concise surgical impacter designed to replace the handheld mallett is enabling hit procedures in the U.S.

Trauma growth of 1.7% globally was driven by market growth supported by strong adoption of newer innovation such as our femoral recon nails. The us growth rate of 3.3% is expected to be in line with the market and accelerated for the third consecutive quarter.

Unknown Attendee: Growth outside the U.S. was flat when adjusting for selling days and was also impacted by over one point due to the timing of a tender shifting to the second half. Spine declined over 2%, with the U.S. being the primary driver of the decline. O.U.S.

Growth outside the US was flat when adjusting for selling days and was also impacted by over one point due to timing of a tender shifting to the second half.

Spine declined over 2% with us being the primary driver the decline.

Unknown Attendee: growth was flat when adjusting for acquisitions, divestitures, and selling days. While we continue to see some stabilization of performance driven by new products, such as the Viper Prime system for minimally invasive surgery and Expedia Inverse, our all-in-one pedicle screw system for deformity, we continue to pursue opportunities to further improve growth, including new innovation, such as the Symphony system we plan to launch in the second half of the year in Complex These declined by less than 1% in the quarter, with the U.S. being the driver of the decline, offsetting strong growth of over 5% outside the U.S. that is expected to represent above-market performance, led by new innovation, including a tune revision and S+. The U.S. market is realizing positive uptake from the Attune revision system, but we continue to have portfolio gaps which we are addressing to enhance performance, including the Pricing pressure continued to impact all categories in orthopedics but was relatively stable overall compared to Q1. For the quarter, U.S. pure price was negative across all platforms.

Oh us growth was flat when adjusting for acquisitions divestitures and selling days, while we continue to see some stabilization of performance driven by new products, such as the Viper Prime system for minimally invasive surgery and Expedia inverse our all in one pedicle screw system for deformity, we continue to pursue opportunities to further improve growth, including new innovation such as the Symphony system, We plan to launch in the second half in complex cervical.

These declined by less than 1% in the quarter with us being the driver of the decline offsetting strong growth of over 5% outside the us that is expected to represent above market performance led by new innovation, including a tune revision and S plus.

The us market is realizing positive uptake from the attune revision system, but we continue to have portfolio gaps, which we are addressing to enhance performance, including the expected full commercial launch of our Cementless offering later this year.

Pricing pressure continued impact all categories in orthopedics, but was relatively stable overall compared to Q1.

For the quarter use pure price was negative across all platforms spine pure price declined approximately 4% with hips trauma and knees all down about 2%.

Unknown Attendee: Spine pure price declined approximately 4%, with hips, trauma, and knees all down about 2%. Turning to the results for the surgery business, advanced surgery delivered global growth of just over 6%, led by strong performance in both energy and endocutters, primarily driven by share gains and new products in the Asia-Pacific region. Biosurgery declined by over 2% due to a stopped shipment of Surgiflo in the U.S., which impacted global biosurgery growth by 11 points. We will continue to work with the FDA to ensure this important technology for patients is available again in the U.S. market as soon as possible. Wound closure grew approximately 3% as conventional and barbed sutures gained share. However, across total general surgery, worldwide growth was negatively impacted by 250 basis points due to field action on our intraluminal staplers.

Turning to the results for the surgery business advanced surgery deliver global growth of just over 6% led by strong performance in both energy and Endocutters, primarily driven by share gains and new products in the Asia Pacific region.

Biosurgery declined by over 2% due to a stop shipment a surge of flow in the us which impact the global biosurgery growth by 11 points. We will continue to work with the FDA to ensure this important technology for patients is available again in the us market as soon as possible.

Enclosure grew approximately 3% as conventional and barb sutures gainshare.

Across total general surgery worldwide growth was negatively impacted by 250 basis points due to a field action on our entire luminal staplers corrective actions were taken in the quarter and we began distributing to customers in June .

Unknown Attendee: Corrective actions were taken in the quarter, and we began distributing to customers in June. Selling days had a minor negative impact on our global growth rates in the second quarter, and we do not expect a significant impact in any subsequent quarter in 2019. As a final comment on medical devices, based on feedback we received from the analyst community, we will no longer be providing utilization trends during this call. These estimates were based on limited external data and provided a low correlation to our actual market performance in the segments we compete in.

Selling days had a minor negative impact on our global growth rates in the second quarter and we do not expect a significant impact in any subsequent quarter in 2019.

As a final comment on medical devices based on feedback we receive from the analyst community, we will no longer be providing utilization trends during this call.

These estimates were based on limited external data and provide low correlation to our actual market performance in the segments we compete.

Unknown Attendee: As a final update on utilization, we did want to provide you with the latest figures for Q1 since we shared estimates last quarter. Hospital admissions, surgical procedures, and lab procedures all increased by approximately 1.5%, 1%, and 1.5%, respectively. I will now provide some commentary on our earnings for the quarter. Regarding our consolidated statement of earnings for the second quarter of 2019, please direct your attention to the box section of the schedule. As referenced in the table of non-GAAP measures, the 2019 second quarter net earnings are adjusted to exclude intangible asset amortization expense and special items of $1.3 billion on an after-tax basis, primarily driven by intangible amortization of $1 billion. Excluding the impact of those items, adjusted earnings per share is $2.58, an increase of 22.9% versus the second quarter 2018.

As a final update on utilization, we did want to provide you. The latest figures for Q1 since we shared estimates last quarter.

Hospital admissions surgical procedures and labor Cedars, all increased by approximately 1.5%, 1% and 1.5% respectively.

I will now provide some commentary on our earnings for the quarter.

Regarding our consolidated statement of earnings for the second quarter of 2019.

Please direct your attention to the box section of the schedule.

As referenced in the table of non-GAAP measures the 2019 second quarter net earnings.

Our adjusted to exclude intangible asset amortization expense and special items of $1.3 billion on an after tax basis, primarily driven by intangible amortization of $1 billion.

Excluding the impact of those items, our adjusted earnings per share is $2.58, an increase of 22.9% versus the second quarter 2018.

Unknown Attendee: Adjusted EPS on a constant currency basis was $2.63, up 25.2% versus second quarter 2018. I'd like to now highlight a few noteworthy items that have changed on the Statement of Earnings compared to the same quarter last year. Cost of products sold de-leveraged slightly, primarily driven by product mix, which was offset by improvement in selling, marketing, and administrative margins for the quarter as a result of leverage in our pharmaceutical and consumer businesses. We continue to invest in R&D at competitive levels, and our investment in research and development this quarter as a percent of sales was 13%, which is higher than the second quarter of 2018 by 30 basis points. This increase was primarily driven by higher investment in our medical devices business to support the development of our digital surgery platforms, including robotics. The increased levels of income recorded in the other income and expense line were primarily driven by the gain on the ASP divestiture. Net interest expense was lowered by $132 million, primarily driven by the positive effect of net investment hedging arrangements and certain cross-currency swaps.

Adjusted EPS on a constant currency basis was $2.63 up 25.2% versus second quarter 2018.

I'd like to now highlight a few noteworthy items that have changed on the statement of earnings compared to the same quarter last year.

Cost of products sold de Levered, slightly primarily driven by product mix, which was offset by improvement in selling marketing and administrative margins for the quarter as a result of leveraging our pharmaceutical and consumer businesses.

We continue to invest in R&D at competitive levels and our investment in research and development. This quarter as a percent to sales was 13%, which is higher than the second quarter 2018 by 30 basis points.

This increase was primarily driven by higher investment in our medical devices business to support the development of our digital surgery platforms, including robotics.

The increased levels of income recorded in the other income and expense line was primarily driven by the gain on the SP divestiture.

Net interest expense was lower by $132 million, primarily driven by the positive effect of net investment hedging arrangements and certain cross currency swaps.

Unknown Attendee: Regarding taxes in the quarter, our effective tax rate of 20.4% was in line with the second quarter 2018 of 20.5%. We encourage you to reference our 10-Q for further details on specific tax matters. Excluding special items, the effective tax rate was 19.3% compared to 18.5% in the same period last year.

Regarding taxes in the quarter, our effective tax rate of 20.4% was in line with the second quarter 2018 of 20.5%. We encourage you to reference our 10-Q for further details on specific tax matters, excluding special items, the effective tax rate was 19.3% compared to 18.5% in the same period last year.

Unknown Attendee: The second quarter of 2019 includes the tax impact on the gain of the ASP divestiture. Now, we are looking at adjusted income before tax. In the second quarter of 2019, our adjusted income before tax for the enterprise increased from 33.7% to 41.9% in 2019, primarily driven by the gain on the divestiture of ASP. The following are the main drivers of adjusted income before tax by segment. The decrease in pharmaceutical margins by 160 basis points was primarily driven by product mix and lower other income. Consumer margins also decreased by 480 basis points because of lower divestiture gains that were partially offset by leveraging in selling and marketing expenses. Medical devices increased from 27.8% to 57.5% in 2019 due to the gain on the ASP divestiture, partially offset by investments in digital surgery. That concludes the sales and P&L highlights for Johnson & Johnson's second quarter, 2019. For your reference, here is a slide summarizing notable developments occurring in the second quarter, some of which were mentioned in my comments. I will now turn the call back to Joe. Thanks.

The second quarter of 2019 includes the tax impact on the gain of the SP divestiture.

Now looking at adjusted income before tax in the second quarter of 2019, our adjusted income before tax for the enterprise.

Increased from 33.7% to 41.9% in 2019.

Primarily driven by the gain on the divestiture of Asap.

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

The decrease in pharmaceutical margins by 160 basis points was primarily driven by product mix and lower other income.

Consumer margins also decreased by 480 basis points because of lower divestiture gains that were partially offset by leveraging in selling and marketing expenses medical devices increased from 27.8% to 57.5% in 2019 due to the gain on the ASP divestiture, partially offset by investments in digital surgery.

That concludes the sales and PML highlights for Johnson, and Johnson second quarter 2019.

For your reference here is a slide summarizing notable developments occurring in the second quarter.

Some of which were mentioned in my comments.

I will now turn the call back to Joe.

Thanks, Chris.

With respect to cash at the end of the second quarter, we had approximately $14 billion of net debt consisting of approximately $15 billion of cash and marketable securities and approximately $29 billion of debt. These levels are similar to the first quarter.

Josh Jennings: Thanks Chris. With respect to cash, at the end of the second quarter, we had approximately $14 billion of net debt, consisting of approximately $15 billion of cash and marketable securities and approximately $29 billion of debt. These levels are similar to the first quarter. We simultaneously executed across all four tenants of our capital allocation strategy, which is designed and has proven historically to drive shareholder value. Reinvestment in our business remains a top priority at Johnson & Johnson. We invested $2.7 billion in research and development in the quarter, which, as Chris mentioned, represents a 30 basis point increase relative to net trade sales from the second quarter of 2018. Regarding investment in inorganic opportunities, we closed the acquisition of Aros Health, and we continue to evaluate potential opportunities to further enhance our portfolio.

We simultaneously executed across all four tenants of our capital allocation strategy, which are designed and have proven historically to drive shareholder value.

Reinvestment in our business remains a top priority at Johnson and Johnson, we invested $2.7 billion in research and development in the quarter, which as Chris mentioned represents a 30 basis point increase relative to net trade sales from the second quarter of 2018.

Regarding investment in inorganic opportunities, we closed the acquisition of Rs health and we continue to evaluate potential opportunities to further enhance our portfolio.

We also used cash in the quarter to continue returning value to shareholders as announced in April we increased our dividend for the 57th consecutive year to 95 cents per share distributing $2.5 billion to shareholders in the quarter.

We also acted on our authorized $5 billion share repurchase program in the quarter. The point $2 billion for that purpose. We are now slightly above 75% complete with the authorized program.

Josh Jennings: We also used cash in the quarter to continue returning value to shareholders. As announced in April, we increased our dividend for the 57th consecutive year to $0.95 per share, distributing $2.5 billion to shareholders in the quarter. We also acted on our authorized $5 billion share repurchase program in the quarter, deploying $2 billion for that purpose.

I will now provide a few comments on the updates to our guidance for 2019.

Our results for the first half of the year have given us additional confidence in our sales performance for the full year.

As a result, we are increasing our guidance for operational sales growth by 50 basis points to a range of 1.0% to 2.0%.

Josh Jennings: We are now slightly above 75% complete with the authorized program. I will now provide a few comments on the updates to our guidance for 2019. Our results for the first half of the year have given us additional confidence in our sales performance for the full year. As a result, we are increasing our guidance for operational sales growth by 50 basis points to a range of 1.0% to 2.0%. We are also increasing and tightening our operational sales growth adjusted for acquisitions and divestiture guidance to a range of 3.2% to 3.7%. The estimated impact of translational currency of 200 basis points has remained the same as our last update, although we are not predicting the impact of future currency movements. Regarding Adjusted Pre-Tax Operating Margin, we now expect Adjusted Pre-Tax Operating Margin for the year to slightly decline as we are planning for investment in innovation that adds to, solidifies, and accelerates our pipelines. One really good example of this is our recent acquisition of AORUS Health, which I just mentioned.

We are also increasing and tightening our operational sales growth adjusted for acquisitions and divestiture guidance to a range of 3.2% to 3.7%.

The estimated impact of translational currency of 200 basis points has remained the same as our last update although we're not predicting the impact of future currency movements.

Regarding adjusted pre tax operating margin, we now expect adjusted pre tax operating margin for the year to slightly decline as we are planning for investment in innovation that adds to solidifies and accelerates our pipelines. One really good example of this is our recent acquisition of Rs health, which I just mentioned.

Our opportunities to invest in digital surgery capabilities, coupled with other strategic investments in support of acquisitions, such as Dr. Shi Labo are estimated to equate to about 10 cents of dilution. However, we have absorbed impacts like this in our current guidance.

For net interest expense, we are lowering the range to between zero and $100 million due to the favorability that Chris described in his earlier remarks.

Josh Jennings: Our opportunities to invest in digital surgery capabilities, coupled with other strategic investments in support of acquisitions such as Dr. Shilabo, are estimated to equate to about 10 cents of dilution. However, we have absorbed impacts like this in our current guidance. For net interest expense, we are lowering the range to between $0 and $100 million due to the favorable conditions that Chris described in his earlier remarks. We are increasing our expectations for other income. This account records royalty income, as well as gains and losses arising from items such as litigation, investments by our development corporation, divestitures, asset sales, and write-offs.

We are increasing our expectations for other income the account, where we record royalty income as well as gains and losses arising from items, such as litigation investments by our development Corporation divestitures asset sales and write offs, we have more certainty given that we're halfway through the year and having closed the advanced sterilization products transaction, we are comfortable increasing and tightening the range to approximately $2.7 billion to $2.9 billion, increasing the midpoint by $200 million compared to our prior guidance.

Regarding our effective tax rate, we are increasing our effective tax rate guidance to a range of 17.5% to 18.5%, which includes the updated impact to tax associated with the advanced sterilization products divestiture gain.

Josh Jennings: Given that we are halfway through the year and having closed the advanced sterilization products transaction, we are comfortable increasing and tightening the range to approximately $2.7 billion to $2.9 billion, increasing the midpoint by $200 million compared to our prior guidance. Regarding our effective tax rate, we are increasing our effective tax rate guidance to a range of 17.5% to 18.5%, which includes the updated impact tax associated with the Advanced Sterilization Products divestiture gain. Taking all of these factors into consideration, we are maintaining our full-year adjusted EPS guidance for 2019. The operational EPS guidance represents strong growth of over 7% at the midpoint, which is approximately two times our adjusted operational sales growth, while simultaneously increasing investment levels to fortify our confidence in the long-term prospects of our business. We do not provide quarterly guidance.

Taking all these factors into consideration we are maintaining our full year adjusted EPS guidance for 2019.

The operational EPS guidance represents strong growth of over 7% at the midpoint, which is approximately two times, our adjusted operational sales growth, while simultaneously increasing investment levels to fortify our confidence in the long term prospects of our business.

We do not provide quarterly guidance, however to better inform your modeling I will provide a few qualitative factors to consider near term.

We expect the largest impact from generics and Biosimilars for the year in our pharmaceuticals business to occur in the third quarter. This was primarily driven by expected USA tiga accelerated erosion as well as the comparison to the highest growth quarter in 2018.

Also you extra clear and us procrit as well as velcade outside the us expect accelerating erosion driven largely by generic entries in new markets and additional competitors.

Josh Jennings: However, to better inform your modeling, I will provide a few qualitative factors to consider near term. We expect the largest impacts from generics and biosimilars for the year in our pharmaceuticals business to occur in the third quarter. This is primarily driven by expected U.S. Zytiga accelerated erosion and the comparison to the highest growth quarter in 2018. Also, U.S. Triclir and U.S. Procrete, as well as Velcade outside the U.S., expect accelerating erosion driven largely by generic entries in new markets and additional competitors. Also, in the third quarter of 2018, we had the favorable impact of the U.S. baby pipeline replenishment due to the relaunch, which will not repeat. Lastly, as I mentioned, we are taking the opportunity to incrementally invest the higher level of divestiture gains. Most notably, we plan to increase investment in our pipelines, and therefore, we would expect our R&D spending to be higher in the second half of the year.

Also in the third quarter of 2018, we had the favorable impact of the US baby pipeline replenishment due to the re launch which will not repeat.

Lastly, as I mentioned, we are taking the opportunity to incrementally invest the higher level of divestiture gains.

Most notably we plan to increase investment in our pipelines and therefore, we would expect R&D spending to be higher in the second half of the year.

Before I hand, the call back to Chris to begin the Q on a let me take a moment to thank Joaquin and Paul for being part of this call today as well as our 135000 global associates for their hard work and dedication without whom our continued success would not be possible.

Chris let's begin the Q and a portion. Thank you Joe we will now move to the tune a portion of the webcast. As a reminder, I would encourage you to take advantage of Joaquin and Paul being on todays call by directing questions to them about their areas of expertise.

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

Ladies and gentlemen, if youd like to ask a question at this time. Please press Star then one on your telephone keypad, if youd like to withdraw your question Press Star then too.

Josh Jennings: Before I hand the call back to Chris to begin the Q&A, let me take a moment to thank Joaquin and Paul for being part of this call today, as well as our 135,000 global associates for their hard work and dedication, without whom our continued success would not be possible. Chris, let's begin the Q&A portion. Thank you.

Please limit your questions to one question and one follow up.

Your first question comes from Chris Schott with JP Morgan.

Great. Thanks, very much for the questions I guess my first question was just on the EPS guidance Youve steadily raise topline growth this year, but we haven't seen year earnings move that much higher and I know you talked about some investments, but can you just elaborate a little bit more in this dynamic. So specifically is this mostly kind of R&D going into the device business or is it across your franchises and should we think about this as a sustained higher level of investment or more of a kind of a one time step up this year.

Unknown Attendee: Thank you, Joe. We will now move to the Q&A portion of the webcast. As a reminder, I would encourage you to take advantage of Joaquin and Paul being on today's call by directing questions to them about their areas of expertise. Operator, can you please provide instructions for those on the line wishing to ask a question?

Operator: Ladies and gentlemen, if you would like to ask a question at this time, please press star, then 1 on your telephone keypad. If you would like to withdraw your question, press star, then 2.

My second question is quickly was on Salto.

Could you just elaborate a little bit more on the dynamics that are resulting in this kind of sharp decline we saw in the quarter.

Chris Schott: Please limit your questions to one question and one follow-up. Your first question comes from Chris Schott with J.P. Morgan. Great, thanks very much for the questions.

I guess the heart of this is are we seeing part D dynamics that are that are worse than you anticipated for for that that franchise. Thanks. So much.

Chris Schott: I guess my first question was just on the EPS guidance. You've steadily raised top-line growth this year, but we haven't seen your earnings move that much higher. And I know you talked about some investments, but can you just elaborate a little bit more on this dynamic? So specifically, is this mostly kind of R&D going into the device business, or is it across your franchises? And should we think about this as a sustained higher level of investment or more of a one-time step up this year? My second question was on Zeralto. Can you just elaborate a little bit more on the dynamics that are resulting in this kind of sharp decline we saw in the quarter? I guess the heart of this is, are we seeing part of the dynamics that are worse than you anticipated for that franchise?

Hey, Chris This channel Walter Thanks for your question and good morning.

With respect to EPS I'll address that and then I'll turn it over to will.

I cant address.

Those are alto question with as we are looking at the back half as investing more heavily in R&D as we have consistently done for a number of years now when we have the opportunity to divest a business, where we recognize an appreciable gain we always look to turn that back into the business, whether it's for our current pipelines to fortify.

Or solidify those as well as to add onto our pipelines.

The investment is spread I would say primarily across medical devices and pharmaceuticals at this point. That's the plan. If you think about what I said in some of my prepared remarks.

Chris Schott: Thanks so much.

Josh Jennings: Hey Chris, this is Joe Wolk. Thanks for your question and good morning. With respect to EPS, I'll address that, and then I'll turn it over to Joaquin to address the Xarelto question. On EPS, we are looking at the back half as investing more heavily in R&D, as we've consistently done for a number of years now. When we have the opportunity to divest a business where we recognize an appreciable gain, we always look to turn that back into the business, whether it's for our current pipelines to fortify or solidify those, as well as to add on to our pipelines. The investment is spread, I would say, primarily across medical devices and pharmaceuticals at this point. That's the plan. If you think about what I said in some of my prepared remarks with ORIS and the acquisition there, that was an additional investment that would have been dilutive of about $0.10.

With Rs and the acquisition there that was an additional investment that would have been dilutive of about 10 cents.

We've absorbed that and so thats kind of the some of the examples that I could give you.

Earlier in the year you May recall, we also did a deal with our Genex for Cdseventy.

We're going to look to continue to do things like that inorganically as well as.

Within our own pipelines to see what we can accelerate and bring to the market a little bit earlier for patients.

What can you would you like to take these yes. Thank you. Thank you for the question first this was a strong quarter for the pharmaceutical group, we feel operational growth of 4.4%.

On very robust.

Volume growth of 7.8% and especially video robust penistone or you as growth was 12.9%. So very positive order for the pharmaceutical group with nine products achieving double digit growth specifically when you look at the underlying growth.

Josh Jennings: We've absorbed that, and so those are kind of some of the examples that I could give you. Earlier in the year, you may recall, we also did a deal with Argenix for CD70. We're going to look to continue to do things like that inorganically, as well as within our own pipelines to see what we can accelerate and bring to the market a little bit earlier for patients. Joaquin, would you like to take these around the club?

That these when you exclude us idea what it was say before you six person so that piece.

Our position for us moving into the rest of the year and especially moving into 2020 . When we anniversary the EU is loss of Exclusivities.

Joaquin Duato: Specifically, when you look at the underlying growth, that is, when you exclude U.S. Zytiga, our growth was 7.6%, so that is a good position for us moving into the rest of the year and especially moving into 2020 when we anniversary the U.S. loss of exclusivity. Munitus Xarelto, The first thing is that we continue to see Xarelto as a very important driver of growth for the The decline that you see in the quarter, as was explained already, is related to higher costs for patient access due to channel mix changes, particularly more sales in PHAs, BADAD, and Part D, and also higher statutory rebates in the donut hold. We expect that we will be able to come back to positive territory once we address these factors. Where is the growth going to come from once we do that?

Moving into Santo.

The first thing is that we continue to see solid does have an important driver of growth for the pharmaceutical group decline that you see in the quarter.

I swore 16 or really the east related to higher cost for patient access due to channel mix changes, particularly more sales in PHH bdd part a b and also higher is tied to the rebates in that don't hold we expect that.

We will be able to come back to positive territory. Once we study these factors.

Where does the growth going to come from once we do that is going to come first through continued volume and share growth in BT and EE Mayfield.

Joaquin Duato: It's going to come first through continued volume and share growth in VTE and in AFib. Second, we will continue to reach more patients through our CAPAD indication, which is tracking a line with other cardiovascular drugs like Entresto and Brilinta. And finally, we continue our indication expansion through new indications, such as VTE prevention in medically ill patients that we filed in the fourth quarter of 2018. So overall, we continue to see Xarelto as a growth driver for the pharmaceutical group. We expect to be in positive territory once we anniversary those factors, and we will leverage the fact that Xarelto has the most complete set of indications, the largest safety data generated in clinical trials, particularly in higher-risk patients, and the most real-world living experience with more than 6 million patients treated in the U.S.

Second we will continue to reach more patients through a war C. P 80 indication which is stocking.

Same with cardiovascular drax launches like interest, though unbundling does.

Finally, we continue our indication expansion through new indications such test BD prevention in medically ill patients that we filed in the fourth quarter of 2018, so orbital.

We continue to see settled there was a growth driver for the pharmaceutical group, we expect to be in positive territory. Once we anniversary those factors.

And we will leverage the fact that it has become the most complete set of indications.

The largest safety data in clinical trials, particularly in higher at least patients and the most real world experience with more than 6 million patients treated in the U.S.

Joaquin Duato: Chris, thanks for the questions. I guess one just a short build on Joe's commentary, just as a reminder, in Q1, we took our adjusted ops guidance up 5 cents, that was offset by currency, and another acquisition investment that I think is a good example is Dr. Silabo as well, that we've covered the dilutive impact there. Next question, please.

Chris Thanks for the questions I guess, one just short build on Joes commentary just as a reminder, in Q1, we took our adjusted EPS guidance up five cents that was offset by currency.

And another acquisition investment that things are good examples doctors, who lebow as well that we've covered the dilutive impact there.

Next question please.

Your next question is from David Lewis with Morgan Stanley .

David Risinger: Your next question is from David Lewis with the Morgan Family. Good morning.

Good morning, Thanks for taking the question, maybe Joe just a quick financial ones for you and then I'll focus on pharma.

David Risinger: Thanks for taking the question. Maybe, Joe, just a quick financial one for you, and then I'll focus on pharma. So, Joe, just considering your commentary on spending, other income was very strong in the first half of the year, as expected. But as we look into 2020, that's obviously a headwind. In prior annual periods, you used SG&A as a factor to offset any other income headwinds. So are you comfortable, as we head into next year, that supply chain reduction, some of the easing of exclusivity issues, still creates an opportunity for levered earnings in 2020?

So just considering your commentary on spending other income very strong first half of the year as expected, but as we look into 2020, Thats, obviously, a headwind in prior annual periods use SDMA as a as a factor to offset any other income headwind. So are you comfortable as we head into next year that supply chain reduction.

Some of the easing of exclusivity issues I still creates an opportunity for.

We're levered earnings in 2020.

Yes, so David Thanks for the question good morning.

You know I think that.

A great question, we won we get off and with respect to the level of other income that we've had you'll notice that todays guidance reflects pretty similar to what we experienced in 2015 and when we went into 2016, we didn't skip a beat in terms of improving our operating margins, we were able to leverage SGN as well as to how the.

David Risinger: Yes, David, thanks for the question. Good morning.

Josh Jennings: You know, I think that's a great question, one we get often with respect to the level of other income that we have. You'll notice that today's guidance is pretty similar to what we experienced in 2015. And when we went into 2016, we didn't skip a beat in terms of improving our operating margins. We were able to leverage SG&A as well as to have a healthier top line. That is the outlook We're not providing guidance obviously for 2020 on today's call, but that is certainly the outlook and the expectation for our business moving into next year. So, you know, maybe to give some of the answer to Chris's question: is this a new level or not?

A healthier top line that is the outlook, we're not providing guidance obviously for 2020 on today's call, but that is certainly the outlook in the expectation for our business moving into next year, So maybe to.

Parlay somebody answer for Christmas question is this a new level or not we've challenged the teams to look for value, creating opportunities and we're planning for higher levels of investment should those not materialize, obviously, we will come back and revised guidance Accordingly, but right now we think we serve.

Patients as well as shareholders best by looking for those opportunities. When we don't have those divestitures gains there may be a need to scale back. We also appreciate our commitment with respect to earnings expectations as well.

Josh Jennings: You know, we've challenged the teams to look for value-creating opportunities, and we're planning for higher levels of investment. Should those not materialize, obviously, we would come back and revise guidance accordingly. But right now, we think we serve patients as well as shareholders best by looking for those opportunities. But when we don't have those divestiture gains, there may be a need to scale back. We also appreciate our commitment with respect to earnings expectations. But we will manage for the long term.

But we will manage for the long term.

Gotcha very helpful. Then maybe for Joaquin at a quick question on for maybe a two part question, but you many of the balance for JJ has been headwinds versus some of the pipeline tailwinds in the next quarter or so we're really going to see the full sectors I tega, we've already seen the effect of Remicade. So it does feel like in the next quarter or so Joaquin pharmaceutical business does should begin to accelerate in that acceleration should be sustained into 2000 twentys. When is that how you see the business here in the next quarter or so.

Joaquin Duato: Alright Joe, very helpful. And then maybe for Joaquin, I had a quick question on pharma, maybe a two-part question. But much of the balance for JNJ has been headwinds versus some of the pipeline tailwinds. In the next quarter or so, we're really going to see the full effect of Zytiga. We've already seen the effect of Remicade. So it does feel like in the next quarter or so, Joaquin, the pharmaceutical business should begin to accelerate, and that acceleration should be sustained into 2020. I wonder, is that how you see the business here in the next quarter or so? And then, secondarily, if you could just give us an update on where we sit with the Asketamine launch in terms of center ads and how that launch is tracking relative to expectations. Thanks so much. Thank you so much.

And then secondarily could you just give us an update on where we sit with you scared me launch in terms of a center adds how that launch is tracking relative to expectations. Thanks. So much. Thank you for the question David asked how you'd be fair before we see a strong underlying growth in the pharmaceutical group.

Okay.

7.6% in the second quarter as we sole source thrown underlying growth in the first quarter. So as we anniversary.

In particular, USA low energy youre going to see be done that line growth coming to the forefront and.

But the four foot up positive 2020 .

They did that either so these growth are on one hand is slow were cited ocean that we had anticipated but most importantly, what you are seeing is a strong performance. So for what a quarter brands as I said before we had nine buttons growing double digit in the in the second quarter. So that is how we see that similar to the U.C. too.

Joaquin Duato: Thank you for the question, David. As I referred before, we saw strong underlying growth in the pharmaceutical group of 7.6% in the second quarter, as we also saw strong underlying growth in the first quarter. So as we anniversary, and in particular US Zytiga LOE, you're going to see the underlying growth coming to the forefront, and that predicts a positive 2020. The drivers of this growth are, on the one hand, a slower Zytiga erosion that we had anticipated, but most importantly, what you are seeing is a strong performance of our core brands. As I said before, we had nine brands growing double-digits in the second quarter. So that is how we see it, similar to how you see it too.

When it goes to spread out, though we are working to be sure that we make it available for sendas physicians or patients.

It's what I would add though.

Was approved earlier in March.

We are excited about the therapeutic up that these going to feed ingredient understand the petition we've created a model that these he said they seen all the ats to ensure appropriate use on distribution, we have gone through a distribution model, we provide the Rems certification program.

Joaquin Duato: When it comes to Spravato, we are working to be sure that we make it available for centers, physicians, and patients. Spravato was approved earlier in March, and we are excited about the therapeutic gap that it is going to fill in treatment-resistant depression. We've created a model that addresses all the areas to ensure appropriate use and distribution. We have a control distribution model, we have a REM certification program, and also, it's a medicine that is self-administered but under physician administration with an observation period.

And also it's amazing that these self administer but on the fusion administration with an observation period. So far we have already 1600 centers that have been certified and we continue to have.

Great interest from the psychiatry community and the patient community in these treatment alternative so we remain very positive about the opportunities for different about the overall, we had a very positive about the opportunities that that what pipeline half on the opportunities that we will be afforded in the coming years for continuing to reaching more patients on perhaps there's maybe a little opportunity for people to discuss what out of the parties that we have in the pipeline in the short term.

Paul Stoffels: So far, we have already 1,600 centers that have been certified, and we continue to have great interest from the psychiatry community and the patient community in this treatment alternative. So we remain very positive about the opportunities for Spravato. Overall, we are very positive about the opportunities that our pipeline has and the opportunities that we will be afforded in the coming years for continuing to reach more patients. And perhaps this may be a good opportunity for Paul to discuss what the opportunities that we have in the pipeline are in the short term.

I can have something there.

Walking.

We expect at the moment.

Pipeline or 14, medicines, which are kind of exceeded $1 billion by 2020 tree and reaching millions of patients and that has a significant opportunity there to increase growth through new new indications increased presentation and share but also of new formulations. After you have seen with the personal execute.

Paul Stoffels: I can add something there, Joaquin. We expect, at the moment, a pipeline of 14 medicines that could exceed $1 billion by 2023 and reach millions of patients. And there is a significant opportunity there to increase growth, to new indications, presentation, and share, but also of new formulations, as you have seen with Darzalex SubQ. In addition, we expect 40 line extensions, with more than 10 having the potential to exceed $500 million.

In addition, we expect 40 line extensions with more than than having to potential to exceed $500 million.

At the same time going forward, we are integrated.

Integrating disease areas and both ways and leveraging new technologies cell therapy gene therapy data signs and you will also see the first vaccines.

And with that continue to seek.

Also the besides internal of external.

Paul Stoffels: At the same time, going forward, we are integrating disease areas and pathways and leveraging new technologies, cell therapy, gene therapy, data science, and you will also see the first vaccines. We focus on differentiated medicines and vaccines. Quality of life is the first metric, before the business comes.

Our R&D portfolio is not one which comes together by channel its very well designed the way. We do this we focus on differentiated medicines and vaccines you able to fly for quality of life is there first the metric before the business comps sourcing selective and opportunistic early mid and late stage and there will be applied excellence in development.

Paul Stoffels: Sourcing, selective, and agnostic, early, mid, and late stage. And then we apply excellence in development with time, quality, and differentiation as the main drivers. And with that, we have been able in the collaborative space to become a partner of choice. We had a pharma R&D review. You can go back to the website and have a review there.

With time quality and differentiation as the main drivers.

And.

With that we have been able in the collaborative space to become a partner of choice.

We had a former R&D review you can go back to the to the web site and have reviewed the materials still on there for all the details, but let me highlight a few off to a very.

Paul Stoffels: The materials are still on there for all the details, but let me highlight a few of the very transformational products we have in the pipeline. We have the CAR-T, which we licensed from Legend in 2017, now advancing fast. We took it over, started phase one last year, and now we are entering phase 2B. And with the data generated, we expect to file in the range of 2021. And the ongoing study in China has continued to perform very well, and that gives us lots of confidence. At the moment, three years in, 88% of patients achieved an overall response rate, and 74% achieved a complete response. So more data will be presented by the end of the year. The new, also new in our pipeline is Kusatuzumab, the anti-CD70 antibody that was talked about earlier, which we acquired from Arachenics.

Transformational products, we have in the pipeline.

We have to party ritual license from legend in 2017 now advancing fast we we took it over to start of the phase one.

Last year and now we're entering into phase two b with the data generated we expect to file in the range of 2021.

And the ongoing study in China has been continued to perform very well and that's what gives us a lot of confidence where at the moment.

Three years in 88% of patients achieved an overall response rate and 74%.

Chief the complete response, so more data will be presented by the end of the year.

The new also knew in our pipeline is.

Good luck to map, the anti Cdseventy, which will start earlier, which we acquired from our generics again.

Paul Stoffels: Again, an investigational product for AML, and that is a CD70 antibody. And we anticipate starting phase two later in the year. We also acquired three very interesting gene therapy products, which represents a new platform for us in retinal disease. And there, the first for us is a first entry into gene therapy and a position to be first in the market with best-in-class assets. And last but not least, let me introduce a new space for us with the vaccine portfolio, where we are entering with an RSV vaccine now in late-stage development in older adults. But also, as we announced this week, we're going to progress with an HIV vaccine, which has been ongoing in Africa for two years, where we did a phase two B, and now we start with a study in the U.S., Latin America, and Europe, where And hopefully, with that, getting just a few highlights to you on the pipeline. We continue to build on our current pipeline with significant line extensions, further expansion, as well as, as I just said, building on the new pipeline going for the future.

Investigational product for.

No and that's a cdseventy antibody and we anticipate starting a phase two later in the year.

We also acquired three very interesting gene therapy products, which represents a new platform for us in the in retinal disease.

And the first for US is a first entry into gene therapy and positioned to be first to market with vesting glossed assets.

And last but not least let me introduce also news.

Space for us with the vaccine portfolio, where we are entering with an RSV vaccine now in late stage development in older adults.

But also as we announced this week, we are going to progress with an HIV vaccine, which is already ongoing in Africa. Since two years, where we did the fish to be and we start with the study in the US Latin America, and Europe , where we will test the HIV vaccine in high risk Mds and pens genders, and hopefully with that.

Good thing just a few highlights to you on the pipeline.

We continue to build on our current pipeline with significant line extensions further expansion as well as other just was telling building on the new pipeline going for the future.

David Risinger: Great. Thanks, David. Appreciate the questions. Operator, next question, please.

Great.

Thanks, Dave appreciate the questions. Operator next question please.

Larry Biegelsen: Your next question is from Larry Beagleson with Wells Fargo. Good morning, gentlemen. Thanks for taking the question. Apologies to Paul and Joaquin.

Your next question is from Larry Biegelsen with Wells Fargo.

Good morning.

Hi, gentlemen, thanks for taking the question apologies to Paul and what can add two for for Joe. So Joe first of the fundamentals of JNJ have been good but the talcott opioid litigation have been overhangs for the stock how do you move past those two issues what are the milestones we should be looking for and what are your messages to investors and I had one follow up.

Larry Biegelsen: I had two questions for Joe. So, Joe, first, the fundamentals of J&J have been good, but the talc and opioid litigation have been overhangs for the stock. How do you move past those two issues? What are the milestones we should be looking for? And what are your messages to investors?

Sure. So thanks for the question Larry good to speak with you.

Josh Jennings: Sure. So thanks for the question, Larry. It's good to speak with you.

So let me take the separately with respect to.

Josh Jennings: So let me take this separately with respect to Talc. As you know and as we've said many times on this call and many other forums that we've known for decades, and it's been validated by many other agencies that are highly respected that the product is safe. We also know that the company acted responsibly, so we'll continue to defend the company's actions as well as the product going forward. The next major event I'd say starts in a few weeks here, July 22nd to be specific, related to multi-district litigation known as Daubert hearings here in the state of New Jersey. That is not a ruling per se. It's a determination of evidentiary standards. So what evidence do plaintiffs need to present to be acceptable? And it covers about 85 percent of the outstanding cases. So we're obviously preparing very thoroughly for that.

Talc.

As you know and as we've said many times on this call and many other forums that we've known for decades and has been validated by many other agencies that are highly respected that the product is safe. We also know that the company Act irresponsibly. So we'll continue to.

Pursued defense of the company's actions as well as the product.

Going forward. The met next major event I'd say starts in a few weeks here July 22nd to be specific related to multi district litigation known as Dalbert hearings here in the state of New Jersey.

That is not a ruling per se its a determination of evidentiary standard so what evidence the plaintiffs need to present, what would be acceptable and it covers about 85% of the outstanding cases, So we're obviously preparing.

Very thoroughly for that.

Again, when folks have a chance to really look at the facts in these cases.

Josh Jennings: Again, when folks have a chance to really look at the facts in these cases, they see that the product is safe, and that the company acted responsibly. As you know, and we've also said many times, even when a verdict goes against us originally, we often prevail on appeal. So we'll continue to fight that one. With respect to Oklahoma and the opioid litigation, a similar dynamic in that the facts simply just don't align with what the state is claiming. And so, what do I mean by that?

They see that the product is safe that the company Act responsibly.

As you know and as we've also said many times that even when a verdict goes against US originally we often prevail on appeal. So we'll continue to have to fight that loan.

With respect to the Oklahoma and the opioids litigation.

Similar dynamic in that the fact simply just don't align to what the state is claiming and so what do I mean by that the facts, specifically ours that based on Oklahoma's own Medicaid reimbursement records not just for a period of time, but for the last 20 years less than 1%.

Josh Jennings: The fact specifically is that based on Oklahoma's own Medicaid reimbursement records, not just for a period of time but for the last 20 years, less than 1 percent of the reimbursement occurred for Johnson & Johnson's products, which were designed to prevent abuse. Even the state's attorneys in this case have said multiple times, as I understand it, throughout the proceedings that this is not about Johnson & Johnson's products. It's about the opioid epidemic. We agree that there's an opioid addiction epidemic. However, it's going to be multiple factorial in terms of the solution set, and it's going to require many sophisticated parties to make sure that we've got the right remedies in place for people who suffer from it.

The reimbursement occurred for Johnson, and Johnson products Johnson <unk> Johnson's products were designed to prevent abuse.

Even the state's attorneys in this case has said multiple times as I understand it throughout the proceedings that this is not about Johnson and Johnson products. It's about the opioid epidemic. We agree that there is an epidemic.

With opioid addiction, however, it's going to be multiple factorial in terms of the solution set and it's going to require many sophisticated parties to.

Make sure that we've got the right remedies in place for people who suffer from that.

Thanks, Joe just a more quickly follow up just vision has been a bright spot for devices with both contact lenses and surgical growing above average, but this quarter was soft in both areas.

Josh Jennings: Thanks, Joe. And just more quickly, a follow-up. Vision has been a bright spot for devices, with both contact lenses and surgical growing above average, but this quarter was soft in both areas. Why was that, and what will turn those around? Thanks for taking the questions.

Why was that and what terms as around thanks for taking the questions. Great. Thanks. Good observation, Larry So I would say in vision has been very strong for US we have had for a number of years and years now great cadence of innovation I think it's really turn around that business from where it was earlier this decade.

Larry Biegelsen: Great. Good observation, Larry. So I would say vision has been very strong for us. We have had for a number of years now a great pace of innovation. I think it's really turned around that business from where it was earlier this decade. Our latest innovation is around transition lenses, which are being very well received in the marketplace. So we're comfortable on the contact lens side. On the surgical side, we're seeing a little bit of softness, specifically in the U.S. But outside the U.S., the market is still fairly strong for some of the IOL lenses and the innovation that we introduced here about a year, year and a half ago. In the U.S., cataract and refractory are both a little bit softer from a market perspective, and we have to improve the innovation cadence there as we move into 2020.

Our latest innovations around transition lenses, which is being very well received in the marketplace.

The contact lens performance and the underlying demand continues to be strong I would say there were some inventory adjustments.

That were required we with all is going to be more of a hard Brexit.

Which impacted some of the first quarter levels of inventory so were comfortable on the contact lens side on the surgical side, we're seeing a little bit softness specifically in the U.S. outside the us is still fairly strong with some of the Iowa lenses and the innovation that we introduced here about a year year and a half ago in the U.S. cataract and refractory ore both a little soft from a market perspective.

And we have to improve the innovation cadence there as we move into 2020.

Thanks for taking the questions.

Josh Jennings: Thanks for taking the questions.

Great. Thanks, Larry Operator next question.

Unknown Attendee: Great. Thanks, Larry. Operator, next question.

Your next question is from Kristen Stewart with Barclays.

Unknown Attendee: Your next question is from Kristen Stewart with Barclays. Hi, thanks for taking my question. Just one for me, just in the area of digital surgery and robotics, I was wondering if you could just provide us with an update on where you stand across the various business units in those efforts, specifically with the VIRB product, what your kind of current thinking is around the opportunities with ORIS, and then also Orthotaxi. Thanks so much.

Hi, Thanks for taking my question.

Just one for me just on the area of digital surgery in Robotics I was wondering if you could just provide us with an update on where you stand across the various business units and those efforts specifically with the very proud acts like your kind of current thinking is around the opportunities with or less and then off sell out worth their tax.

Thanks, So much great. Thanks for the question, Chris the nice to speak with you. So I'll start, but not probably turn it over to Paul as well to talk about each of the specific platforms, but maybe it's appropriate at the outset just to take a step back to provide kind of an update to our overall digital surgery strategy.

Josh Jennings: Great, thanks for the question, Kristen. It's nice to speak with you.

Josh Jennings: So I'll start, but I'll probably turn it over to Paul as well to talk about each of the specific platforms. But maybe it's appropriate at the outset to take a step back to provide kind of an update on our overall digital surgery strategy, inclusive of robotic-enabled surgery for endoluminal orthopedics as well as general surgery. So, as I mentioned earlier on the call, we're really pleased with the RS Health acquisition. It's off to a great start.

Inclusive of the the robotic enable surgery for and aluminum orthopedics as well as general surgery. So as I mentioned earlier on the call. We're real pleased with the Rs Health acquisition is off to a great start not only did we get some great products. There in some great technology, but we secured one of the pioneers with respect to robotic surgery and Dr. Fred Mall and his team. So they are currently looking at.

Josh Jennings: Not only did we get some great products there and some great technology, but we secured one of the pioneers with respect to robotic surgery, Dr. Fred Mullen and his team. So they're currently looking at and assessing all of our platforms. We think it's prudent of us to utilize that expertise to look at not just what we're doing for the Monarch platform and lung cancer and bronchoscopies but also to take a look at orthotaxi as well as our partnership with Verily to see how we can make sure that it's not a matter of coming to market fast, but coming to market best. And so we want to make sure that we've got a differentiated product So that's how we're approaching it. Our timelines have not changed with orthotaxi specifically.

And assessing all of our platforms.

We think it's prudent of us to utilize that expertise to look at not just what we're doing.

For the monarch platform and.

Lung cancer and Bronchoscopies, but also to take a look at ortho taxi and as well as our partnership with very early to see how we can make sure that it's not a matter of coming to market.

Fast becoming to market fast and so we want to make sure that we've got a differentiated product one that competes.

With the current product offerings that are out in the marketplace for the next three 510 years down the road. So that's how we're approaching it.

Our timelines have not changed with ortho taxi specifically.

We're we're still progressing towards a 2020 midyear regulatory submission.

Josh Jennings: We're still progressing towards a 2020 mid-year regulatory submission. We feel that that's very much on track. As you know, with the acquisition of ours, we are on the market with the Monarch platform. And we continue to make great advancements with the Verily partnership. But Paul, maybe I can turn it over to you to talk about some of the finer points and what the technology can offer.

We feel that that is very much on track as you know with the acquisition of ours. We are on the market with their monarch platform and we continue to make great advancements with the very early partnership for Paul maybe I can turn it over to you to talk about some of the finer points and what the technology can offer. Thank you. Thank you John let me start with orders, which as Joe said this is off to a great start with great acquisition. The monarch platform is currently on the market for the diagnosis of lung cancer and other is part of a broader lung cancer initiative in the company, where we both look out early.

Paul Stoffels: with great acquisition. The Monarch platform is currently on the market for the diagnosis of lung cancer, and that is part of a broader lung cancer initiative in the company where we both look at early diagnosis as well as early intervention. And with an existing market platform, that accelerates activity in that space very much. But furthermore, the possibilities of the endo, in endo urology, where probably targeting a 90% stone-free rate in a single treatment is within reach, as well as a very significant opportunity in GI endoscopy, gives us a very strong start in the robotic space with the Monarch platform. The iPlatform from AORUS is a very, very attractive space which has more reach, more different positioning possibilities, and almost covers all of the different interventions. So that's where we are aiming for, finally.

Our noses as well as early intervention.

With an existing market of platform does accelerate sort of activity in that space very much but Furthermore, the possibilities of the endo.

In endocrinology were probably targeting a 90% stone free in a single treatment. This is within reach as well as a very significant opportunity in Gi endoscopy gives us a very strong starts in the robotic space with a monarch platform.

The platform from ours is a very very.

Attractive space, which has more reach more different positioning possible and all those covering all of the different in differentials. So that's where we are aiming for finally, if we look into two taxi. We continued to receive great feedback about that platform. It's a special about that smaller footprint. The fact that that is an image of the system and the SRU surgeons freedom to move forward into cutting playing defined by the robot so and that.

Paul Stoffels: If you look into Octotaxi, we continue to receive great feedback about that platform. It's especially about its smaller footprint, the fact that it is an imageless system, and the surgeon's freedom to move within the cutting plane defined by the robot. And that results in overall ease of use, which is greatly appreciated by the surgeons. Finishing up with VIRB, Joe expressed his confidence in the platform and the value proposition.

Results in an overall ease to use which is greatly appreciated by the surgeons.

Finishing up Bridger root for George press that going for us in the platform and the value proposition. We recently successfully completed a series of end to end procedures engaging a group of global K. wells across a subset of target specialties, including.

Paul Stoffels: We recently successfully completed a series of end-to-end procedures, engaging a group of global KOLs across a subset of target specialties, including general and hernia, colorectal, and bariatric surgery, neurologic, gynecologic, and thoracic surgery. And we continue to believe our system will address the current limitations of robotic surgery, such as access and reach, the footprint and cost, and I was personally able to operate one of the instruments in the lab, and it's really a very impressive new robotic surgical tool. And also, overall, the surgeons' feedback continues to be very positive about the product. So overall, a very good start, hard work for us, and lots of

General and with hernia, colorectal and bariatrics in neurologic in gynecologic and thoracic surgery, and we continue to believe our system will address the current limitations of robotic surgery, such as access and reach the footprint and cost.

And the work flow and advancing with our advanced instrument patients to such a much better outcome.

I was personally able to operate one of the instruments in the lab and it's a really.

Very impressive.

New robotic surgical tool.

And also overall the surgeons their feedback continues to be very positive on the product. So overall, a very good start artwork for us and lots of development to be done, but on a very good bolt.

Paul Stoffels: I think he had previously mentioned that VRM would have a launch in...

I think you previously mentioned that you have a lot of that operator next question. Please.

Terence Flynn: Ah yes, the next question is from the line of Terrence Flynn with Goldman Sachs. Hi, thanks for taking the questions. I was wondering about the R&D spend you mentioned on the pharma side, it sounds like that ramp is mainly external opportunities, but I was wondering if there's any internal programs that you're going to be ramping up spend on, if you can be any more specific there. And then on Darzalex, any insight you can provide on average treatment duration now and how you see this evolving over time, and then any initial thoughts on how you're Thank you.

Yes. The next question is from the line of Terence Flynn with Goldman Sachs.

Hi, Thanks for taking the questions.

Was wondering.

On the R&D spend you mentioned on the pharma side. It sounds like that ramp is mainly external opportunities, but was wondering if there is any internal programs that you're going to be ramping spend on if you can be any more specific there and then on darzalex any insight you can provide on average treatment duration now and how you see this evolving overtime and then any initial thoughts on how you're thinking about pricing the subcu formulation. Thank you.

Joaquin Duato: Let me start with Darzalex. I'm telling you that we are very pleased with the progression of Darzalex. We had very strong growth in the quarter, 57%, 41% when you neutralize for the one-time price effect. So we are pleased with the progression of Darzalex and the strong growth that we are having across all lines of therapy. In particular, recently, we had two important events.

Let me start with data analytics.

On telling you that we are very pleased with the preparation of that Salix, we had a very strong growth in the quarter with 57% for the 1% when you neutralize for that one time, but ice effect. So we are pleased with the with the progression with tradition of Salix on the external growth that we're having across all lines of therapy.

Particularly recently, we have two important events one is the approval of the flow line indication in transplant ineligible patients seem the combination with revlimid, which wasn't much anticipated.

Joaquin Duato: One is the approval of the front-line indication in transplant-eligible patients in combination with Revlimid, which was much anticipated and that will give us, together with the filing of the also front-line indication in transplant-eligible patients, will give us three indications in front-line. So to your question on the duration, as we move into earlier lines, the duration of the treatment increases. When it comes to the sub-Q that we filed earlier this week, we think this is a very important opportunity for Darzalex overall. Keep in mind that we're going to be able to reduce the infusion time from eight hours that we have today to five minutes.

That will give us together with the filing of the also frontline indication in transplant eligible we gave US three indications seem for online. So to your question on the liquidation as we move into earlier lines. The duration of the did even three of them in increases when it comes to this Q that we filed earlier. This week. We think it is a very important opportunity for that Salix all there at all.

Keep in mind that we are going to be able to reduce the infusion time from eight hours that we have today to five minutes, so thats going to achieve significant.

Joaquin Duato: So that's going to give significant advantages in terms of adoption of Darzalex, particularly in earlier lines and particularly when you think that 50% of the use of Darzalex today in the U.S. is in oncology clinics in outpatient patients. So we think that this combination is going to make Darzalex easier to use for physicians and more convenient for patients. If you add to that the number of studies in which we are showing very strong results in front-line, it will portend a very positive continual adoption of Darzalex, which we see as one of the major drivers of the growth of the pharmaceutical group.

Advantages in terms of adoption of that Salix in particular, and then little bit lines, particularly what we knew thing that 50% of the use of that fell into the into you is in oncology clinics in outpatient patients. So we think that this combination is going to make that affiliates.

E shelter used for physicians.

More convenient to patients that.

If you if you add to that the number of studies in which we are showing very very strong results in for online will portend for a very positive continue adoption of doubt Alex.

We see one of the major drivers of the growth of the pharmaceutical group.

Paul Stoffels: With regard to the spending, internal or external, once we bring in an asset internally, we consider it all as internal spending. The external spending we do is on milestones, and that has been an upfront, and that has been a very effective way to create value for us.

With regard to.

So the spending internal or external once we bring in.

An asset internally reconsider it all as internal spending.

The external spending we do is on milestones and that has been and Upfronts and Doug has been a very effective way to create value for us we do less acquisitions, both we invest a lot in external innovation through.

Paul Stoffels: We do fewer acquisitions, but we invest a lot in external innovation in the early stages through collaborations, through our JLabs, and also through our venture capital, and then through acquisitions. But once we acquire a product, it becomes part of a portfolio, and we continue to drive the success of that. We have a significant number of internally derived opportunities, let's say at the moment in the range of 50-50, 60-40, of products coming from our own portfolio as products which we brought in, and we invest also something like 50-50 in new products, but also, as Joaquin was saying, in line extensions. Line extensions are great opportunities to have de-risked products and get additional indications and additional access to patients, which grow products faster.

In early stages, two collaborations through our J labs.

And also to a venture capital and through acquisitions, but once we acquire products. It becomes part of a portfolio and we continue to to drive.

Does the success of that we have a significant number of internal.

Derived opportunities, let's say at the moment in the range of 50, 50, 60 40 of problems good products coming from our own portfolio has products, which we brought in and that we invest.

Also something like 50, 50 in new products, but also elsewhere chemo, saying in line extensions line extensions or great opportunities to to have de risked product and get additional.

Additional indications and additional access to patients which grow products faster.

Paul Stoffels: And that's why you see us doing on good assets, very extensive developments, very fast, so that indication after indication we can bring to the market. That grows a product; look at Darzalex in Brevica, now Erlida, just to name a few; the next generation of Trinza with the six-month, so we build on de-risked products also, as well as on new platforms, as I indicated earlier, with gene therapy, cell therapy, and the new assets which we brought in.

And Thats why you see us doing.

On crude assets very extensive developments very fast so that indication of the indication we can bring to the market that grows a product look at Darzalex Imbruvica now our lead.

Just to name a few the next generation of Rins are with a six month. So we build on the risk products also as well as on new platforms as I indicated earlier with the gene therapy cell therapy, and the new assets, which we brought in.

Paul Stoffels: Another area where we are making significant investments is in data sciences. We are trying to embed data science in everything we do across R&D to both accelerate discovery and early development and also improve late development. For example, we are using data sciences to better understand disease expression and progression and also to be more effective at molecular invention. Now we have models to accelerate the molecular design of enemies for high-priority targets across all our therapeutic areas. In late development, we are also using data sciences to make a step change in the efficiency with which we run clinical trials and also to create synthetic control arms and better stratify patients. So we are embedding, as I said, data science and making significant investments to be bilingual, both in science and in data science. Great

Another another ABS heading tenants, where we are making significant investments in data scientists, we are dying to embed data sciences in everything we do across R&D.

To both accelerate discovery and early development and also to improve late development. For example, we are using data science is to better understand this is expression and progression and also to be more effective more liberally mention now we have.

More this week to accelerate more liquidity simultaneous means for high priority targets across all our therapeutic Ats in late development. We are also using data science has to do a step change in the efficiency, which we ranking try us and also to create synthetic controller arms, but that is 35 patients. So we add in baby interface and data sciences, and making significant investments to to be by Lehman, both in science and data science.

Terence Flynn: Great, thank you Paul and Joaquin. Thanks Terrence for your questions; I appreciate it. Operator, next question?

Great. Thank you Paul walking.

Thanks turns for your questions appreciate it operator next question.

Joanne K. Wuensch: The next question is from the line of Joanne Winch with BMO Capital Markets. Good morning, everybody, and thank you for taking the question. I have a specific question and then a bigger picture one. Specifically, you talked about 100 basis points of supply issues in medical devices. I was curious if you could share which devices were impacted and if that's been fully resolved at this stage.

Next question is from the line of Joanne Lynch with BMO capital markets.

Good morning, everybody and thank you for taking my question.

I have a specific question and then a big picture one.

Specifically, you talked about 100 basis points or supply issues in medical devices. I was curious if you could share.

Which devices were impacted and if thats been fully resolved at this stage.

Josh Jennings: Joanne, thanks for the question. So there were two that were mentioned, and obviously, you know, our first priority is patient safety. One has been remedied, and the product is actually back on the market, and that's related to our circular staplers. So there was a manufacturing lot that we pulled off the market. Again, it's been remediated, and everything is back in order. The second was during a routine FDA inspection by a third-party manufacturer who is manufacturing Surgiflow for us. They went through the regulatory filing and identified a change in the manufacturing process, so they were just seeking more information. We're working fully with the FDA and expect that to be resolved shortly.

Joanne Thanks for the question. So there were two that were mentioned and obviously our first priority is patient safety one has been.

Remediate it and the product is actually back on the market and thats related to our.

Circular staplers, so there was a.

Our product manufacturing lot that we pulled off the market.

Again, it's been Remediated and everything is back on order the second it was <unk>.

During a routine FDA inspection through third party manufacturer, which is manufacturing Sergio flow for us.

They went through the regulatory filing identified a change in the manufacturing process. So they were just seeking more information, we're working fully with the FDA and expect that to be resolved shortly.

Josh Jennings: And my big picture question has to do with sort of the lay of the land in healthcare and how you're looking at patients, volumes, and pricing, and then, in line with that, how are tariffs impacting the business? Thank you.

Thank you then my Big picture question has to do with.

Sort of the lay of the land and health care.

And how you're looking at patients volumes and pricing and then.

Starting with that power tariffs and impacting the business. Thank you.

Josh Jennings: Okay, I'll start, maybe I'll turn it over to Joaquin and Paul to give you some further insights, but with respect to tariffs, first, I would say that we've had a modest impact on our business, nothing that's noteworthy. If you look specifically where most of the rhetoric and dialogue has occurred, it's been around China.

Okay I'll start maybe our.

I'll turn it over to Joaquin and recall to give you. Some further insights, but with respect to tariffs first I would say that we've had modest impact on our business nothing that's noteworthy.

If you look specifically, where most of the the rhetoric and dialogue has occurred its been around China, our business in China across all three of our segments has been very strong high.

Joaquin Duato: Our business in China across all three of our segments has been very strong. High double-digit growth; mid-teens are higher across all three segments. So we really haven't seen that impact. With respect to pricing, the pharmaceutical results, again, I think we would all agree are very strong, and that is in the face of net prices declining by 6%, similar to what we saw in 2018. So in the U.S., we've got strong growth, we've got generic and biosimilar competition, and we've got about

Double digit growth mid teens or higher across all three segments. So we really haven't seen that impact with respect to pricing. The pharmaceutical results again, what I think we would all agree are very strong.

And that is in the face of net prices declining by 6% similar to what we saw in 2018.

So in the us.

Strong growth, we've got jet generic and Biosimilar erosion, and we've got about a 6% price headwind yet the transformational portfolio continues to deliver four for patients as well as for.

Joaquin Duato: We see continuous price erosion, which is a dynamic that we have seen in the U.S. market for the last couple of years, which we, as we have commented earlier, more than offset with our volume growth, and overall, we don't see that trend changing. What we think is that, in that context, we are positioned most favorably than the rest of the companies because of three reasons. One is the diversification of our portfolio. We had 11 medicines in 2018 with a market value of more than a billion dollars. So we are present across many therapeutic areas, also with a payer mix that is very similar to the overall market. In other words, we don't over-index on any particular payer. The second thing is that we have very robust volume growth, and this volume growth, which is driven by the share that we are gaining and the penetration through new indications, more than offsets the price erosion.

Our business results I don't know what can if you want to add anything around the pricing dynamic pricing, we see continuous continued price hit ocean.

Which is a dynamic that we have seen in the U.S market for the last couple of years.

Which we as we have commented that we added more than offset without water without water volume growth on albeit oil.

We don't see that trend change in what we think is that in that context, we added.

Position, most probably than the rest of the companies because of three reasons. One is the diversification of our portfolio. We had in 2018 11, maybe scenes of more than a billion dollar. So we are pretty stunned across many therapeutic hds also with our payer mix, which is very similar to the overall market, which we don't we don't already indexed in any particular to pay your the second thing is that we have very robust volume growth.

These volume growth, which is driven by the share that we are gaining and the penetration through new indications more than offsets the price erosion. On finally, we do have a strong presence or you is 45% of our sales had all us I mean this quarter. For example, our sales will you as grew 12.9%. So overall you know we do believe that if we are able to continue to do what we do exceptionally well which is bringing new.

Joaquin Duato: And finally, we do have a strong presence in the United States. 45% of our sales are in the United States, and in this quarter, for example, our sales in the United States grew 12.9%. So overall, we do believe that if we are able to continue to do what we do exceptionally well, which is bringing new breakthrough medicines to patients, we are very well positioned in this context of price erosion.

Breakthrough medicines to patients we are very well positioned in this context the price erosion.

Great. Thank you. Thanks Joanne for your questions next question. Please.

Joanne K. Wuensch: Great. Thank you. Thanks, Joanne, for your questions. Next question, please.

Next question is from Danielle Antalffy with SVB Leerink.

Danielle Antalffy: Hey, good morning guys. Thanks so much for taking the time to answer the question. Just a high-level question on devices. I mean, based on our map, on a comp-adjusted basis, you saw another quarter of growth acceleration. And just wondering if you could comment on whether we are past the trough now in devices and how much of the healthy growth this quarter came was JNJ-specific versus perhaps a sort of uplift in the various different market growth rates.

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

High level question on devices, I mean based on our math on a comp adjusted basis, you saw another quarter of growth acceleration and just wondering if you could comment on are we past the trough now in devices and how much of that the healthy.

Growth. This quarter came what was JNJ specific versus perhaps sort of uplift in the various different market growth rates.

Josh Jennings: Yes, a great question, Danielle. And, yeah, we do think that the trough is behind us with respect to medical devices. Ashley McEvoy and her team are doing a great job in terms of ensuring that across all four platforms, so eye health, cardiovascular, interventional, and orthopedics, we've got solid plans for execution and improved performance going forward, coupled with stronger innovation.

Yes, Great question, Daniel and yes, we do think that the trough is behind us with respect to medical devices actually Mcevoy and her team are doing a great job in terms of.

Ensuring that across all four platform so by health cardiovascular interventional.

And orthopedics that we've got solid plans for execution and improved performance going forward, coupled with stronger innovation, So I would say.

Josh Jennings: So I would say, you know, I don't have a full estimate as to what other competitors' challenges may have added to ours. We have a ballpark estimate, but I would say it was probably offset by the supply disruptions that we referenced earlier. So you get back to that normalized level of, let's call it 3 to 4 percent.

I don't have a full estimate as to what.

Other competitors challenges may have added to ours, we ran a ballpark estimate, but I would say it was probably offset by the supply disruptions that we referenced earlier, so you get back to that normalized level of let's call it 3% to 4%.

Danielle Antalffy: Okay, great, that's helpful. And then just a higher level comment on the other income upside that you're going to be reinvesting to follow up on an earlier question. When you do need to scale back spend, given potentially lower other income as we look into 2020 and beyond, what are the levers that you can pull to do that? And in which businesses is it easiest to sort of scale back without giving up anything on the top line?

Okay, Great. That's helpful. And then just a higher level comment on the other income upside that you are going to be reinvesting and to follow up on an earlier question. When you do need to scale back spend.

Given potentially lower other income as we look into 2020 and beyond what are the levers that you can pull to do that and then which businesses is it easiest to sort of scale back without giving up anything on the top line.

Josh Jennings: So we're currently looking to improve the operating margin profile within our consumer unit. A great job by Thibault Mangan and Joaquin in terms of really centering and focusing our investment, prioritizing that towards our strongholds of beauty, skin care, as well as over-the-counter medicines. And we are projected to have a strong improvement in that margin profile for this year and then going forward. I would say some of the medical devices; once you have an improving top line, that should help the rest of the P&L. And Ashley is going about her business that way and making the right structural changes. And, lastly, in pharmaceuticals, we're already at the top of the peer set with respect to operating margin performance. If that top line improves and we address some of the challenges that I mentioned earlier, that should also bode well for some, I would say, incremental improvement. Thanks so much. Great

Yes, so we're currently.

Looking to improve the operating margin profile within our consumer unit.

Great job by Tivo Mangano Joaquin.

In terms of really centering and focusing our investment prioritizing that towards our strongholds of beauty skin care as well as over the counter medicines.

And we are.

Projected to have a strong improvement in that margin profile for this year and then going forward I would say from a medical devices. Once you have an improving top line that should help the rest of the TNL and Ashley is going about.

Our business that way and making the right structural changes and then lastly in pharmaceuticals were already at the top of the peer set with respect to operating operating margin performance, but as that topline improves and we anniversary some of the challenges that I mentioned earlier.

That should also bode well for some I would say incremental improvement.

Thanks, so much great. Thanks, Danielle appreciate the questions next question. Please.

Next question is from Matt Miksic with credit Suisse.

Thanks for taking the questions just one follow up on pharma and then kind of.

Josh Jennings: Great. Thanks, Daniel. I appreciate the questions. Next question, please.

Bigger picture question on on.

Matt Miksic: The next question is from Matt Miksik with Credit Suisse. Thanks for taking the questions. Just one follow-up on pharma and then kind of a bigger picture question on medical devices. So you talked a little bit about the Xarelto launch for CID and PID maybe taking some time. If you could elaborate maybe on some of the challenges there or steps that have to kind of take place to start gaining momentum on that front.

Medical devices so.

You talked a little bit about these are all to launch for security.

Maybe taking some time if you could elaborate maybe on.

What some of the challenges there or steps that have to kind of take place.

To start gaining momentum on that front and then I just have one follow up.

Thank you for the question Matt.

Certainly the difference with the launches that we had in other indications like AGBT is that the use of.

Normal around deepwater lens in CVD PVD East novel, So we are establishing a new standard of care to bear so far he was either.

Beating this one may be seen you so establishing a new standard of care takes longer than when you are when you are comparing to an existing standard of care. So we think that the progression will continue to be.

Joaquin Duato: And then I just have one follow-up question.

Joaquin Duato: when you are comparing it to an existing standard of care. So, we think that the progression will continue to be like a chronic medication, steady but constantly growing, and as I said, we are exceeding the launch line metrics of Brilinda, and we are similar to Entresto. At this point, just to give you an idea of the extension of the use of Xarelto in CAD and PAD, we have 8500 prescribers already, so we see a steady climb, and we are confident that it will become a very important driver of growth for Xarelto.

Like Econe mitigation is steady, but constantly growing and as I said, we are exceeding the launch alignment threeq. So bringing on we are similar to and that is still at this point just to give you an idea of the extension of the use of Saudi is doing the D.. We have 8500 prescribers already so we see any steady climb and we're confident that it will become very important driver of growth for Saudi will do.

Joaquin Duato: That's helpful. Thank you.

That's helpful. Thank you.

And maybe just on medical devices broadly I think one of the questions. We get often is.

Matt Miksic: And maybe just on medical devices broadly, I think one of the questions we get often is just the steps that JNJ can take to turn the growth in this division up. Of course, you have bright spots like Biosense Webster and Cerenovus and others in the quarter, which you've talked about. But I wonder if I could ask just what, you know, robotic surgery is obviously an area where you've invested and will continue to invest. But Joe, maybe if you could sketch out, you know, the areas of medical devices where you feel like there are sort of disruptive opportunities or, you know, areas where JNJ can enter, expand, invest, and sort of make an impact on this division.

Just to.

The steps that JJ can take to turn the growth up in this division of course, you have bright spots like Biosense Webster turnovers.

Others in the quarter, which you've talked about but.

I Wonder if I could ask just what.

Unlike surgery is obviously an area where you have invested continue to invest.

But Joe maybe if you could sketch out the areas of of Med devices, where you feel like there are sort of disruptive opportunities or.

Areas, where JJ can enter expand invest and sort of making it may go.

Josh Jennings: Sure, Matt. So again, we are seeing improved growth rates from what we were experiencing 12 to 24 months ago. We're continuing on that right cadence, I believe. You know, if I look at opportunities as to where we're playing, you mentioned digital surgery. That will be a growth driver going forward. I think in our interventional space, specifically around our Serenovus unit and stroke, it's a smaller unit that we don't report out on, but we grew about 25% in the quarter. We think that has tremendous opportunity. We do know that eye health and contact lenses specifically will be a growth driver for us based on the cadence of innovation we've got coming through there. And we'll have improved performance with orthopedics. We obviously had some challenges last year with respect to knee performance. As we launch orthotaxi at some point late next year or early in 21, as well as bring cementless options to the marketplace, I think we'll be in very good shape where you'll see this unit performing at or above market.

Make an impact on this division.

Sure Matt. So again, we are seeing improved growth rates from what we were experiencing 12 24 months ago.

We're continuing on that right cadence I believe.

Yes, if I look at opportunities as to where we're playing you mentioned digital surgery that will be a growth driver going forward I think in our interventional space specifically around our Sharenow. This unit and stroke. It's a small unit that we don't report out on but we grew about 25% in the quarter. We think that has tremendous opportunity. We do know that I health and contact lenses, specifically will be a growth driver for us based on the cadence of innovation, we've got coming through there.

And we'll have improved import performance with orthopedics, we obviously had.

Some challenges last year with respect to knee performance as we launch with ortho taxi at some point late next year or early in 2001.

As well as bring cementless options to the marketplace I think we'll be in very good shape will you will see this unit performing at or above market.

Josh Jennings: And any things in areas outside the company that you'd think about in terms of investing, not just in your businesses but externally, like Aura's?

And any any things on areas outside the company that you think about in terms of investing that just in your businesses, but externally like or us.

Josh Jennings: So that's what we're always looking at across all three of our segments to fortify the portfolio that we have today. There are, you know, one or two areas that we're not currently in, but we're going to make sure that, first, we can create value when that asset is in our hands, and that we're compensating shareholders for the risk that we're bearing on their behalf. So we don't just simply look at a cost to capital. There would be some risk and opportunity associated with that. With that opportunity, I want to make sure that we compensate for it, so I guess that's a long way of saying we're going to make sure that we pay the right value. We're not in a position where we need to do something. We'll do something when it makes sense to do it from a strategic as well as a financial point of view.

Yes, we're always looking that across all three of our segments to fortify.

The portfolio that we have today there is one or two areas that we're not currently in but we're going to make sure that one we can create value in that asset is in our hands and where that were compensating shareholders for the risks that were bearing on their behalf. So we don't just simply look at a cost of capital there would be some risk opportunity associated with that that.

With that opportunity that we'll make sure that we compensate for so I guess, that's a long way of saying, we're going to make sure that we pay the right value we're not in a position, where we where we need to do something we'll do some thing when it makes sense to do it from a strategic as well as a financial perspective.

Great. Thanks, I appreciate the questions operator, we have time for one last question.

Josh Jennings: Thanks Matt, I appreciate it.

Bob Hopkins: The next question will be from the line of Bob Hopkins with Bank of America. Oh, thanks very much. I appreciate it. And good morning.

Your next question will be from the line of Bob Hopkins Bank of America.

Oh, thanks, very much I appreciate it and good morning, I'll be quick just just to mention them both upfront.

Bob Hopkins: I'll be quick just to, and I'll mention them both up front. First, on the pharma side, at the beginning of the year, you guys gave guidance on the headwind from generics and biosimilars of roughly three to three and a half billion. Can you just give an update on, you know, kind of where you stand with that number today? And then, secondly, just a quick clarification on the talc litigation. Are you guys reserving?

First on the pharma side at the beginning of the year you guys gave.

Guidance on the headwind from generics and Biosimilars of roughly three to three and a half billion can you just give an update on kind of where you stand with that number today.

And then secondly, just a quick clarification on the talc litigation.

Josh Jennings: or more. Thank you.

Are you guys reserving for that currently or no. Thank you.

Josh Jennings: So let me take the TALC question quickly. So we did incur a charge in our earnings for the quarter of $190 million. That is related to defense costs only and does not contemplate settlement or any liability payments. So again, we think we're on very firm ground with respect to the facts supporting our case. And as I've mentioned, on appeal, when we don't win in the original verdicts, we prevail on appeal. So that's the only charge that you will see in there for the quarter, Bob. Thank you, Bob.

So let me take the talc question quickly. So we did incur a charge in our earnings for the quarter of $190 million that is related to defense costs only that does not contemplate settlement or.

Any liability payments. So again, we think we're on very firm.

Ground with respect to the facts supporting our case and as I've mentioned on appeal. When we don't win original in the original verdicts, we broke prevail on appeal. So thats. The only charge that you will see in there for the quarter Bob.

Josh Jennings: Thank you, Bob. As I said before, our growth this year is mainly driven by the strength of our core franchises. We have nine medicines growing double-digit, and we see very strong growth all across our franchises. We commented on Darzalex with 57%, but also Imbruvica 39%, Stelara 18%, and Tremfya doing very well. So overall, very positive growth in our core franchises. At the same time, we have seen less generic erosion than anticipated, mainly due to two factors. One, it's related to lower generic erosion in Zytiga than we anticipated, and we think that it's going to increase as the year goes on, and also a delay in the introduction of a trachea generic. So we now see our headwind from an LOE perspective between $2.5 to $3 billion.

Thank you both I said before.

What growth this year is mainly driven by the strength of our core franchises we have nine.

Maybe seems growing global DG than we see all across our franchise is very strong growth.

We commented on that Salix, we 57%, but also imbruvica, 39% is still at 18% and Fiat doing very well, so, albeit or barely positive growth in our core franchises at the same time, we have seen less genetic at ocean than anticipated mainly due to two factors.

Juan it's related to lower generic at Ocean insight do you get that we anticipated and we think thats going to increase as the year goes on and also a delay in the introduction.

All thought that clear genetic so we see now what I want a headwind from employee perspective between $2.5 billion to $3 billion.

Josh Jennings: Great, thank you.

Bob Hopkins: Great. Thank you, Bob, and thanks to everyone for your questions and your continued interest in our company. Apologies to those we couldn't get to because of time, but don't hesitate to reach out to the investor relations team as needed. I will now turn the call back to Joe for some brief closing remarks.

Great. Thank you.

Great. Thank you Bob and thanks to everyone for your questions and your continued interest in our company apologies to those we couldn't get to because of time, but don't hesitate to reach out to the investor relations team as needed.

I will now turn the call back to Joe for some brief closing remarks.

Josh Jennings: Thanks, Chris, and thanks to everyone on the call for your interest as well as your time. As you can see, in today's results, not just for the quarter but for the first half, we are well set up for both near and long-term success. We continue to manage our portfolio to benefit patients, healthcare systems, and shareholders, and we will continue to invest for impact. As we anniversary some of the LOE challenges in pharmaceuticals and continue our upward momentum in our consumer health and medical device segments. We feel the business is poised for even greater success going forward. So again, thanks for your time and enjoy the rest of your day.

Thanks, Chris and thanks to everyone on the call for your interest as well as your time.

As you can see.

In today's results not just for the quarter, but for the first half we are well set up for both near and long term success, we continue to manage our portfolio to benefit patients healthcare systems and shareholders and we will continue to invest for impact as we anniversary some of the lowi challenges in pharmaceuticals.

And continue our upward momentum in our consumer health and medical device segments. We feel the business is poised for even greater success going forward. So again, thanks for your time and enjoy the rest of your day.

Thank you. This concludes today's Johnson & Johnson Second Quarter 2019 Earnings Conference Call. You may now disconnect.

Thank you. This concludes today's Johnson <unk> Johnson's second quarter 2013 earnings Conference call you may now disconnect.