Louise Mehrotra - VP, IR Alex Gorsky - Chairman and CEO Dominic Caruso - VP, Finance and CFO

Lawrence Biegelsen - Wells Fargo Derrick Sung - Sanford Bernstein Mike Weinstein - JPMorgan Glenn Novarro - RBC Capital Markets Jeff Halford - Jefferies Kristen Stewart - Deutsche Bank David Lewis - Morgan Stanley Rick Wise - Stifel Nicolaus Vamil Divan - Credit Suisse Danielle Antalffy - Leerink Partners

Good morning. And welcome to Johnson & Johnson’s Fourth Quarter 2014 Earnings Conference Call. All participants will be able to listen-only until the question-and-answer session of the conference. This call is being recorded. If anyone has any objections, you may disconnect at this time. (Operator Instructions) I would now like to turn the conference call over to Johnson & Johnson. You may begin.

Good morning and welcome. I’m Louise Mehrotra, Vice President of Investor Relations for Johnson & Johnson and it is my pleasure this morning to review our business results for the fourth quarter and full year of 2014. Joining me on the call today, are Alex Gorsky, Chairman of the Board of Directors and Chief Executive Officer, and Dominic Caruso, Vice President, Finance and Chief Financial Officer. A few logistics before we get into the details. This review is being made available via a webcast accessible through the Investor Relations section of the Johnson & Johnson Web site at investor.jnj.com. I’ll begin by briefly reviewing fourth quarter and full year results for the corporation and for our three business segments. Following my remarks, Alex will comment on the 2014 results and provide a strategic outlook for the Company. Then Dominic will provide some additional commentary on the business and review the income statement and provide guidance for 2015. We will then open the call to your questions. We expect the call to last approximately 90 minutes. Included with the press release that was issued earlier this morning is the schedule of sales for key products and/or businesses to facilitate updating your models. These schedules are available on the Johnson & Johnson Web site, as is the press release. Please note, we will be using a presentation to complement today’s commentary. The presentation is also available on our Web site. Before we begin, let me remind you that some of the statements made during this review are or maybe considered forward-looking statements. The 10-K for the fiscal year 2013 and the Company’s subsequent filings identify certain factors that could cause the Company’s actual results to differ materially from those projected in any forward-looking statements made today. The Company does not undertake to update any forward-looking statements as a result of new information or future events or developments. Our SEC filings including the 10-K are available through the Company and on our Website. During the review, non-GAAP financial measures are used to provide information pertinent to ongoing business performance. These non-GAAP financial measures should not be considered replacements for and should be read together with GAAP results. Tables reconciling these measures to the most comparable GAAP measures are available in the schedules accompanying the press release and on the Investor Relations section of the Johnson & Johnson Web site. A number of the products and compounds discussed today are being developed in collaboration with strategic partners or license from other companies, this slide lists the acknowledgement of those relationships not otherwise referenced in today’s presentations. Now I would like to review our results for the fourth quarter of 2014. Worldwide sales to customers were $18.3 billion for the fourth quarter of 2014, down 0.6% versus the fourth quarter of 2013. On an operational basis, sales were up 3.9% and currency had a negative impact of 4.5%. In the U.S., sales were up 7.4%. In regions outside the U.S. our operational growth was 1.2%, while the effect of currency exchange rates negatively impacted our reported results by 7.9%. On an operational basis, the Western Hemisphere excluding the U.S. grew 3.9%, while both the Asia-Pacific and Africa region and Europe grew 0.6%. The success of new product launches and continued growth of key products in all regions was partially offset by divestitures, the most significant one being Ortho-Clinical Diagnostics, excluding the net impact of acquisitions and divestitures underlying operation of 0.7% worldwide, 10.7% in the U.S. and 3.6% outside the U.S. Turning now to earnings, net earnings were $2.5 billion and earnings per share were $0.89 versus the $1.23 a year-ago. As referenced in the table reconciling non-GAAP measures, 2014 fourth quarter net earnings were adjusted to exclude a charge of $1.1 billion for after-tax special items. Fourth quarter 2013 net earnings were adjusted to exclude a net charge of $42 million for after-tax special items. Dominic will discuss special items in his remarks. Excluding special items for both periods, net earnings for the current quarter were $3.6 billion and diluted earnings per share were $1.27, representing increases of 1.4% and 2.4% respectively as compared to the same period in 2013. Now turning to the financial highlights for the full year of 2014, consolidated sales to customers for the year of 2014 were $74.3 billion, an increase of 4.2% as compared to the same period a year ago. On an annual basis, sales grew 6.1% operationally and currency had a negative impact of 1.9%. Excluding the net impact of acquisitions and divestitures, underlying operational growth was approximately 8% worldwide, 11.6% in the U.S. and 5.1% outside the U.S. Turning now to earnings, 2014 annual net earnings were $16.3 billion and earnings per share were $5.70. For the year, 2014 adjusted net earnings were $17.1 billion and adjusted earnings per share were $5.97, up 7.7% and 8.2% respectively versus the 2013 results. Free cash flow for the year was strong at $14.7 billion, up $900 million versus 2013. Turning now to business segment highlights. Please note percentages quoted represent operational sales change in comparison to the fourth quarter of 2013, unless otherwise stated and therefore exclude the currency translation impact. I’ll begin with the Consumer segment. Worldwide Consumer segment sales of $3.6 billion increased 0.9% with U.S. sales up 2.5%, while outside the U.S. sales grew 0.1%. Excluding the net impact of acquisitions and divestiture, underlying operational growth was 2.1% worldwide, 4.9% in the U.S. and 0.7% outside the U.S. Growth was driven by OTC worldwide, U.S. Skin Care, as well as Oral Care and Women’s Health outside the U.S. This growth was partially offset by lower sales of Baby Care and Skin Care outside the U.S., due to competitive pressures and prior-year inventory stocking. OTC sales growth was driven by analgesics and upper respiratory products. Upper respiratory grew 8% worldwide driven by sales growth outside the U.S. Analgesic growth was 16% with growth in the U.S. of 24% driven by share gains, as well as trade inventory build related to the re-launch of products. In the U.S., adult analgesic market share was 11%, up from approximately 9.5% a year ago, while U.S. pediatric share was nearly 42%, up from 34% a year ago. New product launches and successful marketing campaigns drove the results for NEUTROGENA and AVEENO in U.S. Skin Care, as well as LISTERINE in Oral Care and Women’s Health products outside the U.S. Moving now to our Pharmaceutical segment, worldwide sales of $8 billion increased 13.9% with U.S. sales up 22.7% and sales outside the U.S. up 5.8%, driven by strong sales of new products, as well as core growth products. A major driver was our Hepatitis C product, OLYSIO. Excluding sales of Hepatitis C products, OLYSIO and INCIVO, underlying growth worldwide U.S. and outside the U.S. was approximately 11%, 16% and 7% respectively. Other significant contributors to growth were immunology products, STELARA and SIMPONI, SIMPONI ARIA as well as XARELTO, INVOKANA, ZYTIGA, INVEGA SUSTENNA or XEPLION and recently launched IMBRUVICA. Net revenue recorded from IMBRUVICA in the fourth quarter was $92 million worldwide, with $64 million in the U.S. On a full year basis, net revenue was $200 million worldwide, with $144 million in the U.S. The results for immunology were driven by strong double-digit market growth, complemented by increased market share for STELARA and combined SIMPONI, SIMPONI ARIA. U.S. export sales of REMICADE were down due to timing of shipments to our distribution partners. XARELTO sales were up 58% and total prescription share or TRx for the quarter in the U.S. anticoagulant market grew to 15%, up approximately 0.5 point from last quarter and up over 4.5 points from a year-ago. Cardiology TRx estimated at 23.5% was up over 4.5 points from a year-ago. INVOKANA/INVOKAMET sales were approximately $200 million in the quarter, with over $190 million in the U.S. contributing approximately 3.5% to the U.S. pharmaceutical growth rate. In U.S. INVOKANA/INVOKAMET achieved 4.1% TRx within the defined market of Type 2 diabetes excluding insulin and metformin, up from 3.3% in the third quarter of 2014. TRx in endocrinologist grew to 10% for the quarter, up approximately 1% sequentially. INVOKANA/INVOKAMET was the category-leader in new-to-brand share with endocrinologists reaching over 19% at the end of the quarter. Strong growth of the combined metastatic castrate resistant prostate cancer market at over 15% drove the results for ZYTIGA in the U.S. ZYTIGA’s share was approximately 31% of that market down approximately two points on a sequential basis due to increased competition. Continued strong market uptake and additional country launches drove the strong results outside the U.S. ZYTIGA is approved in more than 95 countries. INVEGA, SUSTENNA or XEPLION, achieved strong result in all regions due primarily to increased market share. I’ll now review the Medical Devices segment results. Worldwide Medical Devices segment sales of $6.6 billion decreased 4.7%. U.S. sales declined 7.7%, while sales outside the U.S declined 2.3%. Ortho-Clinical Diagnostics was divested mid-year 2014. Excluding the net impact of acquisitions and divestures, underlying operational growth was 1.5% at worldwide, with the U.S down 1% and growth of 3.5% outside the U.S. Growth was driven by orthopedics and cardiovascular care products, partially offset by lower sales in vision care. Competitive pricing dynamics negatively impacted growth for vision care in the U.S. This was partially offset by growth outside the U.S with strong results in emerging market. Orthopedics sales growth was driven by Sports Medicine, hips, spine and knees. The successful launch of MONOVISC coupled with the continued strong growth for ORTHOVISC drove results for Sports Medicine. Hip growth of 5% worldwide was driven by strong volume growth partially offset by continued pricing pressure. Primary stem platform sales were a major contributor to the results. Spine grew 3% with solid market volume growth and new product launches partially offset by continued pricing pressure. Knees worldwide increased 3% due to the successful launch of ATTUNE, with pricing pressure offset by positive mix. Cardiovascular growth was driven by a 16% worldwide increase in our BioSense Webster business due to strong growth of the ThermoCool SmartTouch Catheter. That concludes the segment highlights for Johnson & Johnson’s fourth quarter of 2014. For your reference, there were some notable developments in the fourth quarter which we have summarized on this slide to assist as you develop your models. Lastly, to assist you in updating your models for the full year 2014, on our Web site you will find annual sales highlights by-segment, as well as adjusted earnings before tax by-segment. It is now my pleasure to turn the call over to Alex Gorsky. Alex?

Thank you, Louise and good morning everyone who has joined the call today. I am really pleased to be reviewing with you the highlights of our very strong 2014 results and a preview of '15 and beyond. But before I get to that, I’d like to start as I often do with just a word on Our Credo. This remarkable document was written 71 years ago by the son of our founder and Johnson & Johnson has long been guided by its principles. And what I can tell you is that this philosophy, this ethos is alive and well in our organization. There is a fixated version of it etched in glass and positioned directly in front of my desk. It’s something we pay a lot of attention to and it challenges our entire Company to ensure that we’re working with the interest of our key stakeholders in mind consumers, care-givers and patients, our employees, the global communities in which we live and work and of course our shareholders. And as we enter 2015, the business of Johnson & Johnson is very strong and we’re well-position for the long-term. We delivered 31 consecutive years of adjusted earnings increases, and 52 consecutive years of dividend increases for our shareholders. We’re one of just three companies to be Triple A rated by all three major credit agencies, which continues to afford us many benefits in the financial markets. Our products are industry and segment-leading with 70% of sales coming from the number one or number two market share position and 25% of our sales coming from products we’ve launched in the past five years. And we reward the shareholders by returning about 70% of our free cash flow over the past decade, which amounts to about $90 billion. As most of you know, Johnson & Johnson is built around three core businesses and as the chart on the left of the slide shows, our Pharmaceutical segment generated over 32 billion in sales last year, followed by Medical Devices at 27.5 billion and 14.5 billion in Consumer to round it out. We’re the largest pharmaceutical company in the United States and the fastest growing Company among the top-10 globally. We’re also the market-leader in Medical Devices which includes surgery, orthopedics and consumer medical devices, like vision care and diabetes. And we’re a market-leading consumer products healthcare company as well. And so looking back on 2014 here is a slide I presented last January, that delineated our commitments for the year and I’m proud to say that we’ve achieved our near-term priorities and exceeded our financial targets of full year operational sales growth of 6.1%. We successfully restored a reliable supply of the over-the-counter medicines the shelf in the United States and saw strong growth in our pediatric analgesics. And at DePuy Synthes which showed 3% operation growth over the prior-year led by the trauma, hips and knee businesses, we’ve begun to realize the benefits of the scale and breadth of the combined businesses which have contributed to strategic wins in key markets. And by any measure we built on the already strong momentum in our Pharmaceuticals business, driven by the strength of key products including OLYSIO, XARELTO, ZYTIGA, INVOKANA and IMBRUVICA. Later, I’ll cover the progress we’ve made against our long-term growth drivers, particularly in the area of innovation. To set context for our businesses going forward, there are a few points I’d like to make about the dynamics shaping the global healthcare environment. First is the rising cost of healthcare, which by 2020 is expected to account for 21% of the GDP in the United States, nearly 11% in the European Union and 6% in China. And as I travel around the world, it's clear that providing sustainable high-quality healthcare is one of our society's greatest challenges. It's at the forefront of many discussions I have with our associates, government leaders, physicians, hospital administrators and executives at our peer companies. As the world's largest healthcare company, we're working to assume a leading role in the solutions which must be centered on the patient and improving outcomes. Next, expanding access is an important macro trend impacting how we and others think about the future of the business. Healthcare reform efforts and improving economies are clearly helping more people access affordable quality care, which will certainly help in the fight against cancer, obesity and heart disease. And here in the U.S, we’ve seen healthcare utilization rates increase for the second quarter in a row, both sequentially and versus the prior year. And we estimate that we will continue seeing similar to slightly higher growth rates when all of the fourth quarter numbers are reported. Managing those dynamics demand innovation and new models and are driving considerable health industry consolidation at the health system level, as well as in the med tech, pharmaceutical and biotech sectors, where the M&A activity is back to peak levels last observed before 2009. The good news is the governments are increasingly recognizing the need to continue to address healthcare needs and are taking steps to reward innovation through FDA and EMEA designations that are helping to speed product review times. And in thinking about all of these dynamics in the marketplace, today I will cover three themes about Johnson & Johnson that are driving our confidence in the future. First, the core businesses at Johnson & Johnson are strong and positioned to continue expanding our market-leadership positions. Next, we have an exciting and deep product pipeline across the entire enterprise. And we’re changing the way we interact with our customers and evolving our structure to be more effective and efficient to drive growth. Now I am also a firm believer that in order to achieve our goals as a Company, it's important to establish a clear set of priorities for the entire organization. Three years ago, when I first assumed this role we were very focused on excellence in execution and given the progress we’ve made today, we're evolving our approach placing an even greater emphasis on innovation and accelerating growth with continued excellence in execution as a non-negotiable part of the process. So without compromise, we're focused on delivering on our financial and quality commitments. In Pharmaceuticals, we'll continue building on our launch excellence and robust pipeline. In Medical Devices, the emphasis is on growth acceleration from innovation and also by transforming our go-to-market models that better reflect the reality, the purchasing decisions are increasingly being made at the healthcare system level, as they look to improve the quality of care they provide patients, while controlling cost. And in Consumer, we're expanding our market-leadership in key segments within the over-the-counter medicines, oral care, baby and beauty markets. Let me take you through the thinking of how we will meet these priorities in each one of our businesses. Let's start first with our Pharmaceutical business. I've got to tell you, I could not be proud of this organization. About six years ago we lost $8.5 billion of sales to patent expiry and this was out of about a $24 billion portfolio in our Pharmaceutical business. Now, a lot of companies have chosen different strategies, but what we said is, first of all we want to be very focused on innovation and are developing differentiated products that will ultimately help fulfill unmet medical needs. We focus on five therapeutic areas, recognizing that we can't be everything to everybody. And we've also said that we want to go where the best science is and have a mix of internal and external innovation, while being completely agnostic about the source. And the results really speak for themselves. The 14 new products launched since 2009, driving cumulative sales of over $27 billion, six of these products have already crossed the $1 billion threshold. With this we are the industry-leader in terms of research and development productivity and that means per dollar spent compared to the benchmark. And the story is not over, in 2014 we had 20 new line extensions approved and we filed an additional 20. We also started 23 Phase 3 trials and initiated 11 Phase 2 trials. And as currently constituted, our pipeline is poised to yield 10 potential new product filings between 2013 and 2017. Next, our Medical Devices business is in a very strong leadership position particularly in orthopedics, electrophysiology, surgery and vision care, where there is a lot of innovation advancing the standard-of-care. Many of our platforms are overwhelming market-leaders in their categories and 85% of our sales are from platforms with a number one or number two position. We have 10 different platforms in this business that have exceeded $1 billion in sales, which is quite remarkable when you think about it. And we're growing very well in emerging markets and are capitalizing on the scale, depth and breadth of the portfolio we can offer to governments, large healthcare systems and large payors around the world to add value and help patients and we grew sales in China by nearly 15% on an operational basis last year. We've launched over 50 major new products since 2012 and have more than 30 new filings pending as at the end of the year. So again, this is a very strong business that's well-positioned for the future. In our Consumer brands, these are the ones that most people know us by. As you can see we're guided by inside driven innovation and have taken a very focused approach to meeting key consumer need space led by our 12 megabrands. And while they are nearly U.S the OTC business continues to operate in their consent decree they are on-track with all of their commitments and the consistent supply of these products are returning to the market. I am incredibly proud of the work that the team has done and based upon recent market-share trends that show consumption is growing at four times the market, with particular strength behind children’s TYLENOL and children’s MOTRIN, the new strategies we’ve implemented within the organization are really paying off. Now the work that I just described is leveraging the full strength of our enterprise, the product portfolios, the expertise of our research, medical and epidemiological teams and our commercial organizations. Looking longer-term, our strategy for driving growth should be very familiar to all of you by now and I’ll use the balance of my time taking you through some of the elements behind it. So let's start with innovation because in the end without innovation we just can’t be successful that’s ultimately how we’re going to help more patients and consumers and we invested $8.5 billion in R&D last year across our segments to keep us at the forefront. Our approach can be viewed in these four ways. As I’ve said earlier, we want to ensure we have the right mix of internally and externally sourced science and products and we’ve built new innovation models. We’re also focusing on greater cross-segment collaboration to innovate and focused operationally on building market-leading capabilities that enable us to achieve the highest quality and efficiency standards possible across the world. And the good news is, it’s working. We’ve had about an 8% CAGR over the last 20 years and we’ve invested almost $200 billion in innovation over that span. About 109 billion of that has been internal and about 85 billion has been external, so a pretty fair mix. With that external spend, we’ve done over 120 deals and well over 100 of those are under $1 billion. Of course the larger ones make up more of the value, but what this graph shows is that you’ve got to have those singles, doubles and triples as well as the larger home run type deals to be successful over the long-term. And that’s helped us build a portfolio with 24 brands and platforms that generate over $1 billion and sell the piece. As an example, our team has done a great job at this in the oncology space. The partnerships we’ve built since 2008 have helped us grow from a $1 billion franchise to over $4.5 billion today and we have around four breakthrough designations in this portfolio demonstrating our ability to identify and develop products that can revolutionize the care of cancer patients. And we’re doubling down on our efforts to ensure we continue accessing new ideas and products at their earlier stages. Building on the legacy of entrepreneurship that the Johnson & Johnson Development Corporation established since its inception by investing over $1 billion in start-up companies, the team made an additional 43 investments with nearly $200 million just last year. Our new innovation centers which are in four innovation hubs across the world have made over 200 alliances in the past few years and at our four no-strings-attached incubators at Janssen Labs, we’re giving small start-ups places to work and access the instrumentation. I had an opportunity to visit our facility in South San Francisco just last week and that was one of our teams that we’re working with, who says it could have taken them eight years and $300 million to do what we’re enabling them to do in just a couple of years for significantly less, in an environment where they are building a foundation for strong partnerships for themselves and frankly with us as well. As technologies are advancing, we’re seeing more and more opportunities for cross-segment collaborations, bringing together the scientific, regulatory, clinical and commercial expertise from across Johnson & Johnson to improve care. Examples include our EVARREST Fibrin Sealant Patch, which has demonstrated an ability to control problematic surgical bleeding that goes well beyond the current standard of care. Stem cell therapy for Adult Macular Degeneration is another area that we’re very excited about. We think it offers a great complement to our existing vision care platform. Also while I was in China for the APEC Economic Leaders Summit in November, I announced plans to optimize our expertise on oncology to help the Chinese government fight lung cancer. It's estimated that by 2025 there will be 1 million cases of lung cancer and while China has 20% of the world’s population, they have got about 30% of the cases. So we’re in the process of establishing a China Lung Cancer Center which will adopt an integrated medical approach to transforming the disease we help ultimately into a preventable and curable one, by taking a unique local approach where we have R&D, medical device, pharmaceutical and consumer experts all working together to bring forward new and very comprehensive solutions. This is also a good illustration of the versatility of the types of enterprise-wide solutions we can uniquely offer as Johnson & Johnson and we’re already in talks with governments and other nations to develop similar models to help them attack diseases that are rapidly spreading through their nations. Now we realize that in order to implement programs like these on such a large scale, we must change the way we work as a Company. For many years Johnson & Johnson has been extremely decentralized and we think that accountability and responsibility is something that we don’t want to lose or compromise. But we also realize that operating a $75 billion global company is different than operating a much smaller one and then making sure we’ve got the right standards and systems in place in areas such as quality, supply chain and finance is essential. So we put in a very ambitious agenda to strike the right balance in our organization. And as I stated last year, we’re aiming to take $1 billion out of our P&L over the next three years and believe that we’ll be an even stronger organization. So all of our commitments to innovate have helped us establish a very strong pipeline for Johnson & Johnson. As you can see in our Pharmaceutical business we have a deep pipeline, and as I said earlier we’re expecting the yield 10 major filings and 25 line extensions between 2013 and 2017. One of them is esketamine, a potential breakthrough medication for treatment resistant depression as well as daratumumab which is being developed for multiple myeloma. They both have breakthrough designations from the FDA. We’re also excited by ARN-509, a next-generation treatment for prostate cancer, as well as guselkumabfor Psoriasis and sirukumab which is for Rheumatoid Arthritis. And just yesterday, we announced that the FDA has granted priority review of our NDA supporting the three month formulation of paliperidone palmitate for the treatment of adults with schizophrenia. If approved, it will be the first and only long-acting atypical antipsychotic that can be dosed just four times a year, adding an unprecedented treatment option to help address the needs of these patients. We’ll keep you apprised of these programs, as their development progresses. Innovation is also deep in Medical Devices, where we expect 30 major filings between 2014 and 2016, including the ECHELON FLEX Powered Vascular Stapler and our TFN-ADVANCED Proximal Femoral Nailing System in trauma which we’ll launch this year. We’re also innovating medical devices for consumers like the new Calibra 3-Day Wearable Insulin Patch, as well as with our new brand of ACUVUE for use in the beauty and astigmatism and presbyopic segments. And in our Consumer business, we have 20 key product launches planned for this year, including NEUTROGENA Hydro Boost and LISTERINE HEALTHY WHITE. Innovation though is not just about new products it’s also about new ways of managing. More and more of what I’m hearing from hospital CEOs and from healthcare administrators around the globe, is they want to work with Johnson & Johnson on a less fragmented basis, so we’re implementing different approaches. To take on healthcare in the future, we’re going to take a much more holistic approach and build more holistic partnerships and we’re making it easier for health systems to do businesses with us through customer-focused team leaders that can represent an enterprise view. Again, when you think about the depth and the breadth that we have from orthopedics, to surgery, to the pharmaceutical group, our ability not only to contract, but to fundamentally partner price and work collaboratively in a different construct, it offers us a unique and exciting opportunity to be part of the solution in healthcare as it continue to change around the globe. We also have a very strong global footprint and 53% of our total sales last year were made outside the United States, with about 21% in the fast moving emerging markets around the world where we see stronger growth rates than what we’re seeing in developed markets. While these markets always represent a certain challenge or a certain risk, we’ve been operating in them for many years and we believe that taking a long-term view is the right way for us, not only in terms of expanding our presence, but also in the way we conduct research and development and the way we embed elements of our supply chain in all the areas of our business, which is an important strength for us overall and which is helping us to drive us to this level of success. Now while we’ve talked a lot about ways in which we’re building our portfolio, we also think it’s important to make sure that we’re being thoughtful about where we’re going to participate and where we’re not going to participate. Again, you’ve seen some decisions that we made around areas such as drug-eluting stents, Ortho-Clinical Diagnostics, selecting pharmaceutical and consumer brands. Our approach is to focus on being number one or number two in a particular area, as well as on those businesses or product areas, that we feel have a path to achieving leadership where they will be directly complementary with one of our businesses. Now if a business or product doesn’t meet at least one of those criteria for us, it maybe that it’s better served in someone else’s hands. To be clear, these can be very good businesses with a lot of opportunity such as the U.S. NUCYNTA pain brand, we just announced plans to divest or Ortho-Clinical Diagnostics. The point is, that moves like these give us a chance to rejuvenate our portfolio and to focus on those programs that we know are ultimately going to help more patients and grow our business. One other topic I’d like to talk about before I close regards our efforts around Ebola, now in addition to the privilege of working in healthcare, we have a real responsibility to lead with purpose and to help the global community in times of crisis. Our work to expedite development of an Ebola vaccine is a great representation of our ability to mobilize and focus our resources in a really short period of time to help meet the needs of patients. And because everyday counts, we’ve committed to substantially accelerate the production of our vaccine regimen through unprecedented collaborations among the global health community. Our goal is to bring this vaccine to families and frontline healthcare professionals, as fast as possible. We started our Phase 1 clinical trials and have produced more than 400,000 regimens for use in large scale clinical trials. As I started this talk, I showed you a slide for my presentation last January, outlining what we expected to accomplish in 2014. So, we’ll remain focused on our near-term priorities and continue to advance our longer-term growth drivers. And I look forward to reporting on our progress next January when we view our 2015 accomplishments. As I close, I just want to emphasize why I’m so confident in our business and our growth potential. First, our core businesses are strong and positioned to continue expanding their leadership positions. We have an exciting and deep product pipeline across the entire enterprise. And we’re changing the way we interact with our customers and evolving our structure to be more effective and efficient to drive growth. Finally, I’m privileged to work with some of the greatest people in the world and I believe that with the progress we’ve made a sheer commitment to Our Credo and resolve in pursuit of our aspiration to help billions of people live longer, healthier, happier lives we’re extremely well-positioned for the future. Thank you and it’s now my pleasure to turn the call over to our CFO, Dominic Caruso.

Thank you, Alex and good morning everyone. It’s a great pleasure to report on our excellent 2014 performance which was driven by the many successes that Alex previously discussed, as well as to provide guidance for you to consider as you update your models for 2015. Now let’s review some highlights of our full year and fourth quarter financial performance. Turning to the next slide you can see our condensed consolidated statement of earnings for the full year of 2014. At the beginning of 2014 we provided an outlook of our expected financial performance for the year and we saw continued improvement in our results throughout the year. That growth was driven by strong sales results, particularly in our Pharmaceutical business and also good expense management across the enterprise. And so we ended 2014 with full year sales growth of 4.2% with operational sales growth of 6.1%, which exceeded our initial guidance of 4% to 5%. Excluding the impact of acquisitions and divestitures our operational sales growth was a strong 8% for the year. While we did benefit from a significant level of sales of our Hepatitis C products, excluding both of these factors our operational sales growth for 2014 was approximately 5%. I am also pleased to report that our pre-tax operating margin for 2014, excluding the impact of special items, improved by 190 basis points with more than half of that coming from sales of OLYSIO. Finally, our net income margin excluding special items improved to 23%. Turning to the next slide, you can see our condensed consolidated statement of earnings for the fourth quarter of 2014. While our total sales change of negative 0.6% reflects a negative impact of currency movements, we’re pleased to report operational sales growth of 3.9%, which as Louise discussed earlier was driven impart by the continued uptake of our recently launched pharmaceutical products. Excluding the impact of Hepatitis C products and acquisitions and divestitures operational sales growth was 5.6% for the quarter. Now let’s take a few moments to talk about certain items on the statement of earnings for the quarter. I am pleased to point out that we saw very good operating performance. Cost of goods sold was 40 basis points lower than the same period last year, primarily due to our product mix and cost improvement actions partly offset by currency impacts. Selling, marketing and administrative expenses were down as compared to the fourth quarter of 2013 as favorable mix of the business was partially offset by investments made in all areas of our business. Our investment in research and development as a percent of sales was up compared to the prior year, as we continue to make important investments for future growth and we closed a number of exciting licensing deals in the fourth quarter. Overall, our pre-tax operating margin excluding special items decreased 60 basis points in the fourth quarter, as compared to the prior year due to the timing of these investments during the fourth quarter. Interest expense net of interest income of approximately 122 million was slightly higher than the prior year. Other income net of other expenses was $963 million of expense in the quarter compared to $868 million of expense in the same period last year. Excluding the special items that are included in this line item, other income net of other expenses showed a net gain of approximately 103 million for the quarter, versus net expense of approximately 47 million in the prior year. In the quarter, the effective tax rate excluding special items was 8% compared to 8.9% in the fourth quarter of 2013 and for the year excluding special items tax rate was 19.3% compared to 17.2% for 2013. This was primarily due to the geographic mix of the results in each of the periods. This effective tax rate for the fourth quarter of 2014 includes the federal R&D tax credit for all of 2014, which we had anticipated would be passed Congress and in fact was late in 2014. This was included in our guidance but not yet in our reported results, therefore the entire full year credit is now reflected in the results for the quarter. Now turning to the boxed section at the bottom of the slide, during the fourth quarter we recorded several special items that netted to an approximate $1.1 billion charge on an after-tax basis and consisted primarily of the following items; increased litigation accruals, cost associated with the Synthes acquisition which is consistent with what we expected will be incurred as special items throughout 2014 and which we expect to continue through the middle of 2015 as that integration activity wraps-up and some charges for in-process research and development. Together, these special items negatively impacted our fourth quarter results by $0.38 per share. Excluding these special items our adjusted earnings per share were a $1.27 for the fourth quarter, which exceeded the mean of the analyst estimates as published by Firstcall despite the increased currency headwinds in the quarter which I will discuss later. Now I will provide some guidance for you to consider as you refine your models for 2015. I’d like to start by first providing some context which we believe is important to consider regarding our guidance for 2015. First, as a reminder as we discussed last year and although we took opportunity to invest in the business with the increase in profitability from OLYSIO sales, our earnings in 2014 did benefit by approximately $0.20 per share even after those investments. Also as we did throughout 2014 we will provide a view of our sales growth excluding the impact of Hepatitis C, as well as acquisitions and divestitures, which as you know are both important when considering the underlying base business performance. Additionally, currency headwinds have increased quite substantially since we last spoke with you in October of 2014, negatively impacting both sales and earnings and our guidance for 2015 to a greater extent that we had anticipated. We know that that some of you have updated your models for currency, but many of you had not yet and even though that have updated for currency have not yet reflected a negative impact that current rates could have if they were to remain at recent levels for all of 2015. And finally, we have decided to exclude amortization of intangibles from our adjusted earnings guidance consistent with the majority of our competitors and which I will discuss in more detail shortly. Before I discuss sales and earnings, I’ll give you some guidance on items we know are difficult for you to forecast beginning with cash and interest income and expense. At the end of the year, we had approximately $14.3 billion of net cash, which consists of approximately $33.1 billion of cash and marketable securities and approximately $18.8 billion of debt. For purposes of your models and assuming no major acquisitions or other major uses of cash, I’d suggest you consider modeling net interest expense of between $450 million and $550 million. Regarding other income and expense, as a reminder this is the account where we record royalty income, as well as gains and losses arising from such items as litigation, investments by our development corporation, divestitures, asset sales and write-offs. We would be comfortable with your models for 2015 reflecting net other income and expense excluding special items as a gain, ranging from approximately $1.5 billion to $1.6 billion, which includes the anticipated gain from the divestiture of our U.S. rights to the NUCYNTA pain medicine. As announced last week, we anticipate this transaction to close in the second quarter. This is a higher level of other income and some of you may have modeled and higher than the prior year level and we expect to use this increase in other income to compensate for lower level of income from OLYSIO, which we expect in 2015 as compared to what we had in 2014, allowing for continued investments in our core business primarily in research and development. Now a word on taxes, our guidance for 2015 anticipates that the R&D tax credit will also be renewed by Congress for 2015, although that has still not yet happened. We would therefore be comfortable with your models reflecting an effective tax rate for 2015 excluding special items of approximately 20% to 21%. If the R&D tax credit is not approved it will negatively impact the tax rate by approximately 0.5% for 2015. Now turning to sales and earnings, our sales and earnings guidance for 2015 takes into account several assumptions and key factors that I would like to highlight, which may not be fully reflected in your models. For sales, our assumption for PROCRIT is that there will not be biosimilar competition in 2015. We also do not anticipate generic competition this year for RISPERDAL CONSTA or INVEGA SUSTENNA. We are however expecting the generic entrant for INVEGA in the first half of 2015, as well as biosimilar competition for REMICADE in Europe in early 2015 and have included the expected impact in our sales guidance. As we’ve done for several years, our guidance will be based first on a constant currency basis reflecting our results from operations. This is the way we manage our business and we believe this provides a good understanding of the underlying performance of our business. We will also provide an estimate of our sales and EPS results for 2015 with the impact that current exchange rates could have on the translation of those results. We would be comfortable with your models reflecting an operational sales increase on a constant currency basis of between 1% and 2% for the year. This would result in sales for 2015 on a constant currency basis of approximately $75 billion to $76 billion. Additionally, by way of comparison to how we described our results in 2014, our operational sales growth for 2015 excluding the impact of all acquisitions and divestitures, as well as the impact of Hepatitis C would be approximately 6%, a higher level of growth than the comparable 5% for 2014 which we noted earlier. Throughout the latter part of 2014, the euro, like many other currencies weakened significantly versus the dollar and as of last week was lower by approximately 11% as compared to 2014 average levels. As you know, the dollar strengthened recently versus virtually all major currencies. We are not predicting the impact of currency movements but to give you an idea of the potential impact on sales if currency exchange rates were to remain where they were as of last week for the balance of the year, then our sales growth rate would decrease by nearly 5.5% reflecting the recent weakening of the euro and other major currencies against the U.S. dollar. Thus under this scenario, we would expect reported sales to reflect the change in the range between negative 3.5% and negative 4.5% for a total expected level of reported sales between approximately $71 billion and $72 billion. Now turning to earnings, consistent with the reporting practices by the majority of our competitors, beginning in 2015 we will exclude intangible amortization expense in addition to special items when providing our adjusted earnings guidance and actual results. The impact of the amortization of intangible assets that we’re projecting is approximately $1.3 billion on a pre-tax basis representing approximately $0.32 per share on an after-tax basis for 2015, compared to $0.42 per share in 2014. The amount for 2014 includes the acceleration of the amortization expense on certain intangible assets which we don’t anticipate for 2015 at this time. To assist you in comparing our guidance to our models and to our prior year results, I will first describe our adjusted earnings guidance excluding special items as we have done in the past. Then I will update that guidance but also exclude the impact of amortization of intangibles. A significant factor impacting our earnings guidance for 2015 is the impact of currency movements on transactions, which although hedged is still somewhat negative incrementally versus the prior year. We expect transaction currency impacts to be negative to our gross profit by approximately 50 to 70 basis points in 2015, as compared to 2014. I will of course discuss the translation impact of currency on EPS in a few minutes. Consistent with our prior year presentation of adjusted EPS excluding special items, we would be comfortable with adjusted EPS excluding special items ranging between $6.22 and $6.37 per share on a constant currency basis, up approximately 4.2% to 6.7%, compared to a constant currency sales growth rate of 1% to 2%. Now excluding the impact of amortization of intangibles in addition to excluding special items, we would be comfortable with adjusted EPS guidance in the range between $6.54 and $6.69 per share on a constant currency basis reflecting an operational or constant currency growth rate of 2.3% to 4.7%. Again, we are not predicting the impact of currency movements, but to give you an idea of the potential impact on EPS, if currency exchange rates for all of 2015 were to remain where they were as of last week then our reported EPS excluding the intangible amortization expense of special items would be negatively impacted by approximately $0.42 per share, a much higher negative impact that we provided back in October of $0.15 to $0.20 per share due to the significant strengthening of the U.S dollar during the past several months. Therefore, our reported adjusted EPS guidance excluding the impact of intangible amortization expense and special items would be in a range between $6.12 and $6.27 per share, reflecting the significant headwind of currency on EPS, if exchange rates were to stay where they are now for all of 2015. At this early stage in the year we would comfortable with your models reflecting the mid-point of this range. So in summary, as you update your models for the guidance I just provided and reflecting on the context I shared with you earlier, I would like to make a few key points; although operational sales growth is expected to range between 1% and 2% we are pleased to note that when excluding the impact of Hepatitis C and acquisitions and divestures our operational sales growth at the mid-point of our guidance would be 6% for 2015, as compared to 5% for 2014. We expect that the higher level of other income in our guidance for 2015 will replace the lower level of income from OLYSIO in 2015 as compared to 2014, allowing for continued investment in the business particularly in research and development as we continue to build our pipeline. The negative impact of currency exchange rates in 2015 as compared to 2014 will be much more significant to both sales and earnings that many of you have modeled. And we expect that this additional negative currency impact to be more significant in the first half of the year as compared to the second half of the year. On a constant currency basis our operational EPS growth and our guidance is expected to range between 2.3% and 4.7%. And finally going forward as we noted today, we will be reporting our adjusted earnings per share to exclude intangible amortization expense, as well as special items consistent with the majority of our competitors. So in closing, we’re very pleased with our strong results for 2014 and we have the financial strength and breadth to execute on our near-term priority and to continue to deliver solid results, while also continuing to invest for long-term growth and I look forward to updating you on our progress throughout the year. Thank you and now I’d like to turn things back to Louise for the Q&A portion of the program. Louise?

Thank you, Dominic. To assist you with updating your models with comparative 2014 adjusted EPS excluding intangible amortization and special items we have posted a reconciliation by-quarter to the Web site. We will now open the call to your questions. Lhea, can you please give the instructions for the Q&A session?

(Operator Instructions) Your first question comes from the line of Lawrence Biegelsen, Wells Fargo.

Let me ask two to Alex. Alex let me just start off with the nearly 14 billion in net cash that you have that’s close to the largest for J&J in recent years but you’ve been relatively, you’ve done relatively small deals since taking over as the CEO. Is there any color you can provide on your appetite to do a larger deal and your priorities for M&A? And then I have one follow-up question for you.

Larry consistent with our strategy, we’re always looking for opportunities frankly that help us better fulfill unmet medical need and so if we start with our pharmaceutical area I think over the past several years we’ve done a really nice job of identifying compounds early on in that development, things like ZYTIGA, things like ibrutinib, bringing them in, putting them through a very rapid and extensive clinical development program and then of course having successful launches. And as we've experienced 14 new product launches since 2009. So we think in the pharmaceutical area that kind of approach to sourcing new technology and new compounds is definitely a successful one. If we look to our Medical Devices, of course our big focus over the past in making sure that we're making the most of the significant investment that we made in Synthes. And I think we made a lot of headways I outlined during my presentation and in fact I think we were one of the first companies to really look hard at spaces like orthopedics and recognize that consolidation was very likely to occur and so we were able to do that in a way where we feel we got a very good portfolio fit. And as we’ve managed through that transition over the past several years, we feel that we're in a very good position now particularly as many of our competitors are just starting to go through some of those consolidation initiatives. But even in this space we continue to look for new options, new innovations. There is number of spaces, we’ve identified areas such as orthopedics, such as surgical, such as vision care in particular to be significant priorities for us and we continue to look in those spaces. If we look to consumer, our top priority over the last several years frankly has been on remediating our over-the-counter brands, particularly here in the United States. And I really commend the team for the great work they have done. The McNeil Group has basically completed the major steps, the consent decree so they are on a very good path, they are re-launching brands you see it in our results for the quarter. But here too we continue to look for ways to innovate, continue to look for ways to add scale and expand in the appropriate way. And of course while we're doing that we're also making sure that we're being very disciplined and decisive about businesses that we're choosing not to participate in. And I think we made a number of moves over the last several years that also has allowed us to continue to invest, but has also been healthy for the shareholders at the same time.

And then Alex I know this may seem like an overly simplistic question, but over the past 15 years J&J’s pharma business has gone through three, roughly five year cycles with the first five being strong, followed by a deceleration due to patent expiration, followed by another five strong years or so. And when one looks at the pharma business one can't help but see increasing competition to key products like ZYTIGA and STELARA, as well as the biosimilar competition that you highlighted on the call which will slow your overall pharma growth. So my question is how confident are you that you can break those five year cycles we've seen over the past 15 years and why? Thanks.

And look I am very proud of our Pharmaceutical business, and frankly the work that they have done over the past five or six years to address as you highlighted the significant patent expiry challenge that we experienced and that we successfully navigated our way through. When you think about it, we lost about $8.5 billion to patent expiration several years ago and we took a determined strategy that frankly was different than a lot of our competitors where we decided to focus on five major therapeutic areas where we had capabilities and frankly where we still felt there was a lot of unmet medical need. We got very agnostic about the sourcing of our research. At the end of the day we wanted the best molecule, the best science where we felt we could make the biggest difference and then of course it was about how do you build robust clinical development programs and then ultimately have benchmark commercial and reimbursement teams to make sure that you are maximizing all of those compounds. And if you look at the track record as I mentioned earlier, 14 compounds since 2009, six of those have reached a $1 billion and again these are compounds that are really making a difference for patients. But at the same time, we have made a very strong commitment to make sure that while we were launching those, we were also investing in the future. And here I really want to commend our scientific team, our business development team because if you look at our near-term pipeline I think it's quite encouraging. We've got things like ARN-509, another approach in androgen receptor inhibitors that we think will be a great compliment with ZYTIGA in the not too distant future. To complement an already very strong immunology franchise with REMICADE, STELARA and SIMPONI, we have got sirukumab an IL-6 in patients for RA and guselkumab an IL-23 that's an antibody for psoriasis both of those are progressing very well through development stages as well. We have got a very interesting compound fulranumab an anti-NGF antibody for osteoarthritic pain. We have been in pain for some time, but we think this will be a definite new approach for patients and we've also got esketamine, you have heard some of the data on that. It’s the first NMDA antagonist and these are from patients with treatment-refractory depression, a really difficult condition with high rates of suicidality. And we see very good results, again it's early, we have more work to do but we're quite encouraged. So if we add that to the very strong platforms and you’ve heard earlier in my presentation that we’ve had over 20 line extensions approved in 2014 of our existing compounds, we’ve submitted at least that many more that we’ll see approved over the next several years. And when you look at some of the areas where we’re currently participating, be it prostate cancer, be it Type 2 diabetes and some of the other areas such as thrombosis we’re seeing many of these areas growing at double-digits and areas like XARELTO, I think we’ve penetrated perhaps a third of the warfarin market. So we think there is strong growth opportunities in our core business, we think we’ve got exciting line extensions and we think we’ve got a great coming pipeline of Phase 3 and Phase 2 compounds for the future.

Next question please.

Your next question comes from Derrick Sung of Sanford Bernstein.

Alex, you spent a lot of time highlighting the successes that you’ve had in pharma which we would agree you’ve done a great job and seemingly finding kind of secret sauce there in terms of both external and internal innovation. I am wondering if you have any thoughts on how translatable that formula is over to your medical device business, which has continued to -- you struggled to grow above market and maybe could talk about if there are any learnings there that could be translated over to Medical Devices and what it will take either internally or externally for you to get that Medical Device business growing above market?

And first of all, clearly we acknowledge our Medical Device Group has faced challenges that many of the businesses have over the past several years and we’ve got some very promising and I think very strong stories in our Medical Device Group and when you think about our EP business BioSense Webster and the growth rate that this experienced, I think we’d now -- we have about 19 consecutive quarters of double-digit growth for that business, a continues and constant stream of innovation, ultimately really helping patients in growing our business, it's impressive by almost any measure. I think we’ve also started to see some of our other core businesses come back and grow. We think about the Medical Device market probably growing in the 3% to 5% range, it's been consistent with our longer-term projections. Of course our goal is to outpace that growth because we want to gain share vis-à-vis innovation, the way we work with customers in our broader portfolio. If I look across other areas, we’re starting I think to see signs of a strengthening orthopedics performance by DePuy Synthes. For example we saw hips up around 4%, knees up 3%, trauma growing at the high 4s, almost 5% and we think our share performance has been very good in all of those different areas. We saw energy also on a full year basis come back over 5%, even our Suture business is growing over 3% on an annual basis. So we think those are strong performers and can continue. And then of course we have some businesses that we’re working hard on, areas such as diabetes which as you know was challenged by the price setbacks, our Vision Care business is facing challenges in the marketplace, but they have done a lot of good changes recently and we think they are well-positioned for the future. But as we look even longer-term, clearly we’re trying to take pages from the innovation playbook that you might say our pharma group is built on and apply those in other areas. So whether it's in our clinical development programs, the way we monitor safety, adverse event reporting, those are areas we’re spending a lot of time. We’re doing more and more through our innovation centers that we’re recently opening and utilizing JJDC on how do we better source early start-up innovation. Again in the pharma as well as the device but even our Consumer businesses going forward and of course we’re looking at ways also to partner with customer in new unique ways. So, we remain confident in our Medical Device businesses, we’ve got some very strong businesses, we’ve got -- we realize there is others that we still have more work to do, but we think long-term they offer a significant opportunity for patients, for us and for our shareholders.

I was wondering Alex also if you could follow-up a bit on your comments on healthcare utilization. You’d mentioned that now you're seeing a couple quarters of sequential uptick in healthcare utilization. Can you perhaps break that down a bit by geography and give us your outlook and also what you're seeing in the U.S. versus Europe versus the emerging markets and how you -- what you see the drivers are for utilization as we look out to 2015 and beyond?

As you know because of our presence in pharmaceuticals, as well as devices and even consumer it gives us a pretty good lens to understand what’s going on fundamentally in the market. So let me start in the United States where you probably have the clearest and the most tangible data and here we’re encouraged, we think we’ve got about three quarters now in the positive, when I say in the positive I mean somewhere between 2% and 3% when we’re looking at hospital admissions, surgical procedures, physician office visits still appear to be negative. So I think it's too early to declare complete victory yet, but generally I would say we’re encouraged by some of the signs that we’re seeing and if we can see the fourth quarter, the full results coming out for this year and have a third quarter then of increasing results that would be a positive. I think one of the areas of challenge for us has been Europe. There remain obviously a lot of concerns economically in Europe. We have some businesses frankly that are doing quite well. We have others that are challenged. I think it’s a bit of a mixed bag. We continue to see good growth in China on a full year basis. We saw over 10% -- double-digit growth in China and close to that in the BRIC regions although obviously with Russia, that’s been particularly challenged over the last year given some of the things that we faced. South America a little bit more with Venezuela. Brazil has been a little bit mixed. We saw some challenges on our Consumer segment and some of the other areas. We haven’t felt that as much, but I think that’s a global sense that we give you.

Next question please.

Your next question comes from Mike Weinstein, JPMorgan.

So Dominic let me start with you if you don’t mind, so I just want to walk through the kind of approach to numbers this year, so you have starting point for on a cash EPS basis of $6.39 for 2014, but then you lose $0.42 in FX let’s call it $0.20 from OLYSIO, but then the other income step up from '14 to '15 adds extra $1 billion gains of about $0.30, is that how to think about it? And then and if that’s right it would still seem to imply relatively conservative underlying EPS growth outlook of about 1% to 3% so is there anything I’m missing there?

I think the impact of the higher other income and expense line I mean you have to think about that as utilizing the tax rate that’s predominantly U.S. versus our blended tax rate I would say that the impacts lower than $0.30 a share and closer to $0.20 to $0.22 a share. Just think about a $1 billion at a 35% tax rate and 6.50 and do the math on that, so I don’t think you get the 0.30 on that, so I would adjust that a little bit. And then I would just give you maybe another macro observation Mike and that is that if you -- I know that not everyone has updated their models for all of the moving parts here, but I think if you -- when I look to consensus at about 6.14 and then I consider the fact that we should add back to that $0.32 of this amortization expense and then reduce it by what I’m using as about $0.24 which is the difference between $0.42 that I just discussed and the midpoint of what we provided as an estimate back in October between $0.15 and $0.20 so that call that 0.18, so an incremental $0.24. So 6.14 plus 0.32 minus 0.24 gets you to in the 6.20 range. And so we’re thinking that that’s about apart from the expectation on currency about where everyone had sort of expected us to come out.

But with the let me fast forward then into 2016 so, we should assume that that level of other income benefit fade in 2016, so is that a bit of a headwind as we’re trying to update our model going from '15 but to '16?

Well I think that as Alex has talked about and I’ve mentioned in other calls and you all have asked us about, we’re continuing to review our portfolio. We expect that we will continue to make choices of that areas we’re going to play in and areas we’re not going to play in. Where we want to invest and where we think others certain assets maybe better in the hands of others. And when we do that and we divest certain businesses as a result of that analysis, we tend to use those divestiture gains to basically benefit shareholders. So we either use it to invest in other more promising activities that we think will give us a better boost in long-term growth or in fact we deliver a higher level of earnings as a result and of course as we did with OCD, if there’s any dilutive impact of that on a go-forward basis we would then adjust for that with share buybacks and alike. So I would say that, I wouldn’t take '15 as sort of an abnormal number and I wouldn’t just say would fade into '16, it all depends on what choices we make when we evaluate our portfolio going forward.

Let me ask one if I can sneak in one bigger picture question so if I pick up your noise from OLYSIO the underlying growth in the business is accelerating in your guidance for 2015, could you just comment on that so what businesses are you assuming get better between pharma and medical devices and consumer?

Yes well overall I would say that the growth rate in pharma ex-OLYSIO will be slightly softer than it was the prior year as these products have now ramped up in the marketplace. So the medical device business overall and the consumer business are expected to have better growth prospects in '15 than we saw in '14.

Next question please.

Your next question comes from Glenn Novarro, RBC Capital Markets.

Two questions for Alex. First, Alex can you describe your commitment to your cardiovascular device business? And the reason I’m asking is that there was something written up a few months ago that J&J maybe thinking about selling the interventional cardiology business but not the electrophysiology business, so commitment to Cardiovascular. And then as a follow-up, what is your commitment to the Triple A rating, in other words how sacred is the Triple A rating? And the reason I am asking that is because as your competitors are getting bigger and bigger is better according to some of your competitors, if J&J were to see a deal that was larger but it would sacrifice the Triple A rating, would J&J do such a deal? Thank you.

Look Glenn I think that if you ask me about cardiovascular my response is that, we think cardiovascular is an important area. We have done very well over the last several years in our EP business as I mentioned earlier. And I think by any standard if you look at the way they have been able to advance the standard of care, if you take a look at the new technology, the innovation rollouts and frankly the execution of that business it has been superlative in just about every mark, and we’re really proud of that. We made decisions in other areas of the cardiovascular, such as our decision on drug-eluting stents several years ago. We’ve continued to look at emerging areas in cardiovascular, but I think overall we want to participate in areas where we’ve got technology that we think can really make a difference for patients, where we think the markets are promising for the future in terms of reaching more patients, expanding share, volume growth, some pricing stability. And so, we’re going to continue to evaluate our portfolio to make sure that we’re consistent with our strategy and as it relates to cardiovascular. If we talk about our Triple A, look we’re proud of the fact that we’re only one of the handful of companies that still have Triple A rating. It gives us a lot of financial flexibility. As an organization when you realize that we literally have almost no covenants, and the way that we’re able to manage our business for an enterprise of our size and frankly for the sustainability of our performance over a very long period of time, we think that’s important. However, what we would also say if we came upon technology that we felt was truly transformational that opened up new patient segments for us, new opportunities that is one factor that we would consider as we think as we would think about different acquisitions or different opportunities. So it’s one among many factors, it is very important to us, but it’s not the only factor that we would judge a strategic option by the future.

Next question please?

Our next question comes from Jeff Halford, Jefferies.

So we are seeing quite of contracting pressure in some areas of pharma. I just wanted to get a bit of color from you whether XARELTO is a product that you are potentially starting to get any more serious discussions with Eliquis becoming a much more penetrated within the U.S. market? And then also just INVOKANA as well just what the situation is like there? Just from a contracting perspective. And then second just give a bit more color on what kind of impacts you have expected within your guidance for REMICADE within Europe from biosimilars? And then just lastly if you can just give us a bit more color on the increase in the litigation accrual you described in your release? Thank you.

Let me start off with the first one and then I’ll ask Dominic to chime in on the other couple of questions. And first of all, we take a very broad look in the very early stages of our compound development on what potential impact or scenarios we could face regarding pricing and reimbursement, and so it starts very early with the science. And as I mentioned earlier in my commentary about our pharmaceutical strategy, we think taking a very high innovation approach in pharma is the right approach and it certainly has been the one most successful for us. And so part of it starts with selecting compounds that we feel have a strong probability of differentiation versus current standards of care and we think that’s certainly the case with XARELTO and INVOKANA. Secondly it really gets in your clinical development programs. And if you look at the XARELTO clinical development program that we had, I believe we had more than 60,000 patients as part of our plan, extensive studies as you know we have got more than five indications for that, literally at launch or very soon thereafter once-a-day dosing. And so as part of our development program and the labeling we had a very comprehensive approach. And we think that that clearly played a strong role in its rapid launch uptake. And I think the same for a drug like INVOKANA. If you take a look at the comparative labeling that we have versus Januvia regarding HbA1c reduction, regarding weight loss, other parameters, that’s enabled us to have a very differentiated and strong dasia to share with decision makers, payors around the world. So as a result what we think now not only have we seen strong acceptance but we have seen good formulary uptake. XARELTO for example in the United State is available on I believe more than 90% of the commercial as well as Medicare and Medicaid programs. We see the very strong uptake with INVOKANA, I think it’s somewhere around 70% or 80% even in most cases. And we’ve had good success outside of the United States as well. And so we think it takes again a very good clinical development program, strong labeling, very strong reimbursement and commercial expertise. And so that’s the way we think about those compounds. We haven’t seen additional pressures as of late but we certainly see competitive pressures. But we feel very good about our compounds that we’re frankly still in the launch stage of and their potential for future growth, Dom?

Yes Jeff, with respect to REMICADE in Europe as you know we don’t provide specific product sales guidance on any product and particularly with REMICADE in Europe as you probably know Merck is our partner for distribution in Europe and the countries affected by biosimilar competition in the beginning of February 2015. So I think the question is best posed to them. One thing I would say though is that we have a view on how biosimilars are likely to unfold in the marketplace which is unlike how typical generic chemical compounds unfold in the marketplace. And our best experience there was with PROCRIT and Eprex in Europe. So using that as a guide, we felt pretty comfortable updating our guidance to reflect our expectation of that, but we won’t give very specific guidance on any product in particular.

Thank you. Next question please.

Your next question comes from Kristen Stewart, Deutsche Bank.

Dominic, I just wanted to just go back and reconfirm the other income commentary. So you are including the gain from NUCYNTA and going forward you said it would be likely that we would continue to see these gains on the sale of asset divestitures. Is that correct?

Right. And so we did include that in this year’s guidance and in response to Mike’s question where he said would it fade off in 2016 I commented that consistent with our review of our portfolio and making decisions on where we’re going to invest and where we’re not, if we decided to divest other assets as part of that review then we would have similar type transaction gains in the particular year. And we would highlight them to you as we’re doing today.

And this year $0.20 to $0.22 just for that after-tax?

I think if you look at the change in our guidance on other income and expense compared to what you all have modeled it’s about $1 billion after-tax of 35% gets you to about $0.20-$0.22 per share impact versus current models.

Okay. And then just kind of I guess more business operational. Can you just talk a little bit just about the surgery business you highlighted it has being a key area of focus within Medical Devices with some new products coming up. Can you just refresh us on your stance on robotics and what products you have within the pipeline that you’re most excited about in 2015?

Look, we’re excited about the broad area of surgery and as you know we break it out both by specialty surgery, as well as surgical care. And what I would start within specialty surgery, there is a number of areas that I think are great opportunities one is certainly energy. We’ve had a number of new launches this year that I think have resulted in about over 5%-5.2% full year growth rate in that franchise. We think there is a lot of opportunity going forward. We also saw very good performance from our Mentor business this year it grew it almost 9% after a couple of years of a lot of challenges. It came back strong and so we’re pleased with what we’ve seen there. And finally our bio-surgery business, which is the one that we also think can really revolutionize the way bleeding is controlled intraoperatively. We saw over 8% growth in it for the quarter, so by and large that segment of our surgical business is doing well. There we’re continuing to address some issues at ASP but our team has made a lot of headway there so we’re confident about that platform as well going forward. If I look more broadly in our other surgical business, we saw suture grow over 3% which was nice year-on-year growth in that particular area. We think that’s a good pre-cursor of what you see generally across all of surgery in the ENDOPATH area or ECHELONFLEX portfolio is also being introduced and is doing better. Clearly in certain areas there we’re facing pricing pressure. But overall, we think that the surgical area both in specialty as well as more general surgery offers a significant opportunity for us.

And with respect to robotics?

Regarding robotics, look as Gary mentioned during last year’s review of our Medical Device space, we think the areas of robotics visualization particularly if some of those components become more inherent to the instrumentation of themselves. We do think that they can offer opportunities. We’ve got several partnerships there as we speak. And we’ll continue to look for ways to think about how that’s going to impact surgery going forward.

Thank you. Next question please.

Your next question comes from David Lewis, Morgan Stanley.

Alex more a kind of a high level question on international if we think about the last three years '13 growth rate’s a little slower than '12-'14 growth rates looks slower than '13. Even the second half '14 was slower than first half '14. Given you’re kind of focused on global reach can you just describe why international is decelerating, is it emerging markets and what’s the strategy to turn that around? And then I have a quick follow-up?

Look there is a lot of different moving parts so let me talk about it. I think first of all let’s talk about Europe, in Europe we saw contraction initially then Europe actually performed better. As I mentioned earlier in the guidance going forward we’re watching it closely and even there you’ve got Southern Europe versus Northern Europe. We continue to see Northern Europe performing slightly better than the rest of Europe it’s been impacted in the most recent quarter by Russia in a significant way. So that’s a watch out although we have had some of our businesses such as our consumer group do relatively well in Russia. But it’s something that we’re watching closely. China we continue to see pretty solid growth for our businesses our Medical Device business is the most significant in that they may continue to see good growth there. Our consumer group has had some other challenges that we don’t think necessarily are related to the macroeconomic environment and frankly they have to do with some of our own products and ingredients. But we think that we’re on a better path there. And then if I look to South America we’ve been most challenged there, in Venezuela. Brazil definitely we feel there was some slowdown in the back end of the year. And we’re just going to have to watch it closely as we head into 2015.

David just one thing to remind you about when you said it slowed down further in the back of '14 compared to first half of '14 just a reminder that the divesture of the OCD business would have impacted that comparison as well.

Yes.

And maybe just a quick one for Dominic and then a strategic one for Alex if I can sneak that one in, Dominic just I know it’s hard with all the moving pieces do you have any sense of what you consider the underlying operating margin expansion to be for the business in 2015? And then Alex just strategically just thinking to your comments in the slide deck this morning is it safe to interpret your comments that within pharmaceuticals, oncology probably sees an increase relative investment over the next couple of years relatively to historical periods? Thank you I’ll jump back in queue.

Sure David just in terms of operating margin expansion in '15 just to set the stage for you, remember we expanding our operating profit margin by 190 basis points in 2014. So we’re already at a pretty high level and we wanted to continue the investment and we said we would use the divesture gain that’s included in our OI&E number for NUCYNTA to offset the lost profitability on OLYSIO and by doing that we’re going to maintain the level of investment that we now have achieved. So an incremental operating margin expansion in 2015 would be very modest.

And David I would say we are really focused on all five of our therapeutic categories. Oncology is certainly an exciting one and when you look at the science and what’s happening there we think that there is a lot of opportunity to better address need for patients. We think there is a lot of very interesting science, but also when we look at immunology when we look at infectious disease, when we look at neuroscience, as well as broader spaces in cardiovascular and diabetes, we think that all of those offer significant potential for us.

Thank you. Next question please.

The next question comes from Rick Wise, Stifel.

Alex maybe as a start a little more detail with diabetes if you would it’s been underperforming asset maybe just broadly what do you need to turn around and let me touch on a couple of points. Remind us when you had received the price cuts, Vibe approved and launching here we’ve heard great things about it in Europe. Is that going to be a good product feed for what we expect to see in the U.S and maybe you had a picture of the caliber patch? Remind us when you hope to file and get that approved and launched in the United States?

Diabetes is clearly one of those areas Rick where you know and we would add several conversations on this. There are 350 million Type 2 diabetics around the world and so many of them not in control. There is a lot of unmet need. But we also realize it’s been a very challenging market particularly in the areas of the part of the market that we’ve been in for the last several years. So Louise is going to get the exact date when we lapped it.

The price changes went into effect about a year ago June. But you’re still seeing the impact of them and you saw them earlier in the year and you’re still seeing some of them.

And look for a very significant portion of our market we saw over a 70% price reduction and as you know whenever that happens in one of your businesses you frankly have got to reframe that entire business. And I think all of the companies involved in SMBG have gone through that kind of transition over the last year and a half. If we look at the underlying fundamentals things such as volume share, we’ve actually done a very good job. We’ve done a very good job in managed care contracting. So as a result we’ve been able to keep our volumes up, our costs under control. But nonetheless that business is completely had to reshape itself and there are still in the process of I think getting it stabilized. We are excited about the Vibe approval. We think that’s going to represent a real nice breakthrough for patients over in Europe we’ve had strong results. We’re putting together the launch literally as we speak, so we’re excited about that. We think Calibra could be a very nice opportunity very unobtrusive way to have insulin delivery. And it looks right now by the year -- backend of the year 2016 we should have more on that. So again overall diabetes is an area that we feel strongly about and by the way this is the same team that had a very significant role in the launch of INVOKANA as well. And we think the relationships that they have built with the endocrinologists have been quite important for us in the long success of that brand as well. So it's an area that we're interested in but clearly one that's changed and we still have more work to do to make sure we understand the best path forward.

And Dominic just one question for you, the $1 billion cost reduction program it sounds like the new one -- newly incremental one if I understood you over three years. Just help us briefly where did that come from, what operating lines does it affect and is it incremental or you reinvested? Thanks.

We actually talked about it last year at this time as well, so it's not a new program, it's just the same program we discussed and we're confident that we will get about a $1 billion over the next three year period. It's in the area of IT, finance, HR all the functions that support the businesses, how we perform those services, where we perform those services and as Alex mentioned earlier some more standardization and commonality across the businesses through shared service environment. You’ll see it across the SG&A line in particular but we would always look to see what the right balance is of investing versus delivering those cost savings of course we do expect pricing pressure to continue so this was a good hedge against that as well Rick.

Thank you. Next question please.

Your next question comes from Vamil Divan, Credit Suisse.

Just a follow-up to an earlier question I think from Jeff on INVOKANA and XARELTO some of the contracting issues. Just curious about the specialty care markets so certainly the TNFs and you are going to see obviously a lot of discussion on pricing and primary care and have seen but are you seeing anything more in the specialty care areas specifically in autoimmune how has that changed kind of over the last six to 12 months from what you have seen before?

Alex here, we haven't seen any significant changes over the last six or 12 months. And again we've got a lot of experience in those areas with REMICADE, SIMPONI, and STELARA. And I think the team has done a nice job in managing the overall value of pricing and reimbursement issues but we haven't seen any noticeable changes in that environment.

Okay. And then just one follow-up if I could is on the tax side. We had the lower rate this time and you mentioned for '15. How should we think about just longer-term tax planning, I mean is the range you are giving now, what would you kind of assume going forward are there other steps that can lower your longer-term rate?

Well I think Vamil we're always doing prudent tax planning and I think the ultimate change in tax rates would come from hopefully corporate tax reform being implemented. In which case if you project that I would then project a slightly higher effective tax rate and of course the utilization of all U.S cash et cetera without penalty is a great benefit that arises from that. So I can't give you a long-term projection but you have seen that we've been sort of in the 20% range for quite some time and that I think it's a solid place if you just want to model it for now.

Thank you. And we will take our final question from Danielle.

Your next question comes from Danielle Antalffy, Leerink Partners.

As we -- so appreciating all the headwinds that are impacting growth in 2015, how do we think about sort of medium-term growth for '16-'17. And what's in the pipeline to return the Company back to growth this is sort of following-up on Larry's question Alex on specifically the pharma company and going through a few years of strong growth and a few years of decelerating growth. What's in the pipeline that gives you confidence that 2015 is sort of a one-off where you observe headwinds from OLYSIO specifically and then of course FX?

Look I would say first of all, we think that there is significant growth left in our core brands. And as I mentioned earlier whether you look at the penetration that you have within a particular therapeutic category for Actavis the new novel mechanisms in against warfarin for example. If you look at the penetration of the SGLT2 versus other options in diabetes and frankly the growth rates of the market in areas such as prostate cancer or some of the leukemias, we think there is a lot of growth opportunities just from reaching more patients. Number two, it's about getting additional indications and line extensions. And so I think our team has done also a very nice job there in continuing to reinforce introducing new data, new information, new approaches, that whether it's combination therapies, whether it's something like our three month version of Paliperidone that we just announced that we know in a condition such as schizophrenia could have a tremendous impact if you can keep compliance high on just four injections a year. We think I in that core business it gives us a very solid opportunity with the line extensions. And then of course if we look beyond that, some of the compounds that I mentioned earlier, we think ARN-509 will be a great complement with ZYTIGA and we’re learning more and more about that and we’re becoming increasingly confident as we gather more data. In immunology, our IL-6 and IL-23 with Sirukumab and Guselkumab will be great additions to a portfolio where we’ve already got three compounds and we know very well clinically, we know very well commercially as well as from a reimbursement perspective. And finally, Esketamine, while still early, we’re very encouraged by the data, we really are encouraged by the fact that we’ve seen whether we’ve received breakthrough therapy designation as well as Daratumumab in pain. So we think those in addition to our line extensions and additional indications that we’ll be gathering, remember we filed more than 20 different line extensions over the course of 2014. We have 11 compounds in Phase 2 development, I think we’ve got 50 compounds in early development more than 100 in discovery in addition to the ongoing licensing flow that we were able to build this year, I think it gives us a lot of confidence in our portfolio going forward.

And then if I could just follow-up really quickly with the question on the device side of things, so obviously we’re nearing a close of one of your competitors or two of your competitors emerging and a mega transaction here making a big bet on breadth and scale across the hospital and bundling et cetera. So just wondering how you guys are planning to respond to that, how you think the environment could change from a purchasing perspective at the hospital level with the Medtronic Covidien deal once it closes?

Yes I guess what I would say Danielle is we wouldn’t respond to that necessarily, I think we initiated probably some of it with our move several years ago, when we started down this path ourselves. And we’ve been pretty steadfast on our strategy one it's about innovation and that’s why we’re continuing to invest in innovation in all of our core Medical Device businesses. We do think that having scale in the right areas is also important as payors, and as hospital systems want to deal with you differently. And then it's about having also a very good geographical presence so that you can expand globally. And we’re always looking for opportunities to add the right new technology or the right business to ours and that’s the path that we’ll stay on.

Okay. Alright everybody thank you again for joining today’s call and together with Dominic and Louise I look forward to keeping you apprised of our progress over the course of the year and I am sure we’ll be talking on several different occasions. So please note that we’re going to be hosting a pharmaceutical business review for analysts on Wednesday, May 20, 2015 right here in New Brunswick and then it will include a review of our overall strategy for continuing to build on our launch excellence and robust pipeline much of which I talked about today. So I look forward to seeing many of you there. Enjoy the rest of your day everybody. Thank you.

Thank you. This concludes today’s Johnson & Johnson’s fourth quarter 2014 earnings conference call. You may now disconnect.