Jessica Moore:

Hello, everyone. This is Jessica Moore, Vice President of Investor Relations for Johnson & Johnson. Welcome to our company's review of the second quarter business results and our full-year financial outlook for 2024. A few logistics before we get into the details. As a reminder you can find additional materials including today’s presentation and associated schedules on the investor relations section of the Johnson & Johnson website at investor.jnj.com. Please note that this presentation contains forward-looking statements regarding among other things, the company’s future operating and financial performance, market position, and business strategy. You are cautioned not to rely on these forward-looking statements, which are based on the current expectations of future events using the information available as of the date of this recording and are subject to certain risk and uncertainties that may cause the company's actual results to differ materially from those projected. A description of these risks, uncertainties, and other factors can be found in our SEC filings, including our 2023 Form 10-K, which is available at investor.jnj.com and on the SEC's website. Additionally, 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. Moving to today's agenda, I will start by reviewing the second quarter sales and P&L results for the corporation, as well as highlights related to our two businesses. Joe Wolk, our CFO, will then provide additional business and financial commentary before sharing an overview of our cash position, capital allocation priorities, and guidance for 2024. Joaquin Duato, our Chairman and CEO, will then provide some closing remarks before we open it up for questions. Jennifer Taubert, John Reed, and Tim Schmid, our innovative medicine and MedTech leaders will be joining us for Q&A. To ensure we provide enough time to address your questions, we anticipate the webcast will last approximately 60 minutes. Unless otherwise stated, the financial results and guidance highlighted today reflect the continuing operations of Johnson & Johnson. Furthermore, the percentages quoted represent operational results and therefore exclude the impact of currency translation. Turning to our second quarter sales results. Worldwide sales were $22.4 billion for the second quarter of 2024. Sales increased 6.6%, with growth of 7.8% in the U.S. and 5.1% outside of the U.S. Excluding the impact of the COVID-19 vaccine, sales growth was 7.2% worldwide and growth of 6.4% outside of the U.S. Sales growth in Europe, excluding the COVID-19 vaccine was 6%. Turning now to earnings. For the quarter, net earnings were $4.7 billion and diluted earnings per share was $1.93 versus diluted earnings per share of $2.05 a year ago. Excluding after-tax intangible asset amortization expense and special items for both periods, adjusted net earnings for the quarter were $6.8 billion and adjusted diluted earnings per share was $2.82, representing increases of 1.6% and 10.2%, respectively, compared to the second quarter of 2023. I'll now comment on business sales performance in the quarter. Beginning with Innovative Medicine, worldwide Innovative Medicine sales of $14.5 billion increased 7.8%, with growth of 8.9% in the U.S. and 6.4% outside of the U.S. Excluding the impact of the COVID-19 vaccine, operational sales growth was 8.8% worldwide and 8.7% outside of the U.S. Innovative Medicine growth was driven by our key brands and continued uptake from recently launched products with 10 assets delivering double-digit growth. We continue to drive strong sales growth across our multiple myeloma portfolio. DARZALEX growth was 21.3%, primarily driven by share gains of 4.6 points across all lines of therapy and 9.4 points in the frontline setting, as well as market growth. CARVYKTI achieved sales of $186 million, with growth of 59.9%, driven by continued capacity expansion, manufacturing efficiencies, and strong demand. TECVAYLI sales achieved $135 million in the quarter, with growth of 43.5%, reflecting a strong launch in the relapsed-refractory setting. Demand remained strong while sequential growth slowed due to adoption of recently approved longer-duration dosing intervals. ERLEADA continues to deliver strong growth of 32.5%, primarily driven by share gains and market growth in metastatic castrate-sensitive prostate cancer. Other oncology growth was driven by continued strong uptake of TALVEY, our GPRC5D bispecific, and RYBREVANT, our bispecific antibody for non-small cell lung cancer. Within immunology, we saw sales growth in TREMFYA of 30.7%, driven by market growth, share gains in PSO and PSA, and favorable patient mix. STELARA growth of 4.9% was driven by market growth, partially offset by net unfavorable patient mix. We continue to anticipate biosimilar entry in Europe later this month, while in the U.S., we expect continued volume growth largely offset by price declines as we move towards biosimilar entry in 2025. In neuroscience, SPRAVATO growth of 60.8% continues to be driven by increased physician and patient confidence. In pulmonary hypertension, OPSUMIT grew 9.1% due to share gains and market growth, partially offset by unfavorable mix. UPTRAVI growth of 8.1% was driven by market growth and share gains, partially offset by inventory dynamics. Total Innovative Medicine sales growth was partially offset by a decline in other neuroscience, unfavorable patient mix in Xarelto and competitive pressures in IMBRUVICA. I'll now turn your attention to MedTech. Worldwide MedTech sales of $8 billion increased 4.4%, with growth in the U.S. of 5.7% and 3.2% outside of the U.S. Acquisitions and divestitures had a positive impact of 40 basis points on sales growth in the quarter. Growth was driven by commercial execution, strength of new product introductions, and continued strong procedure volume, partially offset by performance in China and competitive pressures in US distributor stocking dynamics and vision. In cardiovascular, electrophysiology delivered a double-digit growth of 13.4% with strong growth across all regions. The performance was driven by global procedure growth, new product uptake, and commercial execution, partially offset by the previous one-time inventory build in Asia-Pacific from the prior quarter. In addition, Abiomed delivered growth of 15.4%, driven by double-digit growth in all regions and continued strong adoption of Impella 5.5 and Impella RP technology. Results include $77 million associated with the acquisition of Shockwave, which closed on May 31. Contact lenses adjusted operational sales growth, excluding the Blink divestiture was 2.1%. Growth was driven by strong performance in the ACUVUE OASYS 1-Day family of products, partially offset by U.S. distributor stocking dynamics and competitive pressures, and Japan macroeconomic pressures. The Blink divestiture negatively impacted growth by approximately 130 basis points. Surgical vision grew 1.2%, driven by TECNIS Eyhance, our monofocal interocular lens, partially offset by China VBP and refractive softness in the U.S. Surgery adjusted operational sales growth, excluding the Acclarent divestiture was approximately flat. Performance was driven primarily by competitive pressures in energy and endocutters, China VBP, prior year China recovery, EMEA tender timing across advanced surgery and supply constraints, and wound closure. This was partially offset by strength of new products. The Acclarent divestiture negatively impacted growth by approximately 110 basis points. Orthopedics growth of 3.3% was driven by strong performance in hips and knees, due to procedure growth, strength of new products, and EMEA tender timing in knees. This growth was partially offset by competitive pressures and impacts of China VBP in spine and sports. Now, turning to our consolidated statement of earnings for the second quarter of 2024. I'd like to highlight a few noteworthy items that have changed, compared to the same quarter of last year. Cost of product sold margin deleveraged by 60 basis points, primarily driven by product mix within innovative medicine and macroeconomic factors across both sectors. We continue to invest strategically in research and development at competitive levels, investing $3.4 billion or 15.3% of sales this quarter. We invested $2.7 billion or 18.8% of sales in innovative medicine, compared to 22.2% of sales in 2023. As a reminder, last year included an upfront payment of $245 million associated with the AbelZeta partnership. In MedTech, R&D investment was $0.7 billion or 9% of sales, an increase driven by continued investment in strategic platforms. Other income and expense was a net expense of $653 million in the second quarter of 2024, compared to income of $384 million in the second quarter of 2023. The increase in expense was primarily driven by costs related to the closing of the Shockwave acquisition, the loss on the completion of the debt for equity exchange of the retained stake in Kenvue and prior year favorable intellectual property litigation settlements in MedTech. This was partially offset by the gain on the Acclarent divestiture. Regarding taxes in the quarter, our effective tax rate was 18.5% versus 14.7% in the same period last year. This increase was primarily driven by unfavorable one-time international audit settlements and the continued impact from Pillar 2. Excluding special items, the effective tax rate was 18.6% versus 15.9% in the same period last year. I encourage you to review our upcoming second-quarter 10-Q filing for additional details on specific tax-related matters. Lastly, I'll direct your attention to the box section of the slide, where we have also provided our income before tax, net earnings, and earnings per share adjusted to exclude the impact of intangible amortization expense and special items. Now let's look at adjusted income before tax by segment. In the second quarter of 2024, our adjusted income before tax for the enterprise as a percentage of sales increased from 37.2% to 37.4%. Innovative Medicine margin improved from 42.3% to 44.6%, primarily driven by an upfront payment of $245 million associated with the AbelZeta partnership in 2023, partially offset by product mix and cost of products sold. MedTech margin declined from 28.2% to 25.7%, driven by prior year favorable intellectual property litigation settlements worth approximately 300 basis points. This concludes the sales and earnings portion of the call. I'm now pleased to turn it over to Joe.

Joaquin Duato:

Thank you, Joe, and hello, everyone. With a strong second quarter, I'm excited about the rest of 2024. Our Innovative Medicine business is on track for a 13th consecutive year of above-market growth. Our success is driven by a portfolio of innovative best and first-in-class medicines, many of which have the potential to change the practice of medicine. Across the board, oncology, immunology, neuroscience, we are reinventing treatment paradigms and transforming lives. As Joe mentioned, we have made significant progress across our pipeline. In particular, I would like to highlight two major milestones on the horizon that will help drive sustained growth through 2025 and beyond. First, the approval and launch of RYBREVANT plus Lazertinib for first-line treatment of EGFR-positive non-small cell lung cancer. And second, the approval and launch of TREMFYA in Inflammatory Bowel Disease or IBD, which follows the recent presentation of data that demonstrated superiority versus STELARA. This represents a meaningful opportunity for TREMFYA as approximately 75% of STELARA sales today come from IBD. We also have regulatory and data milestones for many of the assets that we expect to generate more than $5 billion in peak year sales. As the pipeline and portfolio progress, so too does our confidence in our near and long-term growth trajectory. We are confident in our ability to grow through the upcoming STELARA biosimilar entry and see accelerating momentum through the back half of the decade. In MedTech, year-to-date adjusted operational sales growth of 5.2% reflects continued progress with the portfolio as we move into higher growth markets. As you heard from Joe, we expect MedTech growth to accelerate in the second-half of the year. Growth will accelerate through continued expansion of new products, including ACUVUE OASYS Max 1-Day Contact Lenses, TECNIS Odyssey in the U.S., and VARIPULSE in Europe and Japan. Our confidence in the business outlook remains unchanged. With meaningful outcomes from the danger shock trial in Abiomed and the second quarter close of the shockwave acquisition, we look forward to continue the expansion into high-growth MedTech markets. As you know, Johnson & Johnson is laser-focused on advancing the next wave of medical innovation. We are building on a strong foundation to unlock accelerated growth with a healthy balance sheet and industry-leading investments in the best science and innovation. This enables us to move into the second-half of 2024 from a position of strength. With that, let's open the line for questions.

Chris Schott:

Great. Thanks so much for taking my question. Maybe just a question on RYBREVANT. I know, Joaquin, you mentioned that as one of the key upcoming milestones for the company, but this does seem like a product where there's a disconnect between J&J's enthusiasm in the Street. So, maybe just enlighten us with some of the data we recently saw at ASCO on subcutaneous dosing, et cetera, the upcoming label expansion? Can you just talk about how you see RYBREVANT evolving overtime and your confidence that this product can take share in the frontline setting? Thank you.

Operator:

Thank you. Next question is coming from Larry Biegelsen from Wells Fargo. Your line is now live.

Tim Schmid:

Larry, thank you for the question. Let me be very clear, we remain absolutely committed to delivering solid growth in the full-year for 2024. And Larry, when you actually look at ‘24 Q2, it was a tougher quarter for us. And we knew this, given the fact that at this time last year around the second quarter, we saw the opening up of the China market, which as you know is an important market for us and that was expected. That was actually by the way, last year our fastest-growing quarter. Now in all transparency, as you heard initially in the comments earlier, there have been two businesses that have or two areas of our business that have performed below expectations. Number one is Vision and secondly, our performance in China, which right now is a very volatile market. Now in Vision, we initially announced in the first quarter some challenges with distributor stocking dynamics here in the U.S., some competitive pressures, as well as some macroeconomic challenges in Japan. What gives me confidence in the turnaround of that business is that we actually saw sequential improvement through the second quarter. Some of those stocking dynamic dynamics I mentioned bled into April, but month-on-month, we saw strong rebound of that business, in fact, to the end of the quarter back to historical levels. And so as we look to the back half of the year, while it's been a slower start there, we're very confident that we're going to be able to bring that business back to historical norms, driven primarily by innovation. Our ACUVUE OASYS 1-Day MAX portfolio and that global launch as well as the addition of our premium IOLs with TECNIS PureSee in Asia-Pac and EMEA as well as Odyssey here in the U.S., and so we believe we've got that under control. When I look to the back half onto answer your question more directly, the reason we are confident is firstly, not only the return to more normalized growth within Vision, but in surgery, by the way, that -- all that business also was impacted by a slower start, especially in China. We see that starting to normalize. And also remember in our surgery business, the results were impacted by the divestiture of a Acclarent last year. And so normalized growth -- our adjusted operational growth was actually closer to flat. We see that continuing to grow at low-single-digit through the back half of the year. We're proud of the solid results in ortho and see that continuing to be driven by strong results within hip 6%, in knees, almost 10%, driven by tremendous innovation, especially in VELYS. And then more broadly, I'll end with our real confidence in the growth of our cardiovascular portfolio. And remember, Larry, that we've got an EP business that's $5 billion today, grew 21% last year, 19% for the first-half of the year. In fact, in the second quarter, in the face of competition, here in the U.S. we grew that business 16%. And so we're very confident in our ability to grow that leadership position. And then finally, the addition of Abiomed still continuing to grow ahead of our deal expectations, 15.4%. I think that's going to be bolstered by the landmark results, the first time in 25 years, where we have the DanGer Shock study showing survivability benefits of Impella, which will continue to open new markets for that portfolio. And then finally, I'll end with how delighted we are to inch very, very short order, welcome Shockwave to Johnson & Johnson. We closed that transaction in record timing and are really excited by the fact that we will shortly announce that they will be the 13th business with sales in excess of $1 billion annually. And so for all those reasons, Larry, while a tougher second year -- second quarter primarily due to comps, we remain very confident in a solid 2024.

Louise Chen:

Hi, thank you for taking my question. Wanted to ask you about your Phase III nipocalimab data that you presented recently. And how do you compare and contrast the efficacy and durability of your product versus other FcRns and mechanisms of actions on the market? Thank you.

Jessica Moore:

Maybe I can add-in a couple of things on as well because we're really excited by what we're seeing from all the data that's coming out. And over the last 18 months, we've demonstrated clinical effect in actually four auto-antibody driven diseases and we are the only FcRn blocker that's in development where we've got proof-of-concept in all three segments of auto-antibody driven diseases from rare auto-antibody to prevalent room to maternal fetal. So as we take a look at all the data that's coming forward as we're bringing this to market, we are even more confident -- in terms of confidence that this is a $5 billion-plus asset for us. Operator Our next question today is coming from Rick Wise from Stifel. Your line is now live.

Tim Schmid:

Of course, Rick and thank you for the question. And Rick, I'd start with firstly, recognizing that we believe that PFA is really good for electrophysiology and really good for patients. It is a tailwind for the entire market. And as I mentioned earlier, that's a $5 billion market for us today, growing 19% year-to-date. And let me be clear, we clearly see some competition, especially here in the U.S., especially between now and the time that we bring our PFA technology to market, we're confident. While we don't control the timing, we expect to have that by the end of the year or early next year. As you know, we already have and are commercializing our PFA technology in EMEA and in Japan, and we are very fortunate to actually benefit from a very global EP business. What gives us confidence in the future, Larry, is that we believe that while PFA has a role to play in the portfolio, so does RF. From everything we're hearing from EPs around the world, what they like about PFA is the relative safety of the technology, but they also like about RF, which by the way, we have 20-years of leadership in safety and clinical efficacy, is the durability of that product. In fact, even today, Rick, here in the U.S., for every five procedures where PFA is used, RF is used in conjunction. And so we believe that leisure position that we built over the last 20-years will continue, both in RF and then obviously, we're excited by the launch of our PFA technology. You'll know that at the HRS conference in May, we announced the results of our admIRE study, which showed the 86% relative effectiveness -- primary effectiveness of our PFA technology. And we are going to continue to employ the same strategy we did in RF, which is building out a broad portfolio of PFA offerings, both in dual energy, focal, large focal and single shot. Did you know that today, the number one used catheter on the market is our SPF catheter within RF. And we are -- and you'll know that in the second -- first quarter of this year, we announced a application for a CE mark for our dual energy catheter. This will be one catheter used, both for RF and PFA technology. And so we've got a lot of reasons to believe. And I think to touch on your point on CARTO, one of the benefit of our portfolios, not just our energy source and catheters, it really is the installed base of 5,500 CARTO systems around the world. We just version 8 of that software. It is best-in-class in the market. And that's also complemented by highly trained clinical specialists in every cath lab around the world who are supporting EPs each and every day. And so once again, PFA is a good thing for the marketplace, it's a tailwind and we expect to continue to benefit on that. Thank you.

Terence Flynn:

Great. Thanks for taking the question. Two parts for me on IRA. Was just wondering if you can offer any perspective on the impact of IRA negotiation STELARA and XARELTO as we're getting close to the disclosure of the pricing decision? And then also Part D redesign in 2025, just some high-level thoughts? And the second part of the question relates to your confidence that DARZALEX FASPRO will be looked at separately than DARZALEX just given the Hyaluronidase component there. Thank you.

John Reed:

Since you mentioned, DARZALEX. John Reed here, I thought maybe I would just remind you that actually, in this quarter, we delivered four additional positive Phase III studies with DARZALEX across a number of indications, including transplant ineligible frontline, including in the maintenance setting, after transplant, including smoldering condition that is as large as the entirety of diagnostically defying myeloma and in amyloidosis. So the momentum continues with DARZALEX.

Operator:

Thank you. Our next question is coming from Josh Jennings from TD Cowen. Your line is now live.

Joe Wolk:

Sure, Josh. And I think my answer to your sort of volume question will be very brief and consistent with what we've shared before. For the most part, across the portfolio, we've seen volumes normalize. We did mention that we expected to see some of the -- some tailwinds from the backlog within Orthopedics in the first-half of the year. And we've seen that, but we expect that to normalize in the back half. We remain consistent in our belief in the 5% to 7% growth for our end markets and that we will perform well within that. As it relates to pricing, inflation has not been a friend to our industry, and we have put a lot of effort into really ensuring that we can secure preferential pricing across the world. I do think we benefit from the global nature of our business. While there are pockets cost containment efforts that we're managing, like VBP in China, we see tremendous opportunity to really secure a premium pricing, especially where we have differentiated innovation. And especially now that we're entering or are entering is like cardiovascular of significant unmet need, there is tremendous opportunities for us to ensure that we secure premium pricing for truly differentiated innovations, especially in areas like electrophysiology, in heart recovery with Abiomed, and more recently with Shockwave. Thank you.

Dave Risinger:

Yes, thanks very much. Could you please comment on the J&J U.S. pharma exposure to efforts by plans to extract greater rebates in 2025 than in typical years in order to offset Part D plan losses in 2025? Thanks very much.

Joe Wolk:

Dave, I'd also remind you too that over the last six years, and certainly a compliment to John, Jennifer and the team, that innovation really underscores the success that we've had with quarter in, quarter out performance in our Innovative Medicines business. Discounts and rebates six years ago, as compared to list price was only about 25% of that list price. Today, that number -- and this is not just the J&J number, but an industry number, gravitates towards 60%. So what we want to make sure that happens is this great innovation gets to patients and makes a difference in their lives and get them -- they have access through the discounting that we already provide.

Danielle Antalffy:

Hey, good morning, everyone. Thanks so much for taking the question. Just a quick MedTech question on China. So China, it sounds like things are evolving in China. I mean this is no surprise to anyone. But just curious about how you guys are thinking about China as a contributor going forward given all the evolution in that market and some of the issues, VBP, things like that. How meaningful? I mean, it's been a big growth driver for you guys historically. How do we think about China going forward? And is the strategy for J&J, does it have to change to adapt to the evolving market there? Thanks so much.

Tim Schmid:

Sure. And Danielle, we are fortunate to have a global business with more than 50% of our revenue already out of the U.S. And I think that gives us the flexibility to really manage a number of challenges that occur on a quarterly and yearly basis across the world. To Joaquin's point, we've been in China for 37-years. One of the reasons why we've been successful is our ongoing commitment in navigating multiple headwinds and opportunities. And when we look at our performance in China, remember, we had the end of COVID when we came out of lockdown, and so that has impacted the results in the second quarter. But when you look at on the ground, what's really happening is there's two factors. Firstly, you look at the impact of VBP, which is a government-driven cost containment effort. And given our leadership position in China, we are seeing that as a short-term tailwind. We do believe the volume opportunity will far offset over time the impact we're seeing on price, but that certainly is a short-term pain that we are enduring. That has also been exacerbated by the anticorruption campaign. You may know that in July of last year, the government initiated an anticorruption campaign, which actually has had an impact on both procedural volumes and engagement from health care professionals. Now I must reiterate that we see this as a really good thing. We believe that any effort on behalf of any government to really build integrity and compliance into the health system is a good thing for more fair competition and aligns with our credo and our commitment to compliance across all of the markets in which we participate in. So it's a short-term headwind, but long-term, really good for our industry and really good for J&J. We remain absolutely committed to China. And we will continue, as we always have, to navigate some of the challenges we have on the ground with pricing and geopolitical challenges, and we remain committed to the 1.4 billion patients who rely on us each and every day. Thank you.

Chris Shibutani:

Thank you. Good morning. Together with my colleague, David Roman, a genuine question that we had related to the MedTech market dynamics and outlook. Can you help us better understand comments that were made about a fair amount of inventory destocking that's been happening and juxtapose that and perhaps reconcile with your expectation that the demand outlook would strengthen. We're just trying to put together this notion of inventory stocking, destocking ahead of an anticipated acceleration versus a potential deceleration or a tougher demand environment going forward? That would be helpful. Thank you.

Jessica Moore:

Thank you, Chris. Kevin, we have time for one last question.

Joanne Wuensch:

Thank you very much for taking the question. I'd like to wrap up with the orthopedics question. Hips and knees are growing faster than the historic rates, could you sort of unpack that a little bit and give us an idea of how much of that is patient volume, price, new products or maybe something else? And have a great day.

Jessica Moore:

Thank you, Joanne, and thanks to everyone for your questions and your continued interest in our company. We apologize to those that we couldn't get to because of time, but don't hesitate to reach out to the Investor Relations team with any remaining questions you may have. I will now turn the call over to Joaquin for some brief closing remarks.

Operator:

Thank you. This concludes today's Johnson & Johnson second quarter 2024 earnings conference call. You may now disconnect.

Jessica Moore:

Hello everyone. This is Jessica Moore, Vice President of Investor Relations for Johnson & Johnson. Welcome to our company's review of the first quarter business results and our full year financial outlook for 2024. A few logistics before we get into the details. As a reminder you can find additional materials including today’s presentation and associated schedules on the Investor Relations section of the Johnson & Johnson website at investor.jnj.com. Please note that this presentation contains forward-looking statements regarding, among other things, the company's future operating and financial performance, market position and business strategy. You are cautioned not to rely on these forward-looking statements, which are based on the current expectations of future events using the information available as of the date of this recording, and are subject to certain risk and uncertainties that may cause the company's actual results to differ materially from those projected. A description of these risks, uncertainties and other factors can be found in our SEC filings, including our 2023 Form 10-K, which is available at investor.jnj.com and on the SECs website. Additionally, 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. Moving to today's agenda I will start by reviewing the first quarter sales and P&L results for the corporation as well as highlights related to our two businesses. Joe Wolk our CFO will then provide additional business and financial commentary before sharing an overview of our cash position, capital allocation priorities, and guidance for 2024. The remaining time will be available for your questions. Joaquin Duato our Chairman and CEO as well as Jennifer Taubert, John Reed, and Tim Schmid, our Innovative Medicine and MedTech leaders will be joining us for Q&A. To ensure we provide enough time to address your questions, we anticipate the webcast will last approximately 60 minutes. Unless otherwise stated the financial results and guidance highlighted today reflect the continuing operations of Johnson & Johnson. Furthermore, the percentages quoted represent operational results and therefore exclude the impact of currency translation. Turning to our first quarter sales results. Worldwide sales were $21.4 billion for the first quarter of 2024. Sales increased 3.9% with growth of 7.8% in the U.S. and a decline of 0.3% outside of the U.S. Excluding the impact of the COVID-19 vaccine, operational sales growth was 7.6% worldwide and 7.4% outside of the U.S. Sales growth in Europe excluding the COVID-19 vaccine was 6%. Turning now to earnings. For the quarter net earnings were $5.4 billion and diluted earnings per share was $2.20 versus basic loss per share of $0.19 a year ago. Excluding after tax intangible asset amortization expense and special items for both periods, adjusted net earnings for the quarter were $6.6 billion, and adjusted diluted earnings per share was $2.71, representing increases of 3.8% and 12.4%, respectively compared to the first quarter of 2023. On an operational basis, adjusted diluted earnings per share increased 12.8%. I will now comment on business sales performance in the quarter. Beginning with Innovative Medicine, worldwide Innovative Medicine sales of $13.6 billion increased 2.5%, with growth of 8.4% in the U.S. and a decline of 4% outside of the U.S. Excluding the impact of the COVID-19 vaccine, operational sales growth was 8.3%, both worldwide and outside of the U.S. Innovative Medicine growth was driven by our key brands and continued uptake from recently launched products, with nine assets delivering double-digit growth. We continued to drive strong sales growth across our multiple myeloma portfolio. DARZALEX growth was 21%, primarily driven by share gains of six points across all lines of therapy and ten points in the front line setting. As of this quarter, we are now disclosing TECVAYLI sales, which were previously reported in other oncology. Sales achieved $133 million in the quarter, compared to $63 million in the first quarter of last year, reflecting a strong launch in the relapsed refractory setting. CARVYKTI achieved sales of $157 million, compared to $72 million in the first quarter of last year, driven by continued capacity expansion, manufacturing efficiencies, and strong demand. While sequential growth was roughly flat due to phasing, we continued to anticipate quarter-over-quarter growth with acceleration in the back half of the year. Other oncology growth was driven by continuing strong uptake of TALVEY, our GPRC5D bispecific, and RYBREVANT our bispecific antibody for non-small cell lung cancer. Also in oncology, ERLEADA continues to deliver strong growth of 28.4%, primarily driven by share gains. Growth of 22.4% in pulmonary hypertension was driven by favorable patient mix, share gains, and market growth for both OPSUMIT and UPTRAVI. As a reminder, favorable patient mix was a driver in Q2 2023 through Q1 2024. Therefore, while we still anticipate growth, we expect to lap this dynamic beginning in Q2 2024. Within immunology, we saw sales growth in TREMFYA of 27.6%, driven by market growth and share gains. STELARA growth of 1.1% was driven by market growth and share gains in IBD, partially offset by unfavorable patient mix in the U.S. and as expected, share loss in PSO and PSA. We anticipate continued volume growth largely offset by price declines as we move towards biosimilar entry. In neuroscience SPRAVATO growth of 72% continues to be driven by share gains and additional market launches. Total Innovative Medicine sales growth was partially offset by unfavorable patient mix in XARELTO, which we anticipate continuing throughout the year, as well as a decrease in IMBRUVICA due to competitive pressures, partially offset by stocking dynamics in the U.S. Finally, it is worth noting distribution rights for REMICADE and SIMPONI in Europe will be returned in Q4. I'll now turn your attention to MedTech. Worldwide Med1ech sales of $7.8 billion increased 6.3%, with growth in the U.S. of 6.6% and 6.1% outside of the U.S. In the quarter, worldwide MedTech growth was negatively impacted by approximately 80 basis points due to fewer selling days, disproportionately impacting orthopedics. In cardiovascular previously referred to as Interventional Solutions, electrophysiology delivered double-digit growth of 25.9%, with strong growth in all regions. Performance was driven by global procedure growth, new product uptake, commercial execution, and a onetime inventory build in Asia-Pacific, impacting worldwide growth by approximately 370 basis points. In addition, Abiomed delivered growth of 15%, driven by continued strong adoption of Impella 5.5 and Impella RP technology. Orthopedics growth of 4.8% includes a onetime revenue recognition timing change related to certain products across all platforms in the U.S. positively impacting worldwide growth by approximately 300 basis points. As a reminder, orthopedics was over indexed by the impact of reduced selling days in the quarter. Strong performance in hips and knees was driven by procedure recovery, growth of new products, and commercial execution. While trauma and spine were negatively impacted by competitive pressures and core trauma was further impacted by weather related softness in the U.S. Growth of 1.9% in surgery was driven primarily by procedure recovery and strength of our bio surgery and wound closure portfolios, partially offset by competitive pressures in China volume based procurement and energy and endo cutters. Contact lenses declined 2.3%, driven by U.S. stocking dynamics, partially offset by strong performance in ACUVUE OASYS 1-day family of products. Worldwide growth was negatively impacted by 120 basis points due to the Blink divestiture in Q3 2023. Surgical Vision grew 1.1%, driven by CNIS EYHANCE, a monofocal intraocular lens partially offset by China's VBP. Now turning to our consolidated statement of earnings for the first quarter of 2024. I'd like to highlight a few noteworthy items that have changed compared to the same quarter of last year. Cost of product sold margin leveraged by 160 basis points, primarily driven by lower COVID-19 supply network related exit cost. Selling, marketing, and administrative margins deleveraged 110 basis points, driven primarily by timing of marketing investment in the Innovative Medicine business. We continued to invest strategically in research and development at competitive levels investing $3.5 billion, or 16.6% of sales this quarter. We invested $2.9 billion, or 21.4% of sales in Innovative Medicine, with the increase in investment being driven by continued pipeline progression. In MedTech, R&D investment was $0.6 billion, or 8.3% of sales, a slight decrease driven by phasing. Interest income was $209 million in the first quarter of 2024, as compared to $14 million of expense in the first quarter of 2023. The increase in income was driven by a lower average debt balance and higher interest rates earned on cash balances. Other income and expense was income of $322 million in the first quarter of 2024, compared to an expense of $6.9 billion in the first quarter of 2023. This change was primarily due to the $6.9 billion charge related to the talc settlement proposal recorded in the first quarter of 2023. Regarding taxes in the quarter, our effective tax rate was 16.9% versus 61.8% in the same period last year, which was primarily driven by the tax benefit on the talc settlement proposal recorded in the first quarter of 2023. Excluding special items, the effective tax rate was 16.5% versus 15.9% in the same period last year. I encourage you to review our upcoming first quarter 10-Q filing for additional details on specific tax related matters. Lastly, I'll direct your attention to the box section of the slide, where we have also provided our income before tax, net earnings, and earnings per share adjusted to exclude the impact of intangible amortization expense and special items. Now let's look at adjusted income before tax by segment. In the first quarter of 2024 our adjusted income before tax for the enterprise, as a percentage of sales increased from 36.1% to 36.8%, primarily driven by an increase in non-allocated interest income with both Innovative Medicine and MedTech margins remaining relatively flat year-over-year. When comparing against the fourth quarter and full year 2023, Innovative Medicine and MedTech adjusted income before tax margins have improved. This concludes the sales and earnings portion of the call. I am now pleased to turn it over to Joe.

Operator:

Thank you. [Operator Instructions]. Our first question today is coming from Terence Flynn from Morgan Stanley. Your line is now live.

Joaquin Duato:

Thank you, Terence, for your question. And before we go into the specifics of your question on CARVYKTI and TECVAYLI and TALVEY, our multiple myeloma franchise, let me share with all of you some reflections on this quarter. We are entering 2024 in a position of strength, and I'm particularly encouraged on the performance of our strategic platforms, the ones that are going to drive growth in the second half of the decade. In Innovative Medicines, DARZALEX, TREMFYA, ERLEADA all grew over 20% and specifically on TREMFYA, now we have more sales in our psoriasis and psoriatic arthritic indications than we do with STELARA and we have high expectations for the brand with ulcerative colitis data to be presented at the Digestive Disease Week just a few weeks from now and also data on Crohn's Disease to be presented also this year. We continue to see increased demand from our new product launches, SPRAVATO, TECVAYLI, TALVEY, CARVYKTI with CARVYKTI just a few weeks ago receiving FDA approval to move into the second line setting. Now let me move into MedTech. We have demonstrated a strong performance across cardiovascular, in electrophysiology and Abiomed and we have made significant progress with our PSA portfolio. We also have delivered several important capital allocation milestones in Q1, investing heavily in R&D, raising our dividend for the 62nd consecutive year closing the Ambrx acquisition and announcing the planned acquisition of Shockwave Medical. As you have heard from Joe in his prepared remarks, we continue to make progress on achieving a responsible final and comprehensive resolution of the talc litigation. Overall, I'm proud of the performance in the quarter, both in terms of the solid financial but also the numerous pipeline advancements. It is a solid start of the year that puts us in a position of strength for 2024. And it also the sustained progress gives us -- give me great confidence in achieving our long-term growth goals of operational sales compounded annual growth rate of 5% to 7% from 2025 to 2030. Overall, it gives me great confidence in the future of Johnson & Johnson, now to Jennifer on your question, Terence, on CARVYKTI, TECVAYLI and TALVEY.

Operator:

Thank you. Our next question is coming from Larry Biegelsen from Wells Fargo. Your line is now live.

Timothy Schmid:

Well, thank you for the question, Larry. And let me maybe just reflect a little on the journey that we've been on. As you know, we surpassed $30 billion last year with adjusted operational growth of 7.8%. And I think it's important to note that when we compare ourselves against the majority of the competitors within our competitive composite, we are double their size. So that is performance that we are particularly proud of. We've now followed that up with another solid quarter of 6.3% growth in the first quarter. Now Larry, to your point, there has been some noise in that. We are particularly proud of the tremendous double-digit growth within our Electrophysiology business. And to put that in context, this is a business that is nearing on $5 billion, growing north of 20%. And I think that really calls out the leadership position, which we're continuing to build on and couldn't be more excited about the progress we're making in PFA, which we believe also will continue to drive that performance. There has been some noise specifically in relation to our Vision business. But please rest assured, we are extremely confident in the underlying health of our Vision portfolio. This is a business that grew 6.6% last year, and we expect it to grow in high single-digit performance this year. There has been some stocking issues related to distributor inventory, which was the predominant driver of the performance you see this year. But once again, very confident that we'll see that return to strong single-digit performance for the remainder of the year. There have been a couple of one-timers both in terms of selling days, as we mentioned earlier, about 80 bps of selling days and then a revenue recognition change within our orthopedics business, which impacted that business by about 300 basis points. But all in all, a strong quarter Larry, and we remain very committed to strong high single-digit growth for the remainder of the year for 2024. Thank you.

Operator:

Thank you. Our next question is coming from Chris Schott from J.P. Morgan. Your line is now live.

Joaquin Duato:

Thank you, Chris, and this is Joaquin. I'm glad that you recognize the strategic consistency of our M&A trajectory, and that's good. Our M&A strategy looks for the long term. So it's not going to change. Our capital allocation strategy will continue to be disciplined and M&A, it's going to be -- remain a critical component of that. And it's important for me to underline that with the strength of our cash flow and our balance sheet, we have significant flexibility to consider multiple types of transactions, as you mentioned. And what we have done so far is a demonstration of that with Abiomed, Laminar, Ambrx, and now the planned acquisition of Shockwave, all of them are good examples of our study consistency and the principles that we have outlined to you. So that is not going to change. Our M&A strategy is not going to change. We'll continue to evaluate opportunities agnostic to the sector and size and what we are looking for, it's a number of components. One, does this technology improve the current standard of care. That's critical for us. To what extent we believe there is a patient impact, which is positive. Number two, does it -- is it consistent with the capabilities and knowledge that we have in-house. We see a correlation between that and the success in the acquisitions. Number three, does it enable us to enter into higher growth markets, so areas that are growing in which we can continue to develop that market. And finally, and very important for us, does it continue to deliver a compelling financial result for our shareholders. So that's our M&A strategy, and it's been a cornerstone of our ability to create value. I am glad that you recognize the consistency that we have deployed, and it's not going to change looking into the future. When we think about M&A, we think in decades, we don't think opportunistically.

Joanne Wuensch:

Good morning and thank you for taking the questions. Can you maybe circle back to Vision Care, please and can we unpack the different parts that are positive and negatives on the IO and the contact lens business? Thank you.

Operator:

Thank you. Your next question is coming from Chris Shibutani from Goldman Sachs. Your line is now live.

Jennifer L. Taubert:

Hi Chris, it's Jennifer. So yes, we're really pleased with our Pulmonary Hypertension results for the first quarter with both OPSUMIT and UPTRAVI, delivering strong growth that was both volume and share gains in the market as well as some favorable patient mix and really rounding out a year of favorable patient mix. That last piece we don't see continuing to go forward to the same degree. But the products are performing very well for patients with PAH. Importantly, in the quarter, we got approval for OPSYNVI, which is the first combination tablet of PDE5 and an ERA. This is in line with guidelines. It's really once a patient is diagnosed really the right first choice for them is to start them on combination therapy. And so we think that this is an important introduction. And as we take a look at our portfolio and even despite other new competitors that are coming in, we do believe with OPSUMIT and UPTRAVI, they have got very strong usage and both with the launch of OPSYNVI as well as what we have, that these will continue to be really productive assets and a good therapeutic area for us.

Danielle Antalffy:

Hey, good morning everyone. Thank you so much for taking the question. Tim, if I could just follow up on MedTech and specifically orthopedics and appreciate the onetime revenue recognition, not sure you can provide any color on exactly what changed there. But also, you talked about consistent MedTech growth going forward. I mean taking -- backing that out, you get to sort of 3% U.S. orthopedic sales growth. Is that the right way to think about that specific segment going forward or am I missing some onetime tailwinds, maybe talk a little bit about the outlook for ortho given what you guys put up this quarter? Thanks so much.

Operator:

Thank you. Our next question today is coming from Geoff Meacham from Bank of America. Your line is now live.

Jennifer L. Taubert:

Perfect. I'll take the INVEGA SUSTENNA question, and I'll pass it over to my colleague, John to take the next one. So if we think about our LAI portfolio, our long-acting injectable just as a reminder for everybody, we really are leading therapies in this space with our INVEGA SUSTENNA, INVEGA TRINZA and INVEGA HAFYERA products. And we're really excited about the latest data that we have, particularly for HAFYERA, which a recent study shows that at two years, 96% patients on HAFYERA are relapse free, which is really, really striking. So as we get to the legal question, we really don't speculate on the impact of ongoing litigation. But that being said, we remain really confident about the strength of our INVEGA SUSTENNA patents, and we're going to continue to defend the intellectual property that's associated with these patents. If we're clear to go a little bit deeper, the Federal Circuit’s April 1st decision did not invalidate our patent. It just remanded the case back to the New Jersey District Court, the one that had ruled in our favor originally. Likewise, there was another ruling and another case on this patent against a different company that also did go in our favor. So it's going back to the original judge that ruled in favor of the patents, and we'll have to see what comes. We don't speculate on that, but we remain really confident on the strength of our patents.

Operator:

Thank you. Next question is coming from Matt Miksic from Barclays. Your line is now live.

Timothy Schmid:

Sure, Matt. Firstly, let me start on cardio. As Joaquin mentioned, we've made a lot of progress in building out our portfolio. And until recently, we only participated in one high-growth category within cardiovascular and that being electrophysiology, which I will touch on performance in a second. We are and have had a 20-year lead in electrophysiology and now have built on that position in cardiovascular with the acquisition of Abiomed. We're now over a year into integrating that business and couldn't be more proud of the progress we've made. We continue to perform ahead of the deal model. And once again, this quarter did so with growth in excess of 15%. That gives us now two leadership positions within cardiovascular care. Once we close the acquisition of Shockwave, that will be our third very thoughtful and deliberate move to only participate in high-growth, high-margin cardiovascular areas where there is significant unmet need and tremendous opportunity for us to grow. And so we're very excited by the fact that we will be one of the only strategics with only high growth, high-margin businesses in the largest category within MedTech, $60 billion market, growing roughly 8%, incremental $5 billion of growth coming out of that category each and every year. So very excited by those moves. Specifically, to your questions on EP, we've seen growth across the board in excess of 20%, both in the U.S. and ex U.S. And I think it really talks to the trust that our customers have in our technology today. RF and our portfolio of RF products are the most trusted and tested products with 20 years of experience. And by the way, we're not going to miss PFA, the progress we've made on ensuring that we can build our presence in that category with the approval in the EU as well as in Japan. We've also submitted for FDA approval. And while we don't control the timing, we expect that approval to come through by the end of this year or early next year. And so very confident in our ability to build on our leadership position in EP. Was there a specific question to Ortho?

Joseph J. Wolk:

Well, Matt, I think it's a testament to the progress of our team but then also in building out our portfolio. We had some gaps in the past and now filling those gaps both in hips and then even more notably in knees with the launch of our VELYS robot is really what is creating the tailwind that we're enjoying today, and we do expect that to continue. Now this was a strong quarter. Can we see that sort of growth every single quarter, not absolutely sure, but we do expect high single-digit growth out of both of those categories going forward. I will also say that the work we've done in the orthopedics areas hasn't been just about growth. It's also about improving our margin profile. And you know that in the second quarter of 2023, we announced a major restructuring, which is focused on really simplifying our portfolio and focusing our business on where we could drive the greatest impact for patients and for shareholders. That effort is resulting in a 20% reduction in our implants. And just to put that in context, we have 100,000 implants today within our orthopedics business. And so a real testament to the effort of group to not only drive top line performance but also evolve the portfolio to improve margins. Thank you again Matt.

Operator:

Thank you. Our final question today is coming from Vamil Divan from Guggenheim Securities. Your line is now live.

Jennifer L. Taubert:

Well, thanks for the question, and thanks for asking about SPRAVATO. We continue to be really pleased with the uptake of SPRAVATO as we continue to launch that product globally. You saw that there's over 70% growth in the quarter as it continues to perform well for patients with treatment-resistant depression. And so we've got a bold outlook for SPRAVATO as we continue to launch it into more markets and as we are able to even further penetrate the existing markets that we're in into a bit more of the community setting there. In terms -- so good -- really, really good outlook. We're also just to put in a plug for neuroscience. We talk a lot about our oncology business and our immunology business. Neuroscience is also a key area for us, so SPRAVATO is a key platform. We've also got aticaprant and seltorexant coming, and we had mentioned the long-acting therapies with the INVEGA SUSTENNA franchise earlier. So back on IRA, we've been really clear that we do think that these -- the IRA’s drug setting provisions are damaging to the health care innovative system. It just -- it is not something that is going to help reinforce the tremendous investments that we're making in R&D to develop the next types of treatments and cures. That being said, we do focus on patient access and are trying to make sure that our products are available to the patients who need them. And so we're working appropriately with the government and in line with the process to start going back and forth around what the ultimate price will be. So there has been a round or two of going back and forth. And so we're still in the middle of that process. I can't really provide any more details on that. What I will say is that the products that we have that are going through the process, they are not our growth drivers for the future. Those are -- they are our products that are more at end of life. And so they're not the ones that are going to be really key for us both in the coming years as well as out through the end of the decade. And what I'd love to also reinforce is that we do remain confident that we've got a clear path to achieving our $57 billion commitment that we made back in December at our Enterprise Business Review as well as from 2025 to 2030, delivering above market growth with the 5% to 7% compounded annual growth rate and with growth in every year that being 2025 as well as all of the years beyond that. So irrespective of the IRA, when I take a look at our growth drivers and how our pipeline is coming in, we feel really confident about the state of our business.

Joaquin Duato:

Thank you, Jess, and Johnson & Johnson's solid first quarter performance reflects our sharpened focus and the progress in our portfolio and pipeline. Our impact across the full spectrum of health care is unique in our industry and the commercial, clinical, and capital allocation milestones achieved in Q1 reinforce our position as an innovation powerhouse. One of the most significant milestones this quarter was the announcement of our planned acquisition of Shockwave that will further strengthen our leadership position in cardiovascular. We continue to make strong progress towards the goals that we set out at our December Enterprise Business Review, and I'm looking forward to all that we will achieve through the remainder of 2024.

Jessica Moore:

Good morning. This is Jessica Moore, Vice President of Investor Relations for Johnson & Johnson. Welcome to our company's review of business results for the fourth quarter and full year 2023 and our financial outlook for 2024. Joining me on today's call are Joaquin Duato, Chairman and Chief Executive Officer; and Joe Wolk, Executive Vice President, Chief Financial Officer. As a remainder, you can find additional materials including today's presentation and associated schedules on the Investor Relations section of the Johnson & Johnson website at investor.jnj.com. Please note that this presentation contains forward-looking statements regarding, among other things, the company's future operating and financial performance, market position and business strategy. You are cautioned not to rely on these forward-looking statements, which are based on current expectations of future events using the information available as of the date of this recording, and are subject to certain risk and uncertainties that may cause the company's actual results to differ materially from those projected. A description of these risks, uncertainties and other factors can be found in our SEC filings, including our 2022 Form 10-K, which is available at investor.jnj.com and on the SECs website. Additionally, 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. Moving to today's agenda. Joaquin will open with the few comments on our 2023 performance and key milestones, as well as highlights from our Enterprise Business Review. I will then review the fourth quarter sales and P&L results as well as full year 2023 results for the Enterprise. Joe will then close by sharing an overview of our cash position, capital allocation priorities, and guidance for 2024. The remaining time will be available for your questions. To ensure we provide enough time to address your questions, we anticipate the webcast will last a little over 60 minutes. I'm now pleased to turn the call over to Joaquin.

Jessica Moore:

Thanks, Joaquin. Unless otherwise stated, the financial results and guidance highlighted reflects the continuing operations of Johnson & Johnson. We will report the consumer health financial results as discontinued operations. Furthermore, the percentages quoted represent operational results and therefore, exclude the impact of currency translation. Starting with Q4 2023 sales results. Worldwide sales were $21.4 billion for the fourth quarter of 2023. Sales increased 7.2%, with 11% in the U.S. and 2.7% outside of the U.S. Excluding the net impact of acquisitions and divestitures, adjusted operational sales growth was 5.7% worldwide, 8.8% in the U.S. and 2.1% outside the U.S. It is important to note that sales in Europe were negatively impacted by the COVID-19 vaccine and loss of exclusivity of ZYTIGA by approximately 1,500 basis points operationally. Turning now to earnings. For the quarter, net earnings were $4.1 billion, and diluted earnings per share was $1.70 versus diluted earnings per share of $1.22 a year ago. Excluding after-tax intangible asset amortization expense and special items for both periods, adjusted net earnings for the quarter were $5.6 billion and the diluted earnings per share was $2.29, representing increases of 2.4% and 11.7%, respectively, compared to the fourth quarter of 2022. On an operational basis, adjusted diluted earnings per share increased 11.2%. For the full year 2023, sales were $85.2 billion. Sales grew 7.4%, with 10.6% in the U.S. and 3.8% outside of the U.S. Excluding the net impact of acquisitions and divestitures, adjusted operational sales growth was 5.9% worldwide, 8.2% in the U.S. and 3.4% outside the U.S. Sales in Europe were negatively impacted by the COVID-19 vaccine and loss of exclusivity of ZYTIGA by approximately 1,000 basis points operationally. Net earnings for the full year 2023 were $13.3 billion and diluted earnings per share was $5.20 versus diluted earnings per share of $6.14 a year ago. Full year 2023 adjusted net earnings were $25.4 billion, and adjusted diluted earnings per share was $9.92, representing increases of 6.8% and 11.1%, respectively, versus full year 2022. On an operational basis, adjusted diluted earnings per share increased by 10.8%. I will now comment on business sales performance in the quarter. Beginning with Innovative Medicine. Worldwide Innovative Medicine sales of $13.7 billion increased 4% with growth of 9.5% in the U.S. and a decline of 3.1% outside of the U.S. Excluding COVID-19 vaccine sales, worldwide and U.S. sales growth was 9.5%, and growth outside of the U.S. was 9.4%. Sales outside the U.S., excluding the COVID-19 vaccine were negatively impacted by approximately 120 basis points due to the loss of exclusivity of ZYTIGA in Europe. Innovative Medicine growth was driven by our key brands and continued uptake from recently launched products, with nine assets delivering double-digit growth. We continue to drive strong sales growth for both DARZALEX and ERLEADA, with increases of 22.2% and 19%, respectively. Within immunology, we saw sales growth in both STELARA and TREMFYA, with increases of 14.5% and 20.5%, respectively. This growth was driven by market growth and share gains as well as favorable patient mix in TREMFYA. Growth of 17.4% in pulmonary hypertension was driven by favorable patient mix, share gains and market growth. Turning to newly launched products. We continue to make progress on our launches of CARVYKTI and SPRAVATO. We are also encouraged by the early success of our launches of TECVAYLI and TALVEY, sales of which are driving the growth in other Oncology. As a reminder, we expect to begin disclosing TECVAYLI sales in Q1 2024. Total Innovative Medicine sales growth was partially offset by unfavorable patient mix in XARELTO, a decrease in IMBRUVICA sales due to competitive pressures and a loss of exclusivity of ZYTIGA, REMICADE and PREZISTA. I'll now turn your attention to MedTech. Worldwide MedTech sales of $7.7 billion increased 13.4% with Abiomed contributing 4.5% to growth. Growth in the U.S. was 14.1% and 12.8% outside of the U.S. Excluding the impact of acquisitions and divestitures, worldwide adjusted operational sales growth was 9.1%. MedTech was negatively impacted by international sanctions in Russia worth approximately 50 basis points, primarily in Advanced Surgery and Vision. Electrophysiology delivered double-digit growth of 25.2% with strong growth in all regions, including Europe. This growth was driven by our global market leading portfolio, including the most recently launched QDOT RF ablation and OCTARAY catheters. Abiomed contributed $340 million in sales within the quarter driven by continued strong adoption of Impella 5.5 technology. Growth of 6.4% in surgery was driven primarily by procedure recovery and strength of our biosurgery and wound closure portfolios. Growth was partially offset by volume based procurement in China, primarily in Endocutters. Orthopaedics growth of 5% reflects procedure growth, success of recently launched products such as the global expansion of our VELYS digital solutions and expansion in ambulatory surgical centers, as well as lapping of prior year China’s VBP price concessions in Spine. Growth of 6.6% in Vision was driven by price actions and contact lenses, as well as strength of new products including ACUVUE OASYS 1-Day family of products and contact lenses and TECNIS EYHANCE, our monofocal interocular lens and surgical vision. Growth of contact lenses was partially offset by U.S. stocking dynamics. Global Vision growth was negatively impacted by 140 basis points due to the Blink divestiture in Q3. Now turning to our consolidated statement of earnings for the fourth quarter of 2023. I'd like to highlight a few noteworthy items that have changed compared to the same quarter of last year. Cost of products sold margin deleveraged by 130 basis points due to commodity inflation and unfavorable product mix in MedTech, partially offset by favorable patient mix and lower COVID-19 vaccine supply network related exit cost in Innovative Medicine. We continue to invest strategically in research and development at competitive levels, investing $4.5 billion or 20.9% of sales this quarter. We invested $3.4 billion or 24.5% of sales in Innovative Medicine with the increase in investment being driven by higher milestones, partially offset by portfolio prioritization. In MedTech, R&D investment was $1.1 billion or 14.6% of sales with the increase in investment primarily driven by the Laminar acquisition. Interest income was $212 million in the fourth quarter of 2023 as compared to $77 million of income in the fourth quarter of 2022. The increase in income was driven by higher interest rates earned on cash balances and a lower average debt balance. The other income and expense line was income of $421 million in the fourth quarter of 2023 compared to an expense of $795 million in the fourth quarter of 2022. This was primarily driven by higher unrealized gains on securities and lower (ph) COVID-19 vaccine-related exit costs. Regarding taxes in the quarter, our effective tax rate was 14.4% versus 16% in the same period last year. This decrease was primarily driven by the net decrease of tax liabilities, including the settlement of the 2013 through 2016 U.S. tax audit. Excluding special items, the effective tax rate was 10.8% versus 16.2% in the same period last year. I encourage you to review our upcoming 2023 10-K filing for additional details on specific tax-related matters. Lastly, I will direct your attention to the box section of the slide, where we have also provided our income before tax, net earnings and earnings per share adjusted to exclude the impact of intangible amortization expense and special items. Now let's look at adjusted income before tax by segment. In the fourth quarter of 2023, our adjusted income before tax for the enterprise as a percentage of sales decreased from 32.5% to 29.2%. Innovative Medicine margins declined from 37.7% to 37.4%, primarily driven by higher R&D milestones, partially offset by favorable patient mix and leveraging and selling and marketing expense. MedTech margins declined from 24.5% to 15.5% primarily driven by in-process research and development expense from the Laminar acquisition, commodity inflation and unfavorable product mix, partially offset by selling and marketing expense leverage. This concludes the sale and earnings portion of the call. I'm now pleased to turn it over to Joe.

Operator:

Thank you. [Operator Instructions] Our first question today is coming from Joanne Wuensch from Citi. Your line is now live.

Joaquin Duato:

Thank you, Joanne, and good morning, everyone. First, let me remark the strong close of our MedTech business in 2023. We delivered annually more than $30 billion in sales, which is -- were all-time high in our company history with operational -- adjusted operational growth in the fourth quarter of 9.1. So very strong results across the board in electrophysiology, in heart (ph) recovery, in surgery, in orthopedics and in Vision. So when we think about our results in 2023, we think it's going to be aligned with our competitor composite for the year, but ahead of our competitor composite in the fourth quarter. Now, certainly, COVID-19 impacts have stabilized globally and while we continue to see some challenges, macro challenges from the point of view of inflation, hospital staffing and the like, there is a bolus of patients coming out into the market after COVID-19, which has made 2023 market growth faster than historical averages. And we see that trend continuing into a good part of 2024 and therefore, being a tailwind into 2024. There's a lot of factors playing into that. But overall, we see the amended procedures continuing into at least the first half of 2024. Now we also have a number of tailwinds on our side other than the procedures that make me optimistic about 2024. We have the trajectory of Abiomed in heart recovery, which is very strong with the adoption of Impella 5.5. We file already for our Impella ECP, which is the smaller version of Impella CP. In orthopedics, we continue to move into higher growth markets with the expansion of our VELYS Robotic-Assisted Solution. We obtained CE Mark in Europe. In surgery, we continue to launch innovations across our surgery business with the [indiscernible], in Energy and ECHELON 3000 as a stapler. And we continue to see good expansion of our Plus Sutures too. In our Vision business, we are expanding our TECNIS family into the premium segment of IOLs. And finally, and I know this is an area of interest to you in electrophysiology, we continue to expand our PFA portfolio of catheters. We obtained approval for our VARIPULSE, loop catheter, PFA loop catheter in Japan at the beginning of this year. And we continue to roll out the global launch of QDOT MICRO, our newest radio frequency ablation catheter. So overall, a number of catalysts and tailwinds into our MedTech business into 2024. As we discussed in our Enterprise Business Review, we continue to see our MedTech business growing at the upper end of our markets and becoming a best-in-class competitor in MedTech.

Terence Flynn:

Great. Thanks so much for taking the question. Maybe two-part for me on CARVYKTI. I noticed an ODAC panel was just announced to review the CARTITUDE-4 data. I was just wondering if you can talk about the focus of that upcoming meeting and your confidence in an on-time label expansion for CARTITUDE-4? And then the second part of the question is I know in manufacturing, you've been ramping up in Belgium, and I believe that facility is now up and running. So how should we think about supply for 2024 broadly for CARVYKTI? Thank you.

Operator:

Thank you. Next question is coming from Larry Biegelsen from Wells Fargo. Your line is now live.

Joseph Wolk:

Yeah. So Larry, let me start, good morning, and then I can turn it over to Joaquin. So we are very well positioned to continue to entertain many types of deals. As you know, we have the parameters of making sure that they are a strategic fit so that we've got scientific expertise and insights, a familiarity with the space has proven to be our most successful platforms. We want to make sure that we're earning a fair return to compensate shareholders for the risk that we're bearing on their behalf. It was only 13 months ago, we were able to deploy $17 billion in capital for Abiomed. We're very pleased with that acquisition. Not only has it beat our internal deal models, but it also is performing better than what the Street had called for that business prior to the announcement of the acquisition. So it's been a really nice fit. What I would say is, we also deployed or announced, as I said in my prepared remarks, over $3 billion in capital for more than 50 smaller licensing partnerships or deals. And while those may have not made headlines, they usually are headlines when they become products for patients. And so that when you think about our history of DARZALEX, IMBRUVICA, CARVYKTI for one, it's been -- that's kind of our track record. Our appetite is still, I would say, interested in moving into spaces that complement our existing portfolio, whether that be for the near or long term.

Operator:

Thank you. Next question is coming from Chris Schott from JPMorgan. Your line is now live.

Joseph Wolk:

Yeah. Good morning, Chris. Thanks for the question. I think as you look at that specifically for the fourth quarter, what you have in our operating margins is obviously the Laminar transaction that was part of that mix. So on our slide that details IBT, you likely saw a quarterly reduction in MedTech, specifically of about 9 points, about 2 points for the full year. I would say two-thirds of that is represented by the Laminar transaction. You also then have, I would say, in the fourth quarter specific some mix as orthopedics performed probably a little bit better than it had in previous quarters. And then you have the inflationary impact, obviously, with higher levels of inventory on our balance sheet that flow through the P&L, that is occurring throughout 2023. And we expect it to occur throughout at least the first half of 2024. We're not seeing any incremental inflation in, I'll call it, current activity. So it's not being additive to inventory, but it's also not subsiding either. So we're kind of at a new, I'd say water level, if you will, that should be going forward, but not hurting the P&L as we look out beyond the second half of 2024.

Shagun Singh:

Great. Thank you so much. I was just wondering, if we could get your latest thoughts on the potential impact of Novo's osteoarthritis data on orthopedic utilization, given the focus on WOMAC or pain scores. I believe the presentation could be here soon. Just curious to hear your thoughts and also what kind of scores could or may not have a potential impact? Thank you for taking the question.

Joseph Wolk:

And Shagun, it's also important to maybe provide us a reminder what we commented to last quarter, and that's -- we're looking very hard at improving the profitability of the orthopedics unit, so being very selective as to what geographies we play in and what SKUs are actually going to be offered. So not only will you see some of the strength in the top line, as Joaquin outlined, but you should see an improved margin profile for that business as well.

Vamil Divan:

Great. Thanks so much for taking my questions.. So just maybe an area we don't spend as much time on is on the respiratory side, specifically, PAH. But just sort of a two-part question, but that franchise of yours continue to sort of outperform expectations. So curious, if you can talk about sort of what's driving success there? There's also an area where you don't have a lot of sort of longer-term investment. So going back to sort of the business development question, I'm just curious in your interest in sort of PAH or respiratory more generally as an area, further focus given your key franchises are going to be going away, but you do have the infrastructure there already?

Operator:

Thank you. Next question today is coming from Louise Chen from Cantor Fitzgerald. Your line is now live.

Joaquin Duato:

So thank you, Louise and we have a strong oncology franchise in different areas. I commented that here in prostate cancer with ERLEADA that I discussed before. We'll see data in high risk localized prostate cancer in 2024 with the addition of Ambrx now and antibody drug conjugate in this area. We are very, very excited about RYBREVANT and the combination of RYBREVANT plus lazertinib. We have Phase 3 studies completed. We expect -- we have filed all the three indications, and we expect approval of that in 2024. So we are very excited about RYBREVANT and the combination of RYBREVANT plus lazertinib in EGFR-mutated non-small cell lung cancer in first line. Moving into bladder cancer. You also will see data with TARIS-200, and TARIS-210 in non-muscle invasive localized bladder cancer. And we received FDA breakthrough designation for TARIS-200 in 2023. And then we continue our progress in our multiple myeloma franchise. We talk about CARVYKTI, but it's important to recognize how well [Technical Difficulty] with the impressive per sales data that we presented in first-line in newly diagnosed transplant eligible multiple myeloma patients. So we are looking at CAR-T in autoimmune diseases to your question, yes, but it's early data. As you know, we did a deal earlier in 2023 to partner two CAR-Ts, a CD19 and a CD19/CD20 BiCAR. So we are looking at that, and it's early data. It looks promising. We are interested in radiopharmaceuticals. We believe that the avenue that we are doing with antibody drug conjugates, it's an important therapeutic option. And when it comes to radiopharmaceuticals, we did a deal earlier this year with Nanobiotics for a radio enhancer that this still been developing head and neck cancer. We expanded our rights at the end of the year. And this could be another avenue to be there for us in which we could combine our expertise in medical devices, in medical technology and pharmaceuticals. And we plan to do a broader development plan of our radio enhancing, and we’ll provide you more information about it as we continue to move. So overall, we are very pleased with the progress that we see in our oncology franchise, both in solid tumors and in hematology. And it remains a core strength of our Innovative Medicine group.

Matt Miksic:

Hi. Thanks so much for taking the question. I wanted to follow up on some of the comments you made about MedTech trends and margins. And I think you mentioned some of the headwinds there were patient mix. Would love to get an idea of maybe kind of in the middle of the P&L and the operating line in terms of margin progression throughout the year, which ones of those of your business lines being kind of more reflecting that negative mix that you described and how that progresses during the year? Thanks.

Operator:

Thank you. Our next question today is coming from Geoff Meacham from Bank of America. Your line is now live.

Jessica Moore:

Yeah, Geoff. I can answer that one. So specifically on XARELTO in the quarter, we would say there's two items. It's patient mix, but there is also a one-time entry. Moving forward in 2024, we do expect that there will be a decline but not to the extent that you saw in Q4.

Danielle Antalffy:

Hey. Good morning, everyone. Thanks so much for taking the question. Joe, sorry to harp on the MedTech margin side of things. I appreciate everything you're saying for going forward. But just as we look at Q4 specifically, even adding back Laminar, we're still getting to sort of down 400 basis points year-over-year in the quarter. And I was just hoping maybe you could bridge us a little bit more. Is there any component of that is sort of price increases taken in late '22 into '23 rolling off or anything that you would highlight there? Thanks so much.

Operator:

Thank you. Our next question is coming from David Risinger from Leerink Partners. Your line is now live.

Joaquin Duato:

So thank you, David. And M&A has been -- M&A and external innovation has been a core of our pharma portfolio growth and transformation. As I said initially, we are agnostic to sector. In the case of pharma, our preferred mode has been trying to go to assets that were around proof of concept. So generally speaking, from a size perspective, it's been about deals that have been either of a smaller size or have been different modalities like client senses or partnerships. Just last year, we completed overall at Johnson & Johnson more than 50 deals. The thing is that the headlines are only made by the ones that are M&A. So we've done multiple deals in our pharmaceutical side in order to be able to enhance our existing portfolio. And our bias is to go for transactions that are going to enable us to create more value by leveraging our clinical development strength, our manufacturing capabilities and our commercial reach. So hence, why the majority of the deals that you see in our pharmaceutical side are at an earlier stage. Are we looking broader than that? Yes, we do. But mainly, we find more opportunities to create value at an earlier stage. For example, this year, we did a number of deals that went less publicized. We did, as I commented before, a deal with CNBG now called AbelZeta (ph) in CAR-T with CD19 and CD20, which we believe could be a best-in-class CAR-T in this area that could launch in this decade or at the end of the year, we also did another deal in antibody drug conjugates with a Korean company called LegoChem, which was underreported. But we continue to work in identifying deals in our pharmaceutical space that enables us to be able to put all our capabilities to work in the clinical development side, in manufacturing and in commercial. And that’s been the source of very significant value creation in products that all of you know, like DARZALEX or CARVYKTI that come from that type of approach of going earlier on into the development process.

Operator:

Our final question today is coming from Rick Wise from Stifel.

Joaquin Duato:

So thank you for the question. Great, and strong results of our EP franchise in 2023. And you should think about our EP franchise in 2024 as also a strong year, another year of growth, a strong growth for our EP franchise. If I look at the -- to your point that the drivers of growth in 2023, it was across the board. I mean it was in Asia-Pacific, in the U.S. and EMEA. It was driven by the procedure recovery, but also by new product performance and some offset also, a slight offset of value-based procurement in China. The new products that we introduced this year are the engine generator, our mapping catheters OCTARAY and OPTRELL. And also, importantly, our QDOT MICRO Catheter in radio frequency ablation that has efficacy results higher than any PFA catheter. And that together with our strong commercial execution and broad clinical support across the board has driven this result in electrophysiology that in the fourth quarter was 25% growth globally, 22% growth in the U.S. and 29% outside of the U.S. So very strong results. So we have a strong leadership in electrophysiology and 20 years of understanding this field. And when it comes to our strategy in cardiac ablation, we have multiple strategies, but one core strategy is our CARTO mapping system. That is a fundamental pillar of our strategy in cardiac ablation that supports procedural efficiency and very importantly, now low to zero fluoroscopy workflow. For the electrophysiologist, it's very important to know where they are and what are they doing to the heart anatomy. Otherwise, they are flying blind if they don't have a mapping system. And the CARTO system, it's providing the electrophysiologist real-time feedback and very important parameters like tissue proximity, contact force measurement and ablation indexes that give them an idea of how durable deletion is going to be and what are going to be the outcomes of the procedures. So that's key for us to be able to have a workflow that enables the type of progress that electrophysiologists have been already used to with radio frequency ablation. And hence, all our suite of catheters, it's is going to be from day 1 fully integrated in our mapping system. We have 5,000 CARTO systems already deployed globally and an extensive network of mappers to support the electrophysiologist. When it comes to our catheters, we are developing a full portfolio of options. You commented on VARIPULSE, our multi-electrode catheter that was approved in Japan. We are developing a focal and a large focal catheter and also a single shot one. So electrophysiologists are going to be able to choose the catheter that is more appropriate for their anatomy and for the workflow that they are selecting. We have five clinical trials active, three of them have completed. And we have submitted our VARIPULSE catheter for CE Mark and we plan submitting the VARIPULSE catheter to the U.S. FDA in 2024. Ultimately, PFA is an important option, but RF is also here to stay. That's why we believe that having the workflow and the procedure efficiency that CARTO gives you plus the option of having a catheter like our dual energy catheter that would enable electrophysiologists to simply change depending on the anatomy of deletion from PFA to RFA, it's going to be important for the future. And it's going to help them adopting PFA as this is the most widely used catheter in the world. So very positive about our growth in 2024 based on the strength that we have in this area. I'm positive about the outlook of our ablation business moving forward. As we have commented in multiple occasions, atrial fibrillation, it's an area that is still undertreated. And the outcomes of radio frequency ablation and most likely, the outcomes of PFA have shown significant improvement even compared to medical therapy. So very positive about the outlook of our -- and the strength of our atrial fibrillation business.

Joaquin Duato:

Thank you, Jess. The strong performance we delivered in ‘23 gives me great confidence in the trajectory of our business. As I said earlier, we are entering 2024 from a position of strength, and we have multiple catalysts for growth. No other company is as well positioned as Johnson & Johnson to lead the next wave of health care innovation. And we look forward to sharing our progress in the year ahead. Thank you.

Jessica Moore:

Good morning. This is Jessica Moore, Vice President of Investor Relations for Johnson & Johnson. Welcome to our company's review of the 2023 third quarter business results and full-year financial outlook. A few logistics before we get into the details. As a reminder, you can find additional materials, including today's presentation and associated schedules, on the Investor Relations section of the Johnson & Johnson website at investor.jnj.com. Please note that this presentation contains forward-looking statements regarding, among other things, the company's future operating and financial performance, market position and business strategy. You are cautioned not to rely on these forward-looking statements, which are based on current expectations of future events using the information available as of the date of this recording and are subject to certain risk and uncertainties that may cause the company's actual results to differ materially from those projected. A description of these risks, uncertainties and other factors can be found in our SEC filings, including our 2022 Form 10-K, which is available at investor.jnj.com and on the SECs website. Additionally, 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. Moving to today's agenda. I will start by reviewing the third quarter sales and P&L results for the corporation and highlights related to our two businesses. Joe Wolk, our CFO will then provide additional business and financial commentary before sharing an overview of our cash position, capital allocation priorities, and updated guidance for 2023. The remaining time will be available for your questions. Joaquin Duato, our chairman and CEO; John Reed, and Ahmet Tezel, our Innovative Medicine and MedTech R&D leaders, as well as Erik Haas, our VP of Litigation, will be joining us for Q&A. To ensure we provide enough time to address your questions, we anticipate the webcast will last approximately 60 minutes. As a reminder, on August 23, 2023, Johnson & Johnson announced the final results of the exchange offer and completion of the separation of Kenvue Inc. Unless otherwise stated, the financial results and guidance highlighted today reflect the continuing operations of Johnson & Johnson. We will report the consumer health financial results as discontinued operations. Additionally, going forward, the pharmaceutical segment will be referred to as innovative medicine. Starting with Q3 2023 sales results. Worldwide sales were $21.4 billion for the third quarter of 2023, an increase of 6.8% versus the third quarter of 2022. Operational sales growth, which excludes the effect of translational currency, increased 6.4% as currency had a positive impact of 0.4 points. In the U.S., sales increased 11.1%. In regions outside the U.S., our reported growth was 1.6%. Operational sales growth outside the U.S. was 0.7% with currency positively impacting our reported OUS results by 0.9 points. It is important to note that operational sales in Europe were negatively impacted by the COVID-19 vaccine and loss of exclusivity of ZYTIGA. Excluding the net impact of acquisition and divestitures, adjusted operational sales growth was 4.9% worldwide, 8.9% in the U.S., and 0.3% outside the U.S. Turning now to earnings. For the quarter, net earnings were $4.3 billion and diluted earnings per share was $1.69 versus diluted earnings per share of $1.62 a year ago. Excluding after-tax and tangible asset amortization expense and special items for both periods, adjusted net earnings for the quarter were $6.8 billion and adjusted diluted earnings per share was $2.66, representing increases of 14.1% and 19.3% respectively, compared to the third quarter of 2022. On an operational basis, adjusted diluted earnings per share increased 13.9%. I will now comment on business sales performance. Unless otherwise stated percentages quoted represent the operational sales change in comparison to the third quarter of 2022 and therefore exclude the impact of currency translation. Beginning with innovative medicine. Worldwide innovative medicine sales of $13.9 billion, increased 5.1% with growth of 10.9% in the U.S. and a decline of 2.3% outside of the U.S. Operational sales growth increased 4.3% as currency had a positive impact of 0.8 points. Excluding COVID-19 vaccine sales, worldwide operational sales growth was 8.2%, with growth of 10.9% in the U.S. and growth of 4.3% outside of the U.S. Sales outside the U.S., excluding the COVID-19 vaccine, were negatively impacted by approximately 500 basis points, due to the loss of exclusivity of ZYTIGA in Europe. Innovative medicine growth was driven by our key brands and continued uptake from a recently launched products with 11 assets delivering double-digit growth. We continue to drive strong sales growth for both DARZALEX and ERLEADA with increases of 20.7% and 27% respectively, due to continued share gains and market growth. Within immunology, we saw growth in STELARA and TREMFYA, with increases of 15.8% and 21.5% respectively. This growth was predominantly driven by favorable patient mix and market growth. Turning to newly launched products, we continue to make progress on our launches of CARVYKTI and SPRAVATO. We are also encouraged by the early success of our launches of TECVAYLI and TALVEY, sales of which are driving the growth and other oncology. We expect to begin disclosing TECVAYLI sales in Q1 2024. Total innovative medicine sales growth was partially offset by the loss of exclusivity of ZYTIGA and REMICADE, along with a decrease in IMBRUVICA sales, due to competitive pressures. I'll now turn your attention to MedTech. Worldwide MedTech sales of $7.5 billion increased 10% with growth of 11.6% in the U.S., and 8.3% outside of the U.S. Operational sales growth increased 10.4% as currency had a negative impact of 0.4 points. Abiomed contributed 4.6% to operational growth, excluding the impact of acquisition and divestitures, worldwide adjusted operational sales growth was 6%. On a pro forma basis, utilizing sales in the prior year from Abiomed as a standalone company, MedTech's growth for the quarter would be 6.4%. MedTech was negatively impacted across all platforms by international sanctions in Russia worth approximately 60 basis points in volume-based procurement in China, primarily in five MedTech platforms

Operator:

Thank you. [Operator Instructions] Our first question is coming from David Risinger from Leerink Partners. Your line is now live.

John Reed:

Hi. John, Reed here. It's great to join the call. This is my first time as a newcomer to J&J, and before I answer your question, David, I would just like to say I have to tell you I'm really enjoying being a new member of the J&J team. I've really been impressed with the culture inspired by our Credo with the caliber of our talent our people here at J&J and with the really strong performance of the pipeline. We've already launched two NMEs this year, Akeega for prostate cancer and TALVEY for myeloma, continuing our tradition in bringing new therapies in those agents, and we're positioned to deliver an average of more than two enemies per year between now and the close of the decade 2030. So the pipeline is very robust and it's exciting to be here and to be a part of it. So on to your question, the data will be presented at ESMO in a Presidential session. So we're embargoed until then. Abstracts will be available on [Wednesday] (ph). I can only say that the RYBREVANT Lazertinib combo did perform well head-to-head against Osimertinib. Our regimen is a chemo-free option for patients, which we think is important, and we'll present those data at ESMO.

Matt Miksic:

Hi, thanks so much for taking the question. So I think most folks may look at the orthopedic results in medical devices as maybe being a little bit softer-than-expected. And I know that's not everything by a long shot for J&J, but given the expectations for continued strength heading, I think, into Q3, if you could talk maybe a little bit about your comment on more traditional seasonality and thoughts on the sustainability of that strength, as well as the sort of divestiture and sort of realignment plan, Joe, that you described. Thanks.

Joe Wolk:

Yes, just very quickly, Matt, thanks for the question. With respect to the restructuring program that we announced specifically in orthopedics, we're looking to exit those less profitable markets and product lines. So we'll have some clearly inventory write-downs as a result of that. Over the next two years, there will be some modest revenue disruption, but we actually do think these actions not only accelerate growth going forward, but will improve profitability.

Chris Shibutani:

Great. Thank you very much. Can you provide us with some insight into updates on the TALC litigation process? And then secondly, if you could just comment, Joe, you used the word voracious last time with your appetite for business development opportunities. How does that word stand still in terms of your appetite on the floor? Thank you.

Erik Haas:

Great. Thanks, Joe. The short answer is that we continue to pursue the four-pronged strategy that we communicated back in July. So let me quickly summarize those four prongs and highlight the salient developments and perhaps anticipate some follow-up questions about TALC. So the first prong, we are pursuing the appeal through to the Supreme Court of the United States of the July ruling by the New Jersey Bankruptcy Court that dismissed LTL's bankruptcy case. Notably, our appeal recently was joined by counsel representing the vast majority of the TALC claimants. Also, thereafter, the bankruptcy court certified the case for a direct appeal to the third circuit, bypassing the district court, because the bankruptcy court found that the appeal raises matters of significant public interest, the resolution of which would material advance the progress of the case and we fully agree with that assessment. The appeal challenges both the validity, as well as the application of the novel standard that was imposed by the third circuit that requires a showing of, “immediate financial distress” to proceed with the bankruptcy case. That immediate financial distress requirement, which the third circuit did not specifically define, is nowhere in the bankruptcy code and is contrary to the standards that are implied -- employed by other circuits. Moreover, under any reasonable interpretation of that standard, we believe the record has fully established that LTL faced immediate financial distress due to the large volume of TALC claims that were asserted against it. In terms of timing, the third circuit could rule at any moment whether it will take the direct appeal or not. If it does, we expect briefing to take place over the next couple of months with a decision in the early 2024 timeframe. And because we do anticipate the third circuit will primarily affirm the application of its standards, we will immediately thereafter request the Supreme Court to resolve the circuit split and decide if the third circuit's novel approach is an appropriate standard for deciding a motion to dismiss. We do not think it is. We hope to squeeze the cert petition to the Supreme Court into the first term in 2024, but if not, we will raise it in the second term. Working with the council, representing the vast majority of the TALC claimants more than we had previously that were along with us. Along with the -- in addition to the future claims representatives and together with the council and the future claims representatives were pursuing a consensual resolution of the TALC claims through another bankruptcy. And that is exactly what the bankruptcy court, the New Jersey bankruptcy court urged and strongly recommended that we do in its decision that actually dismissed the case. And the New Jersey court made those recommendations having found that LTL had made remarkable progress towards an equitable and efficient resolution to-date. So we are continuing on in that process. In terms of timing on the second prong, the consensual resolution is on the same trajectory as the initial bankruptcy plan with a vote expected in the next six months to determine whether the requisite super majority of claimants support the plan. Third, while those negotiations are proceeding, we will continue to vigorously defend the meritless TALC claims in the tort system. As you may have seen just this last week, we had a significant favorable ruling in that regard with the New Jersey's appellate court in the Barden case reversing a $223 million verdict against the company. The appellate court reversed because it determined the opinions of the leading plaintiff's experts were unsound, were unscientific, and were unsubstantiated. And it is that baseless nature of those expert opinions why we have prevailed in the vast majority of the cases that have been tried to-date. In terms of timing of the litigation, there are two additional mesothelioma cases that we expect will be tried this year with more to come in 2024. As with the Barden case, it's important to keep in mind that the ultimate resolution of those matters often is determined at the appellate level, not at the trial level, which is the place which occurs in the forms that the plaintiff lawyers choose. Finally, we will aggressively challenge the abuses of the judicial system by the mass tort plaintiff's bar and its experts with their own affirmative litigation. We mentioned last time that we brought two actions against the plaintiff's bar's lead experts for defaming our TALC products with publications premised unknowingly false propositions. And those are moving forward. They've been fully briefed with respect to the initial case motions and in terms of timing, we expect a ruling shortly from the Federal District Court in New Jersey, whether those matters may proceed to the discovery phase. So that's a quick summary. I'd be happy to answer any follow-up questions you may have regarding the strategy.

Operator:

Our next question is coming from Geoff Meacham from Bank of America. Your line is now live.

Joaquin Duato:

Thank you, Geoff. And as you have seen in the progression quarter-over-quarter of CARVYKTI, we continue to have on one hand strong demand and on the other hand, progress in our manufacturing. We're also very encouraged by the data that came out with CARTITUDE-4 that eventually we make CARVYKTI also a medicine in early absence of therapy. So when it comes to our manufacturing progress, I'm going to let John explain what are we doing in order to be able to supply the strong demand that we are seeing in CARVYKTI today. Overall, what you can expect, Geoff, is that we -- you will continue to see quarter-over-quarter improvement in 2023 into also 2024.

Joaquin Duato:

And, you know, Geoff, to your point, in multiple myeloma new product launches, we are also very encouraged by the launch of TECVAYLI and also the recent appointment of TALVEY. The progression of these medicines is exceeding our internal expectations and we already have about 2,000 healthcare professionals in the U.S. that are REM certified to be able to administer TECVAYLI and TALVEY. So very encouraging progress in these two medicines in multiple myeloma. And we expect to be able to break out TECVAYLI sales beginning in 2024.

Josh Jennings:

Hi. Good morning. Thanks for taking the questions. I was hoping to ask on STELARA and the biosimilar competition in the U.S. now expected in 2025. That's not new news, but I wanted to check in on how beneficial is the extra year for the innovative medicine and businesses defense strategy. I guess focusing on just the potential for TREMFYA to take share from STELARA and psoriasis and psoriatic arthritis and inflammatory bowel disease indications? And does this time make sure you provide more confidence and potential to hit the constant currency revenue target set for 2025 for the pharma unit? Thanks.

Operator:

Thank you. Next question is coming from Chris Schott from JPMorgan. Your line is now live.

Joe Wolk:

Yes, sure, Chris. Thanks for the question. So first off, we're very pleased with the margin progress that we've been able to make in 2023. I think we started the year to roughly flat to now improving by 50 basis points. A lot of that has really gone, is it directly attributable to the efforts of many people in the organization, who really took the opportunity to look at our infrastructure as a two segment company versus a three segment company. So dis-synergies that we warned about and talked about early on in the Kenvue separation process really haven't come to manifest. In fact, as we look out to 2024, we see minimal to almost no impact from dis-synergies from the separation. We are in the process of finalizing our business plans for 2024. I'd like to get a little bit better assessment of how the clinical development pipeline is shaping up, what the investments are required there. But we're a larger company. We take the opportunity to look each and every year at efficiencies. So we're not in a position to give you margin guidance right now, but I would expect that something similar to where we started this year would not be a bad starting point for next year. Again, it's going depend on the investments that the R&D teams from both MedTech and Innovative Medicines can bring forth, and we'll obviously look to accelerate bringing some of these great products to patients sooner if we have that opportunity.

Larry Biegelsen:

Good morning. Thanks for taking the question. Joe, just -- could you just clarify what you meant by flat procedures in ‘24 MedTech? Are you assuming, does that mean flat MedTech growth? And just for my question, can you talk about what you're seeing with bariatrics, if for GLP-1s this is, and how you're thinking about the potential impact of GLP-1s across your device business, you know, long-term, you know, especially in Cardio and Ortho. Thank you.

Joaquin Duato:

Thank you, and thank you Larry. And taking a step back, we see the evolution of our MedTech business in a very positive way. One of our key goals for us is to be a top tier grower in MedTech. When I look at the results of MedTech this year, we are delivering on that. Our growth in the quarter pro forma was 6.4% when you compare with Abiomed as a standalone company. And when you look at our pro forma growth year-to-date in MedTech is 7.9%. So very pleased with the performance of our MedTech business. And we have expectations to continue our progression into 2024, in part fueled by the procedural growth that we see and also, but our continued improvement in our execution and the launch of new products. Some of them we can discuss later. For example, you know, we will be launching our first PFA catheter in Europe into 2024. When it comes to GLP-1s, it's good for patients to have new options for treatment, especially in obesity, which at times has been a stigmatized disease in which patients were not looking for treatment due to the stigmatization of that. Certainly, as you commented, we're seeing some impact in our bariatric business in the short-term. Some patients are reconsidering surgery, expecting to get treatment. But overall, when we talk to surgeons, bariatric surgeons, what they see is a complementary role of surgery and GLP-1s, and many of them comment on the fact that they could see a tailwind for bariatric surgery down the road, given this complementary nature, the increased awareness about obesity, more patients seeking treatment, and many of the patients, about 30% of them, are not going to be tolerating this medication. So they would be another funnel for our bariatric business. In the rest of our MedTech business, at this point, we continue to see robust procedure increase and we don't anticipate that change, that thing -- that trend changing in the foreseeable future.

Terence Flynn:

Great. Thanks so much for taking the question. I was just wondering if you could elaborate a little bit more, John, on Nipocalimab in RA. I know we're going to see the full data here at ACR, but is this a drug that you see potentially working in a broad population or is there a biomarker subset group that's more likely to respond? And then how are you thinking about Phase 3 plans here in this indication? Thank you.

Operator:

Thank you. Next question is coming from Joanne Wuensch from Citibank. Your line is now live.

Joaquin Duato:

Thank you, Joanne. And first, let me say that China for us is a key market, and a market in which we are delivering growth now, and we are going to continue to deliver a strong growth into 2024. So it's a key growth driver for us. So on one hand, certainly, VBP represents a headwind in price. And on the other hand, it also represents an opportunity as you can expand quality products, medical technologies into more patients. So there are a number of MedTech platforms now currently undergoing VBP headwinds, electrophysiology, spine, trauma, endocutters and energy, and these effects will last during 2023 and part of 2024. We have already anniversary our large joins VBP. So at this point, we have about 80% of our platforms that have been already affected by VBP. Again, as we look into 2024, we expect to continue to deliver a strong growth in China, and China remaining a key part of our growth. When it comes to the question that you were asking in anti-corruption side, we have a strong culture of compliance in our business. And at this point, we may see some limitations related to physician and surgeon access, but we are not seeing any material impact in any part of our business due to that, and we'll continue to monitor the situation. Overall, as I said, we continue to see China as a key driver of our growth and also as a key source of innovation moving into the future.

Vamil Divan:

Great. Thanks for taking my questions. I just want to maybe dive a little deeper on the immunology side. Appreciate some of the comments you made there already with -- for the quarter, the performance was very strong for several of your products there? So I'm just curious if there were any sort of one-time items there that we should be aware of. It's under like there's a lot of patient mix and market growth that you are commenting on? I'm curious if you can just highlight any sort of stocking or sort of one-time pricing adjustments that we should take into account as we look at future quarters? Thank you.

Operator:

Thank you. Next question is coming from Danielle Antalffy from UBS. Your line is now live.

Ahmet Tezel:

So first of all, thank you for the question. Similar to John, this is my first call as well. So really excited to be here, equally excited to be leading a team of talented scientists, engineers and physicians as we do smarter less invasive and more personalized solutions for our patients. So with respect to Ottava, we have made great progress on the platform. The team is really focused on combining a really differentiated architecture based on its software and hardware together with our best-in-class instruments, and we believe that combination of a differentiated architecture with instruments is going to enable us to have high value from day one. Now we will have more updates on Ottava next month, as you mentioned. And at that time, we will provide a lot more detail. But the one point I'll make is that even today, robotic-assisted surgery penetration is in single-digits. So there's still a lot of growth left in that segment. And we're really excited because Ottava brings a lot of differentiation. So we're very excited that we can make a big kind of path. We can open our path and growth there in that segment as well.

Jessica Moore:

Thank you, Danielle. We have time for one last question.

Louise Chen:

Hi, thanks for taking my question. I wanted to ask you on the FLORA 2 results, if they impacted at all your thinking on your market opportunity for MARIPOSA and why or why not? Thank you.

Operator:

Thank you.

Joaquin Duato:

Thank you, Jess, and thank you to all of you for joining us today. I'm proud to present today the company's performance. This is the first quarter that we report as a new J&J, focused in health care innovation, in MedTech and in Pharmaceuticals. And I believe this new J&J has a better foundation to continue to drive growth for the next decade. We are achieving strong results in 2023 with our 7.5% adjusted operational growth in the quarter. It's the second quarter in a row that we have a beat and a risk of our guidance. And we continue to believe that we're going to have a very strong finish into 2023 and that reads well for a strong 2024, too. We have a dedicated team both in Innovative Medicines and in MedTech. And we think we are very well positioned, as I said, to carry the momentum that you are seeing in 2023 into 2024. Finally, we are looking forward to engaging all of you at Enterprise Business Review on December 5th. Thank you very much and enjoy the rest of your day.

Jessica Moore:

Good morning. This is Jessica Moore, Vice President of Investor Relations for Johnson & Johnson. Welcome to our company's review of the 2023 second quarter business results and full-year financial outlook. Joining me on today's call are Joaquin Duato, Chairman of the Board and Chief Executive Officer; Joe Wolk, Executive Vice President, Chief Financial Officer; and Erik Haas, Worldwide Vice President of Litigation. A few logistics before we get into the details. As a reminder, you can find additional materials, including today's presentation and associated schedules on the Investor Relations section of the Johnson & Johnson website at investor.jnj.com. Please note that today's meeting contains forward-looking statements regarding among other things, the company's future operating and financial performance, product development, market position and business strategy, and the anticipated separation of the company's consumer health business. You are cautioned not to rely on these forward-looking statements, which are based on current expectations of future events using the information available as of today's date and are subject to certain risks and uncertainties that may cause the company’s actual results to differ materially from those projected. A description of these risks, uncertainties, and other factors can be found in our SEC filings including our 2022 Form 10-K, which is available at investor.j&j.com and on the SEC website. Additionally, several of the products and compounds discussed today are being developed in collaboration with strategic partners or license from other companies. This slide acknowledges those relationships. Moving to today's agenda. Joaquin will open with a few comments highlighting business performance achievements in the quarter and outlook for the remainder of the year. I will then review the second quarter sales and P&L results for the corporation and highlights related to the three segments. Joe will then provide additional business and financial commentary before sharing an overview of our cash position, capital allocation priorities, and updated guidance for 2023. Finally, Erik will provide comments regarding the talc litigation. The remaining time will be available for your questions. To ensure we provide enough time to address your questions, we anticipate the webcast will last approximately 75 minutes. I am now pleased to turn the call over to Joaquin.

Jessica Moore:

Thanks, Joaquin. As a reminder on May 8, 2023, Kenvue, Inc., closed its initial public offering. Johnson & Johnson continues to own 89.6% of total outstanding shares of Kenvue’s common stock and remains the majority shareholder. Therefore, the following financial results continue to include the consumer health business with the 10.4% of consumer health's net earnings no longer attributed to Johnson & Johnson being adjusted for in other income and expense from the date of the IPO through the end of the quarter. Starting with Q2 2023 sales results. Worldwide sales were $25.5 billion for the second quarter of 2023, an increase of 6.3% versus the second quarter of 2022. Operational sales growth, which excludes the effect of translational currency, increased 7.5%, as currency had a negative impact of 1.2 points. In the U.S., sales increased 10.2%. In regions outside the U.S., our reported growth was 2.2%. Operational sales growth outside the U.S. was 4.7% with currency negatively impacting our reported OUS results by 2.5 points. Operational sales in Europe were negatively impacted by the COVID-19 vaccine and loss of exclusivity of ZYTIGA. Excluding the net impact of acquisitions and divestitures, adjusted operational sales growth with 6.2% worldwide, 8% in the U.S. and 4.4% outside the U.S. Turning now to earnings. For the quarter, net earnings were $5.1 billion and diluted earnings per share was $1.96 versus diluted earnings per share of $1.80 a year ago. Excluding after tax intangible asset amortization expense and special items for both periods, adjusted net earnings for the quarter were $7.4 billion and adjusted diluted earnings per share was $2.80, representing increases of 6.5% and 8.1%, respectively, compared to the second quarter of 2022. On an operational basis, adjusted diluted earnings per share increased 9.7%. I will now comment on business segment sales performance highlights. Unless otherwise stated, percentages quoted represent the operational sales change in comparison to the second quarter of 2022, and therefore, exclude the impact of currency translation. Beginning with the Pharmaceuticals segment. Worldwide Pharmaceutical sales of $13.7 billion increased 3.1%, with growth of 9.2% in the U.S. and a decline of 4% outside the U.S. Operational sales growth increased 3.8% as currency had a negative impact of 0.7 points. Excluding COVID-19 vaccine sales, Worldwide operational sales growth was 6.2% with growth of 9.9% in the U.S. and growth of 1.5% outside the U.S. Sales outside the U.S., excluding the COVID-19 vaccine, were negatively impacted by approximately 500 basis points, due to the loss of exclusivity of ZYTIGA in Europe. Pharmaceutical growth was driven by our key brands and continued uptake in our recently launched products with nine assets delivering double-digit growth. We continue to drive strong sales growth for both DARZALEX and ERLEADA with increases of 23.4% and 26.9%, respectively. STELARA grew 8%, driven by market growth and IBD share gains in the U.S., partially offset by unfavorable patient mix and increased rebates. TREMFYA grew 18.9%, driven by market growth and share gains in the U.S., partially offset by unfavorable patient mix. Growth of 16.5% in pulmonary hypertension was driven by favorable patient mix, share gains in the U.S. and market growth. Turning to newly launched products. We continue to make progress on our launch of CARVYKTI and continue to expand access and reimbursement for SPRAVATO. We are also encouraged by the early success of our launch of TECVAYLI, sales of which are included in other oncology. Total pharmaceutical sales growth was partially offset by the loss of exclusivity in REMICADE and ZYTIGA, along with a decrease in IMBRUVICA sales due to competitive pressures. IMBRUVICA maintains its market leadership position worldwide. I will now turn your attention to the MedTech segment. Worldwide MedTech sales of $7.8 billion increased 12.9% with growth of 14.6% in the U.S. and 11.3% outside of the U.S. Operational sales growth increased 14.7% as currency had a negative impact of 1.8 points. Abiomed contributed 4.8% to operational growth. Excluding the impact of acquisitions and divestitures, worldwide adjusted operational sales growth was 9.9%. Sales in the second quarter accelerated sequentially from Q1 for all MedTech businesses driven by global procedure growth, recovery in China, continued uptake of recently launched products and commercial execution, partially offsetting growth in the quarter was the impact of volume based procurement in China, as well as supply constraints. The Interventional Solutions franchise delivered operational growth of 56.9%, which includes $331 million related to Abiomed. Electrophysiology is a major contributor to the growth with a double-digit increase of 25.9%. This reflects strong growth in all regions, including Europe, driven by our comprehensive portfolio, including the most recently launched QDOT RS catheter. Orthopedics operational growth of 5.7%, reflects strong procedure recovery, success of recently launched products, such as the enhanced shorter portfolio, as well as global expansion of our digital solutions, such as VELYS Robotic assisted solution. Growth was partially offset by the impact of volume-based procurement in China and continued supply challenges primarily in hips. Operational growth of 8.4% and surgery was driven primarily by procedure recovery and strength of our biosurgery and wound closure portfolios. Growth was partially offset by the impacts of volume-based procurement in China and supply challenges. Global growth of 6.9% in vision was driven by price actions and contact lenses and other, as well as strength of new products, including ACUVUE OASYS 1-Day family of products and contact lenses and TECNIS Eyhance our monofocal intraocular lens and surgical vision. Growth of contact lenses was partially offset by strategic portfolio choices and supply challenges. Although these continue to improve. Moving to the Consumer Health segment. Worldwide Consumer Health sales of $4 billion increased 5.4% with growth of 6% in the U.S. and 5% outside the U.S. Operational sales growth increased 7.7% as currency had a negative impact of 2.3 points. Sales in the second quarter accelerated sequentially from Q1 for all consumer health franchises, primarily driven by strategic price increases and growth in OTC globally, due to strong pain performance, and cold, cough and flu season. Excluding the impact of strategic portfolio decisions and sales of personal care products in Russia, volume across all consumer franchises was relatively flat on strong price actions. For more detailed information, please visit investors.kenvue.com. Now turning to our consolidated statement of earnings for second quarter of 2023, I'd like to highlight a few noteworthy items that have changed compared to the same quarter of last year. Cost of products sold leveraged by 80 basis points, primarily driven by favorable patient mix and lower COVID-19 vaccine supply network related costs in the pharmaceutical business, partially offset by commodity inflation in the consumer and MedTech businesses. Selling, marketing and administrative margins deleveraged 20 basis points, driven by incremental costs to support the standalone consumer health business, partially offset by proactive management of costs. We continue to invest strategically in research and development at competitive levels, investing 15% of sales this quarter. The $3.8 billion invested was a 3.4% increase versus the prior year. The other income and expense line was income of $60 million in the second quarter of 2023, compared to an expense of $273 million in the second quarter of 2022. This was primarily driven by favorable litigation settlements, lower litigation expense, and lower unrealized losses on securities, partially offset by higher COVID-19 vaccine manufacturing exit related cost. And as previously mentioned, the 10.4% of consumer health earnings that are no longer attributable to Johnson & Johnson, which resulted in a $37 million reduction in consolidated earnings. Regarding taxes in the quarter, our effective tax rate was 23.9% versus 17.6% in the same period last year. This increase was primarily driven by 2023 tax cost incurred as part of the planned separation of the consumer health business, due to the internal reorganization of certain international subsidiaries. Excluding special items the effective tax rate was 16.6% versus 15.4% in the same period last year. I encourage you to review our upcoming second quarter 10-Q filing for additional details on specific tax matters. Lastly, I'll direct your attention to the box section of the slide, where we have also provided our income before tax, net earnings and earnings per share adjusted to exclude the impact of intangible amortization expense and special items. Now let's look at adjusted income before tax by segment. In the second quarter of 2023, our adjusted income before tax for the enterprise as a percentage of sales increased from 34% to 34.6%, primarily driven by favorable product and patient mix, partially offset by unfavorable segment mix and commodity inflation. Pharmaceutical margins improved from 42% to 42.7%, primarily driven by favorable patient mix, sales, marketing and administrative expense leverage, and R&D portfolio prioritization, partially offset by higher milestone payments. MedTech margins improved from 26.5% to 28.6%, driven by favorable intellectual property related litigation settlements and cost management initiatives, partially offset by commodity inflation. Finally, consumer health margins declined from 25.9% to 23.5%, due to incremental costs to support the standalone consumer health business, foreign exchange impacts, and commodity inflation, partially offset by supply chain efficiencies. It is important to highlight that the adjusted income before tax for the consumer health business as reported by Johnson & Johnson defers from the financial results reported by Kenvue Inc. this morning. The difference is primarily driven by incremental costs required to run Kenvue as an independent company. Additional differences also exist on an after tax basis, due to the application of different tax rates. This concludes the sales and earnings portion of the Johnson & Johnson second quarter results. I'm now pleased to turn the call over to Joe Wolk. Joe?

Erik Haas:

Thank you, Joe. On Tuesday, July 18th in the case of Valadez v Johnson & Johnson, a jury in Alameda County, California ruled in favor of the plaintiff on this talc product liability claims. We intend to pursue an appeal based on the erroneous rulings by the trial judge that prevented us from sharing with the jury critical facts that demonstrate that plaintiff's exceedingly rare form of mesothelioma was not caused by baby powder. Without the benefit of that evidence, the jury rendered a verdict that is irreconcilable with a decades of independent scientific evaluations confirming Johnson's baby powder is safe, does not contain asbestos and does not cause cancer. The research, clinical evidence in over 40-years of studies by independent medical experts around the world continue to support the safety of our cosmetic talc. The verdict award will not be paid, while the bankruptcy proceeding continues, and this decision has absolutely no impact on that process, which has the support of lawyers representing the majority of claimants. We remain focused on all claimants having the opportunity to vote and decide for themselves on a -- our plan to compensate them in a timely and efficient manner. Looking ahead with respect to the bankruptcy re-filing by LTL, the bankruptcy judge is expected to rule by August 2nd the motion to dismiss hearing that took place in the last week of June. In addition, a hearing on the motion for LTL's proposed, reorganization plan and voting procedures process, and the path forward is scheduled for August 22nd. As we previously stated, Johnson & Johnson stands by its physician that is talcum powder products are safe as confirmed through decades of numerous independent scientific tests and studies. I would now like to hand the call back over to Jess.

Operator:

[Operator Instructions] Our first question is coming from Larry Biegelsen from Wells Fargo. Your line is now live.

Erik Haas:

Larry, hi it's Erik. Thanks for the question. If Judge Kaplan dismisses the bankruptcy, we will be back in the tort system, and in that scenario we intend to fight the claims aggressively. And indeed, based upon the indicated decades of scientific support for the safety of our talc products, the fact that our talc products do not contain asbestos and the fact that our talc products do not cause cancer, we feel very confident in our ability to continue to prevail in the vast majority of claims as we have done in the past in the tort system.

Joe Wolk:

Yes, Larry, maybe I might just add to Joaquin's comments. The only thing that is limiting the growth, I would say, in the back half of the year is China volume-based pricing, as well as some international sanctions in Russia, but those are already incorporated into our outlook for the balance of 2023. So we feel we have those well in hand. If there's a little bit of abatement on either of those fronts, it portends well for the future.

Vamil Divan:

Great. Thank you so much for taking my questions. So maybe just one on the guidance commentary. So appreciate what you said around the Kenvue and Cellular Biomedicine dynamics. But I'm curious about STELARA, because you have the two settlements now. I don't think there's any chance for having a biosimilar enter this year. And I think before, you had expected that. So I'm curious what your expectations are now in terms of biosimilar entry before Amgen? And how does that impact sort of your guidance expectation for this year, and if you want to comment on sort of next year or sort of how it might impact 2025 with the $57 billion there? And then one also, other one if I could just on MARIPOSA, we've been getting a lot of questions just sort of what's changed there? I know before, the study is supposed to end next year. We obviously heard about the interim on your last earnings call. But then in the last few weeks, it sounds like there's a chance we'll get the data sooner this year than you may be able to present it. So kind of what's changed from April to now to give you a sense that the data may come a little bit earlier and give you a chance to present it this year? Thank you.

Erik Haas:

Yes. Thanks, Joe. From a litigation perspective, I could say that no other biosimilar is better positioned in our view than Amgen or Alvotech would be. So we would not anticipate any other biosimilar having the opportunity or ability to enter the market before those two.

Operator:

Thank you. Next question today is coming from Joanne Wuensch from Citibank. Your line is now live.

Joaquin Duato:

So as I commented in the earlier question, we are pleased with the strength of our MedTech business in the first-half of the year with 8% growth. We -- this is driven by market growth, which we believe it's also slightly elevated this year due to the clearing of the COVID-19 backlog. And at the same time, as I commented to our improved commercial execution and the introduction of new products. Of note, of our $12 billion platforms in MedTech, all of them have grown during the first-half of the year. And we are being quite successful in introducing some important new products in all segments of our business. For example, if I start with electrophysiology, that grew north of 25% in the quarter. We have introduced a new mapping catheter OCTARAY and also a new treatment catheter QDOT, which, as you know, Joanne, we presented results about QDOT. So we increased efficacy and procedure efficiency, too. If we move into Vision, we are in the middle of the launch of ACUVUE OASYS MAX, which is doing well and also the launch of our TECNIS Eyhance, the first mono-focal intraocular lens, which is progressing also very well. Moving into Orthopaedics. The good news is that we have received CE Mark and CA Mark for our Robotic-Assisted System VELYS. And we continue to have an enhanced portfolio of knees and hips with our Cementless knees, the Medial Stabilized and in the area of hips with hip navigation and the recent addition of CUPTIMIZE and we see our market position there also progressing. And moving forward, we will continue to see good evolution also in Orthopaedics. Finally, in Surgery, we continue to enhance our endocutter and our energy portfolio with the launch of ENSEAL jaw curved and also with the launch of ECHELON 3000 in the stapler side. So overall, good reception of our new products. That portend well for a continuation of growth, as I said before, in the second half of the year. And we look forward also to the different readouts of our PFA pipeline, which as we have announced, we have completed the enrollment of our dual energy catheter, which is going to be offering the physicians the comfort of a catheter that is the most well used with the option of having both radio frequency and PFA to adapt to every patient anatomy. And then on the robotic side, we will provide you more updates on our progress on OTTAVA, our soft tissue robotics system, before the end of the year as we committed. And we have also good news on our Monarch system that has already started with the first patient treated in removal of kidney stone. So overall, good progress during the year. Clearly, our MedTech business is doing well, delivering competitive growth. And we have good news in innovation as the year moves forward.

Operator:

Thank you. Next question is coming from Chris Schott from JPMorgan. Your line is now live.

Joaquin Duato:

Thank you, Chris. And let me start with your first question. We have always been confident on the fact that we will reach our $57 billion target by 2025 as we announced back in 2021. And certainly, what we are seeing now increases and reinforces and enhances our confidence. On one hand, you're seeing the progression of our pharmaceutical portfolio and our existing products with excellent results in DARZALEX, TREMFYA and ERLEADA, also in our pulmonary hypertension franchise and in our long-acting injectable antipsychotic franchise, which are key products in this period. We are very pleased with the trajectory of our new product launches, including CARVYKTI, TECVAYLI and SPRAVATO. If I focus on CARVYKTI, you see a clear improvement quarter-over-quarter in CARVYKTI, which reflects improvements in supply. In TECVAYLI, you see also a clear improvement of note. When we look at the TECVAYLI launch, align data with DARZALEX in the addressable patient population. TECVAYLI it’s having a faster introduction. And finally, SPRAVATO, which is doing well. And now we see SPRAVATO as a $1 billion plus product, and you're seeing the results this quarter also reaching close to $170 million. If we look at our pipeline and the products of the pipeline that are going to impacting this period, we are expecting the PDUFA date of talquetamab, our GPRC5D CD3 bispecific antibody, which is going to give another option in the treatment of multiple myeloma. And we continue to progress and execute well in some of the key products in our pipeline. I commented on RYBREVANT and the combination of Lazertinib, as you know. We received fast track destination for the three key indications of milvexian, our Factor XI oral anticoagulant that we are working in collaboration with Bristol-Myers Squibb. We presented very positive data about TAR-200 in non-muscle invasive bladder cancer in meeting in the American Urological Association. And we also -- when it comes to CARVYKTI, we were very pleased to show the data on CARTITUDE-4. We are filing the BLA now, both in Europe and in the U.S. And we are expecting to show you some data on nipocalimab in rheumatoid arthritis. We also have already presented in hemolytic disease of the features of the new wall. So in every angle of the products that we highlighted as the core products of our pipeline, we are executing well. Plus we recently presented in the World Congress of Dermatology our data in our oral IL-23 receptor antagonist peptide, which show great efficacy in psoriasis. And we have announced plans to continue developing into psoriasis and also a Phase 2 study in ulcerative colitis. So overall, when I look at the picture for 2025, we have increased confidence based on our portfolio, in our new product launches and how we are executing on our pipeline. But now I would like to look even beyond ‘25 if you allow me, Chris, because 2025 is very close. It's only three years from now. So what I think is what you are seeing with this renewal of our portfolio is a very strong position for Johnson & Johnson in Pharmaceuticals beyond 2025. And that's something that we need to highlight, and I think it's important for everybody to recognize. This is going to put us in a great position beyond 2025.

Operator:

Thank you. Our next question is coming from Trung Huynh from Credit Suisse. Your line is now live.

Joaquin Duato:

So let me start with the MARIPOSA. No, I mean, we are -- as we communicated, we are moving into a final analysis by the end of the year, potentially presenting the data at the end of the year.

Operator:

Thank you. Next question is coming from Terence Flynn from Morgan Stanley. Your line is now live.

Joaquin Duato:

Yes. So thank you for the question. And the answer is nothing prevents us from doing that. As a matter of fact, our aspiration in myeloma is that with the portfolio that we have today with DARZALEX, TECVAYLI, talquetamab and CARVYKTI, we would be in a position to have three out of every four patients starting in Janssen containing regimen by the end of this decade. So that's our aspiration in myeloma. Our aspiration is that there is a Janssen regimen for every line of therapy and a Janssen treatment for every patient irrespective of their characteristics. And that's the way we are planning our development. Certainly, DARZALEX being a backbone of therapy, first line and also in combination with multiple agents and then sequencing into CARVYKTI and talquetamab and TECVAYLI, which we are studying in combination with DARZALEX and also in combination among each other and sequencing among them. So ultimately, our goal when it comes to multiple myeloma is to be able to sequence our medicines, combine them in a way that we are changing the treatment paradigm from treating to progression to treating to cure. And that is a big, big, big plus in our portfolio. And as I have commented often, multiple myeloma is the core of our Pharmaceutical franchise and the number one growth driver that is going to be for 2025 and beyond. There's more factors that give us optimism about the business potential of this area is that as we combine and as we seek those treatments, the treatment duration itself is going to be significantly increased. So we overall foresee great patient and growth opportunity as we look to combine all these modalities, as I said, in order to be able to convert multiple myeloma into a chronic disease.

Operator:

Thank you. Next question today is coming from Danielle Antalffy from UBS. Your line is now live.

Joe Wolk:

Yes. Good to speak with you Danielle. And I know you directed the question to me, and I'll answer with one word. I would say our appetite is pretty voracious at this point. But I'll leave it to Joaquin with respect to the size of the deals. I don't think it -- unequivocally doesn't change, whether it's big or small, it has to be a really good strategic fit utilizing the expertise and capabilities that we have and has to provide financial value. Joaquin, maybe you want to comment on any specific areas that [Indiscernible]?

Jessica Moore:

Thanks. We have time for one more question.

Louise Chen:

Hi, congratulations on the quarter. And thank you for taking my questions here. So I wanted to ask you where your latest thoughts on IRA are and the potential impact to the drug industry and also to J&J? And second question was just on CARVYKTI. Just curious how you expect to enter into earlier lines of treatment and then more widely into the community? Thank you.

Jessica Moore:

Thank you, Louise, and thanks to everyone for your questions and your continued interest in our company. We apologize to those we couldn't get to because of time, but don't hesitate to reach out to the Investor Relations team with any questions you may have. I will now turn the call back over to Joaquin for some brief closing remarks.

Operator:

Thank you. This concludes today's Johnson & Johnson second quarter 2023 earnings conference call. You may now disconnect.

Jessica Moore:

Good morning. This is Jessica Moore, Vice President of Investor Relations for Johnson & Johnson. Welcome to our company's review of the 2023 first quarter business results and full year financial outlook. Joining me on today's call are Joe Wolk, Executive Vice President, Chief Financial Officer; and Ashley McEvoy, Executive Vice President, Worldwide Chairman of MedTech. Unfortunately, Jennifer Taubert, Executive Vice President, Worldwide Chairman of Pharmaceuticals is not feeling well and is unable to join us today. A few logistics before we get into the details. As a reminder, you can find additional materials, including today's presentation and associated schedules on the Investor Relations section of the Johnson & Johnson website at investor.jnj.com. Please note that today's meeting contains forward-looking statements regarding, among other things, the company's future operating and financial performance, product development, market position and business strategy and the anticipated separation of the company's Consumer Health business. You are cautioned not to rely on these forward-looking statements, which are based on current expectations of future events using the information available as of today's date and are subject to certain risks and uncertainties that may cause the company's actual results to differ materially from those projected. A description of these risks, uncertainties and other factors can be found in our SEC filings, including our 2022 Form 10-K, which is available at investor.jnj.com and on the SEC's website. Additionally, 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. Moving to today's agenda, I will review the first quarter sales and P&L results for the corporation and highlights related to the three segments. Joe will then provide additional business and financial commentary before sharing an overview of our cash position, capital allocation priorities and updated guidance for 2023. The remaining time will be available for your questions. We anticipate the webcast will last approximately 60 minutes. Now let's turn to our first quarter results. Worldwide sales were $24.7 billion for the first quarter of 2023, an increase of 5.6% versus the first quarter of 2022. Operational sales, which excludes the effect of translational currency, increased 9% as currency had a negative impact of 3.4 points. In the U.S., sales increased 9.7%. In regions outside the U.S., our reported sales increased 1.8%. Operational sales outside the U.S. increased 8.3% with currency negatively impacting our reported OUS results by 6.5 points. Excluding the net impact of acquisitions and divestitures, adjusted operational sales growth was 7.6% worldwide, 7.4% in the U.S. and 7.9% outside the U.S. with all three segments growing sequentially over the fourth quarter. Turning now to earnings. For the quarter, net loss was $68 million and basic loss per share was $0.03 versus diluted earnings per share of $1.93 one-year ago primarily driven by the $6.9 billion charge related to the Talc Settlement proposal. Excluding after-tax intangible asset amortization expense and special items for both periods, adjusted net earnings for the quarter were $7.1 billion, and adjusted diluted earnings per share was $2.68, representing a decrease of 0.9% and an increase of 0.4%, respectively, compared to the first quarter of 2022. On an operational basis, adjusted diluted earnings per share increased 3%. I will now comment on business segment sales performance highlights for the quarter. Unless otherwise stated, percentages quoted represent the operational sales change in comparison to the first quarter of 2022 and therefore, exclude the impact currency translation. Beginning with Consumer Health. Worldwide Consumer Health sales of $3.9 billion increased 7.4% with an increase of 11.4% in the U.S. and an increase of 4.4% outside the U.S. Worldwide operational sales increased 11.3% and outside the U.S., operational sales increased 11.3%. Results were primarily driven by global strategic price increases across all franchises. Volume growth in OTC was due to an exceptionally strong cough, cold and flu season most pronounced in Europe, coupled with one-time retailer restocking primarily in the U.S. related to low inventory levels due to tripledemic demand. Skin Health/Beauty delivered double-digit growth driven by price actions, lapping prior year supply constraints and current quarter restocking as well as strong NEUTROGENA and AVEENO e-commerce and club channel performance and new product innovations. Moving on to our Pharmaceutical segment. Worldwide Pharmaceutical sales of $13.4 billion increased 4.2% with growth of 5.9% in the U.S. and 2.4% outside of the U.S. Worldwide operational sales increased 7.2% and outside the U.S., operational sales increased 8.6%. Excluding the COVID-19 vaccine sales, worldwide operational sales increased 4.9%, U.S. operational sales increased 7.1%, and outside the U.S., operational sales increased 2.4%. Pharmaceutical growth excluding the COVID-19 vaccine was driven by our key brands and continued uptake in our recently launched products with eight assets delivering double-digit growth. We continue to drive strong sales growth for both DARZALEX and ERLEADA with increases of 25.7% and 40.3%, respectively. STELARA grew 9.6% driven by market growth and share gains in Crohn's disease and ulcerative colitis, with gains of 2.2 points and 4.8 points in the U.S., respectively, partially offset by unfavorable patient mix and price. TREMFYA grew 11% driven by market growth and share gains in psoriasis and psoriatic arthritis, with gains of 0.9 points and 2.1 points in the U.S., respectively, partially offset by unfavorable patient mix. Turning to newly launched products. We are excited to disclose CARVYKTI and SPRAVATO sales for the first-time this quarter. We continue to make progress on our thoughtful and phased launch of CARVYKTI and continue to expand access and reimbursement for SPRAVATO. Also, we are encouraged by the early success of our launch of TECVAYLI, sales of which are included in other oncology. This sales growth was partially offset by the loss of exclusivity in REMICADE and ZYTIGA, along with a decrease in IMBRUVICA sales due to competitive pressures. IMBRUVICA maintains its market leadership position worldwide. I'll now turn your attention to the MedTech segment. Worldwide MedTech sales of $7.5 billion increased by 7.3% with growth of 16.6% in the U.S. and a decline of 0.6% outside of the U.S. Worldwide operational sales increased 11% and outside the U.S., operational sales increased 6.2%. Abiomed contributed 4.6% to operational growth. Excluding the impact of acquisition and divestitures, worldwide adjusted operational sales growth was 6.4%. Sales in the first quarter accelerated sequentially from Q4 for all four MedTech businesses, driven by global procedure growth, continued uptake of recently launched products, and commercial execution. As anticipated, in China, procedure volumes improved as the quarter progressed. Partially offsetting growth in the quarter was the impact of volume-based procurement in China as well as supply constraints. The Interventional Solutions franchise delivered operational growth of 41.9%, which includes $324 million related to Abiomed. We are excited about the progress of the integration to which Joe will provide additional context. Excluding the impact of the acquisition, this franchise delivered another quarter of double-digit worldwide growth at 12.3%. As we continue to increase our reporting transparency, beginning this quarter, we are providing visibility to electrophysiology sales. Electrophysiology continued to deliver double-digit sales growth in all regions with the exception of Asia-Pacific, which reflects impacts related to volume-based procurement in China. Orthopaedics operational growth of 5.1% reflects the strong procedure recovery and success of recently launched products especially digital and enabling technologies driving pull-through sales in areas like hips and knees. Growth was partially offset by the impact of volume based procurement in China, primarily in hips and spine. Global growth of 9.3% in contact lens and other reflects continued penetration of our ACUVUE OASYS 1-Day family of products, including the recent launch of ACUVUE OASYS MAX 1-Day, strong commercial execution and strategic price actions. Growth in contact lens and U.S. surgical vision was tempered by continued supply challenges. Now turning to our consolidated statement of earnings for the first quarter of 2023. I'd like to highlight a few noteworthy items that have changed compared to the same quarter of last year. Cost of products sold deleveraged by 150 basis points driven by one-time COVID-19 vaccine manufacturing exit related costs in the Pharmaceutical business and commodity inflation and acquisition-related items in the MedTech business. Selling, marketing and administrative margins leveraged by 60 basis points driven by proactive management of costs given the current inflationary environment. We continue to invest strategically in research and development at competitive levels, investing 14.4% of sales this quarter. The $3.6 billion invested was a 2.9% increase versus the prior year. The other income and expense line was an expense of $7.2 billion in the first quarter of 2023 compared to net income of $100 million in the first quarter of 2022. The increase in expense was the result of the $6.9 billion charge related to the Talc Settlement proposal recorded in the first quarter of 2023 as previously disclosed. Regarding taxes in the quarter, our effective tax rate was 90.8% versus 12.2% in the same period last year, primarily driven by the $6.9 billion accrual for the Talc Settlement proposal. Excluding special items, the effective tax rate was 16.5% versus 13.3% in the same period last year. I encourage you to review our upcoming first quarter 10-Q filing for additional details on specific tax matters. Lastly, I'll direct your attention to the box section of the slide, where we have also provided our income before tax, net earnings and earnings per share adjusted to exclude the impact of intangible amortization expense and special items. Now let's look at the adjusted income before tax by segment. In the first quarter of 2023, our adjusted income before tax for the enterprise as a percentage of sales decreased from 35.1% to 34.2%. Pharmaceutical margins declined from 44.1% to 43.2% driven primarily by mix, partially offset by proactive management of costs. MedTech margins remained flat at 27% driven primarily by inflationary impacts, offset by proactive management of costs. Finally, Consumer Health margins improved from 22.1% to 22.3% driven primarily by strategic price actions, partially offset by input cost inflation. This concludes the sales and earnings portion of the Johnson & Johnson first quarter 2023 results. I am now pleased to turn the call over to Joe Wolk. Joe?

Operator:

[Operator Instructions] Our first question is coming from Chris Schott from JPMorgan. Your line is now live.

Joe Wolk:

Hey. Thanks, Chris. I appreciate the questions. So first, with respect the $57 billion. I wanted to make sure that I was clear on the record since I had the opportunity to do that about a month ago that everybody understood the message around the math component of it. We feel very good about our pipeline. We continue to work towards some really good data that came out this quarter around multiple myeloma, MARIPOSA, which we'll talk about in a minute. We continue to see some uptake of some of our newer products and the goal is still that for us. But you'll have a much better and much more informed and probably timely update once we hit the December 5 meeting at the New York Stock Exchange, so stay posted on that. What I do feel comfortable though is that we're moving certainly in the right direction. I wanted to take out the unclarity that maybe was created by currency and the dramatic movements that occurred over the last 18 months. So for MARIPOSA, I would say the study of RYBREVANT and Lazertinib in frontline non-small cell lung cancer versus TAGRISSO remains very much on track. It's an event-driven trial. So there's the potential for final analysis later this year, which is actually two quarters ahead than what we had originally expected, was originally expected to be second quarter of 2024. The accrual to the study we can say is very rapid as there was tremendous interest. And the interim analysis was specified in the protocol with a significantly limited follow-up and supported the continuation of the study. We were blinded to that interim analysis. And as far as what we need to show, I think we’re just going to let the science dictate, let the trial results come out. But we feel pretty comfortable where we’re at now and pleased with how quickly the trial enrolled.

Matt Miksic:

Great. Thanks so much. I have, if I could, just one question on knees and a quick follow-up, kind of a general strategy question on STELARA and pharma if I could. So on knees in the U.S., obviously, very strong growth. And just wondering if you could, and I think expectations have been strong throughout Q1. I just was wondering if you could maybe give a little bit of color as to what's driving that strength? How much of that is maybe the robot? How much of that is on other product launches and then one quick follow-up on pharma, if I may.

Matt Miksic:

Well, that was a fantastic overview. Thanks for that and congrats on all the innovation and the significant change in momentum across all those businesses. Just a quick question, I guess, I had on pharma was -- I mean, it's a big question, and I think it's on a lot of investors' minds is if we turn into the end of the year and you think about STELARA, and you think about sort of the actions that you expect to take whether organic, the pipeline that you have and as it comes through, and some of these new products launch and get bigger. And then strategic, if you could maybe give a sense of what are your goals over the next 12 months, 18 months as you sort of whether that LOE and what sort of mix of action should we expect you to take to kind of manage through that? Thanks.

Operator:

Thank you. Next question today is coming from Terence Flynn from Morgan Stanley. Your line is now live.

Joe Wolk:

Great. Thanks for the question, Terence. Let me start with the second one first with respect to the Oral IL-23, where our partners at Protagonist announced some, for very encouraging data out of the Phase 2 FRONTIER 1 study. So we do plan to present data from various pre-clinical and clinical studies on this compound at medical conferences beginning in the second quarter of this year. We believe this could be very much an important and underappreciated asset within our immunology portfolio. With respect to the litigation, we thought that this could come up as a question. So we're very pleased to have Andrew White, our Assistant General Counsel, here with us today. But let me say a little maybe a couple of qualitative things from my seat, and then we can have Andrew either clean it up or give you some more specifics. But it is important to note that these cases and we stand by the safety of the product, there's decades of independent research conducted by reputable government agencies, patient advocacy groups as well as academic institutions that support the safety of cosmetic talc. Furthermore, it was only two years ago, [indiscernible] hearing where the judge really restricted the use of many of the claims, supposedly scientific claims that were being made by the plaintiff attorneys in this case and many pundits even classified it as junk (ph) signs at that point. Here, we have the support of 60,000 to 70,000 claimants that would vote for the proposal as it's currently presented. But curiously, we've got a small number of plaintiff's attorneys who don't even want to give their claimants, the right to vote. So we're simply asking that they get the right to vote. Now from my chair as CFO, it is unfortunate that we've got to put dollars towards, quite frankly, baseless scientific claims. However, litigation is inherently costly when it's protracted and it's also inherently uncertain. And when court (ph) proposal really aims to bring certainty in a very efficient manner for all really involved, something that would otherwise take probably decades to resolve. So let me turn it over to Andrew in terms of maybe any of the specifics that you can add.

A – Joe Wolk:

Thank you, Andrew.

Larry Biegelsen:

Good morning. Thanks for taking the question. Joe, two for you on the guidance. I heard you on CNBC this morning, and you said you turned from cautious in January to optimistic now about 2023. So I was curious about two things. One, on the guidance you previously expected second half to be better than the first half in MedTech and Pharma because of the growth drivers you outlined on the Q4 call, so what changed there? Why do you expect growth to be more stable through the year? And second, Joe, on the margins. Q1 was up about 60 basis points year-over-year in Q1 on the operating margin, but you expect -- and you expect gross margins to improve through 2023 as inflation wanes. So why would the operating margin be flat for the full year? Thanks for taking the questions.

Ashley McEvoy:

Yeah. No, Larry, what I would share is, I would say that procedures are trending well above all pre-COVID levels. It was up until December with the exception of China. China in December, January and February were well below pre-COVID levels. In January trending like, down (ph) 50%. So I am encouraged to see in March that, they are back up. They are back up a little bit ahead of pre-COVID levels. And so that's why we're kind of rebalancing the year. I think that we're going to have more stability throughout the balance to go year versus earlier thinking that we would be having a stronger second half versus first half.

Operator:

Thank you. Next question today is coming from Louise Chen from Cantor Fitzgerald. Your line is now live.

Joe Wolk:

Yeah. Thanks for the question, Louise. So I think we're always looking at combinations. The one that's most prolific at this point now is certainly one for non-small cell lung cancer, which really impacts about 20% of lung cancer that's diagnosed today with a certain mutation. We're very much looking forward to the data that may read-out later this year with respect to that. In terms of new areas, I know that the teams are looking very much. I would say some of the new areas that we're coming into now would be some of the bispecific antibodies with respect to multiple myeloma rounding out that portfolio. We know how I want to say almost personalized that disease is and having multiple options for treatments and maybe even someday potentially cures certainly lends itself with the multiple options that we have. We're going to be focused on multiple myeloma, obviously, prostate cancer, lung cancer. We're very excited about some of the data that could read out on what I'll call the MedTech, Pharma combo of -- for bladder cancer and with the TARIS device with the drug eluting BALVERSA. So there's multiple plays within oncology, which is now our biggest franchise with immunology in terms of sales contribution to the pharmaceutical success.

Operator:

Thank you. Next question is coming from Josh Jennings from TD Cowen. Your line is now live.

Ashley McEvoy:

Yeah. Thank you, Josh. Listen, it's a really important space. And we always say at J&J, we're always trying to intercept disease before it advances. And this is one example of managing atrial fibrillation, which is the leading cause of cardiac arrhythmia (ph) and unmanaged, that could lead to a stroke. So what gives us confidence that we can lead and compete and have a source of differentiation, I would say kind of the following. I'd say, one, we have a 20-year track record of being a world leader in cardiac ablation. We have 5,000 plus installed base. We do see the promise of PSA. We are actively engaged in four clinical trials. Two of those trials have completed enrollment. The European and INSPIRE as well as the U.S. We've shared data in February in the international AFib symposium that we met the primary endpoint. And I would tell you, our approach is really what's differentiated, Josh. So we're kind of leveraging a deep expertise and the insights into the various ablation strategies. So we have a portfolio of PFA catheters, which are fully integrated into the [indiscernible] system and it's powered by kind of our true pulse generator. So we really underscore the importance of how important mapping is and vision to know where operators are and what they're doing in the heart anatomy. And kind of the bottom line for us is, we actually think access to radio frequency, which has like 20-plus years of safety and efficacy coupled with the newer generation of PFA is really going to be the winning combo for electrophysiologists. It's really why we are in clinic right now with the dual energy solution because we think it could offer the relative safety of the PFA and really the proven durability of radio frequency. So we're not issuing specific timelines, but you can know that we've completed enrollment in two of those four clinical trials.

Geoff Meacham:

Good morning, everyone. Thanks for the question. I have two related ones in Pharma. So on IMBRUVICA, how do you guys view the impact from the indication withdrawal and is there a risk of other non-CLL indications like follicular being pulled? And then related to your hematology business, do you guys have a status update on CARVYKTI supply after or was this quarter a really good quarter? Thank you.

Jessica Moore:

Thank you, Geoff. Kevin, we have time for one last question.

Danielle Antalffy:

Hey. Good morning, everyone. Thanks so much for taking the question and it's good to be back talking to you all. Ashley, just a quick question for you on the Orthopaedics number. A very good quarter. I was just wondering, I know this is really hard to parse out, but what is -- from your sense, what does backlog work down versus real underlying growth and/or more specific to J&J share gain? Anything you can say on how to think about what's happening in the Orthopaedics market right now in the U.S.? Thanks so much.

Jessica Moore:

Thank you, Danielle, and thanks to everyone for your questions and your continued interest in our company. We apologize to those that we couldn't get to because of time, but don't hesitate to reach out to the Investor Relations team with any remaining questions that you may have. Enjoy the rest of your day.

Jessica Moore:

Good morning. This is Jessica Moore, Vice President of Investor Relations for Johnson & Johnson. Welcome to our company’s review of business results for the fourth quarter and full year of 2022 and our financial outlook for 2023. Joining me on today’s call are Joaquin Duato, Chairman of the Board and Chief Executive Officer; and Joe Wolk, Executive Vice President, Chief Financial Officer. A few logistics before we get into the details. As a reminder, you can find additional materials, including today’s presentation and associated schedules on the Investor Relations section of the Johnson & Johnson website at investor.jnj.com. Please note that today’s meeting may include forward-looking statements related to, among other things, the Company’s future financial performance, product development, market position, and business strategy and the anticipated separation of the Company’s Consumer Health business. You’re cautioned not to rely on these statements, which are based on current expectations of future events, using the information available as of today’s date, and are subject to certain risks and uncertainties that may cause the Company’s actual results to differ materially from those projected. In particular, there is significant uncertainty about the duration and contemplated impact of the COVID-19 pandemic. A further description of these risks, uncertainties, and other factors can be found in our SEC filings, including our 2021 Form 10-K, which is available at investor.jnj.com and on the SEC’s website. Additionally, 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. Moving to today's agenda, Joaquin will open with a few comments highlighting his first year as CEO and his priorities for 2023. I will then review the fourth quarter sales and P&L results for the corporation and highlights related to the three segments as well as full year 2022 results for the enterprise. Joe will then close with additional business commentary before sharing an overview of our cash position, our capital allocation priorities and our guidance for 2023. The remaining time will be available for your questions. We anticipate the webcast will last approximately 75 minutes. I’m now pleased to turn the call over to Joaquin.

Jessica Moore:

Thanks, Joaquin. Starting with Q4 2022 sales results. Worldwide sales were $23.7 billion for the fourth quarter of 2022, a decrease of 4.4% versus the fourth quarter of 2021. Operational sales growth, which excludes the effect of translational currency, increased 0.9% as currency had a negative impact of 5.3 points. In the U.S., sales increased 2.9%. In regions outside the U.S., our reported sales declined 11.5%. Operational sales outside the U.S. declined 1.1%, with currency negatively impacting our reported OUS results by 10.4 points. Excluding sales from the COVID-19 vaccine, operational sales growth was 4.6% worldwide, 4.7% in the U.S. and 4.4% outside the U.S. As you will find in our supplemental sales schedule, acquisitions and divestitures had an immaterial impact on our results in the quarter. Turning now to earnings. For the quarter, net earnings were $3.5 billion and diluted earnings per share was $1.33 versus diluted earnings per share of $1.77 one year ago. Excluding after-tax intangible asset amortization expense and special items for both periods, adjusted net earnings for the quarter were $6.2 billion, and adjusted diluted earnings per share was $2.35, representing increases of 9.5% and 10.3%, respectively, compared to the fourth quarter of 2021. On an operational basis, adjusted diluted earnings per share increased 15.5%. For the full year 2022, consolidated sales were $94.9 billion, an increase of 1.3% compared to the full year of 2021. Operationally, full year sales grew 6.1%, with currency having a negative impact of 4.8 points. Sales growth in the U.S. was 3%. In regions outside the U.S., our reported year-over-year sales declined 0.6%. Operational sales growth outside the U.S. grew by 9.1%, with currency negatively impacting our reported OUS results by 9.7 points. As you will find in our supplemental sales schedules, acquisition and divestitures as well as sales from our COVID-19 vaccine had an immaterial impact on our results for the full year. Net earnings for the full year 2022 were $17.9 billion and diluted earnings per share was $6.73 versus diluted earnings per share of $7.81 a year ago. 2022 adjusted net earnings were $27 billion and adjusted diluted earnings per share was $10.15, representing increases of 3.2% and 3.6%, respectively, versus full year 2021. On an operational basis, adjusted diluted earnings per share increased by 9.2%. While not part of our prepared remarks for today’s call, we have provided additional information and backup for our full year 2022 sales by segment, consolidated statement of earnings and adjusted income before tax by segment, which can be downloaded from our website. I will now comment on business segment sales performance highlights for the quarter. Unless otherwise stated, percentages quoted represent the operational sales change in comparison to the fourth quarter of 2021 and therefore, exclude the impact of currency translation. Beginning with Consumer Health. Worldwide Consumer Health sales of $3.8 billion increased 1%, with an increase of 10.9% in the U.S. and a decline of 5.8% outside the U.S. Excluding translational currency, worldwide operational sales growth increased 6.4% and outside the U.S., operational sales growth increased 3.2%. Results were primarily driven by strategic price increases, growth in OTC due to a strong cough, cold and flu season, and growth in NEUTROGENA as well as strong new product introductions in Asia Pacific and Latin America. NEUTROGENA growth contributed to the second consecutive quarter of 5% operational growth for Skin Health/Beauty. Growth across the portfolio was partially offset by continued, although reduced supply constraints in the U.S. COVID-19 impacts in China, portfolio simplification and the suspension of personal care product sales in Russia. Moving on to our Pharmaceutical segment. Worldwide Pharmaceutical sales of $13.2 billion decreased 7.4% with declines of 0.6% in the U.S. and 14.9% outside of the U.S. Excluding translational currency, worldwide operational sales declined 2.5%, and outside the U.S., operational sales declined 4.5%. Excluding the COVID-19 vaccine sales, worldwide operational sales growth increased 3.9%, U.S. operational sales growth increased 2.4%, and outside the U.S., operational sales growth increased 6%. Pharmaceutical growth, excluding the COVID-19 vaccine, was driven by our key brands and continued uptake in our recently launched products, enabling us to continue to deliver above-market adjusted operational sales growth for the 11th consecutive year, including 7 assets with double-digit growth. Growth was driven by DARZALEX, ERLEADA, STELARA and TREMFYA, and was partially offset by REMICADE and ZYTIGA, due to loss of exclusivity along with a decrease in IMBRUVICA sales. Within our oncology business, DARZALEX and ERLEADA continued to drive strong sales growth, with increases of 33.9% and 48.6%, respectively. ZYTIGA sales declined 43.6% worldwide, predominantly due to loss of exclusivity in Europe in September. IMBRUVICA sales declined 12.3% worldwide due to competitive pressures and a suppressed CLL market due to COVID-19. Despite competitive pressures, IMBRUVICA maintains its market leadership position worldwide. In our immunology business, STELARA grew 6.2%, driven by market growth and share gains in Crohn’s disease and ulcerative colitis, with gains of 4 points and 5.4 points in the U.S., respectively, as well as a favorable prior period adjustment impacting worldwide results by approximately 460 basis points. Results in the quarter were partially offset by unfavorable patient mix and rebating in the U.S. as well as austerity measures in Europe and shipment timing in Asia Pacific. TREMFYA grew 12.5%, driven by share gains in psoriasis and psoriatic arthritis, with gains of 1.4 points and 2.9 points in the U.S., respectively, along with market growth. Q4 growth was partially offset by a net unfavorable prior period adjustment impacting worldwide results by approximately 1,150 basis points, unfavorable patient mix and a challenging prior year comparison. Beginning in Q1 2023, we anticipate that CARVYKTI, currently reported in other oncology, and SPRAVATO, currently reported in other neuroscience, will meet the threshold to be separately disclosed. I’ll now turn your attention to the MedTech segment. Worldwide MedTech sales of $6.8 billion decreased by 1.2%, with growth of 7.1% in the U.S. and a decline of 8.6% outside of the U.S. Excluding translational currency, worldwide operational sales growth increased 4.9%, and outside the U.S. operational sales growth increased 2.9%. Excluding the impact of acquisition and divestitures, worldwide adjusted operational sales growth was 4.4%. Q4 growth was driven by commercial execution, strong new product introduction performance as well as COVID-19 procedure recovery in many parts of the world. Partially offsetting growth in the quarter was the impact of value-based procurement, COVID resurgence in China as well as supply constraints predominantly in vision. Strong growth continued in the U.S., with dollar sales sequentially improving each quarter throughout 2022. OUS performance was adversely impacted by dynamics related to COVID-19, especially given our strong position in China. The Interventional Solutions franchise delivered another quarter of worldwide double-digit growth at 15.1%, driven primarily by strong new product introductions performance, commercial execution and continued market growth in electrophysiology. Abiomed sales are also reported in Interventional Solutions, and financial results were reflected as of December 22, the date the acquisition closed. Contact lens global growth of 7.7% reflects strong performance of our ACUVUE OASYS 1-Day family of products, including the recent launch of ACUVUE OASYS MAX 1-Day, strong commercial execution and market appropriate price actions. Growth was tempered by continued supply challenges. In the orthopedics franchise, digital and enabling technologies reported in spine, sports and other continued to accelerate and drive pull-through sales in areas like hips and knees. For additional context, selling days had approximately a 60 basis points positive impact on results in the quarter. Now turning to our consolidated statement of earnings for the fourth quarter of 2022. I’d like to highlight a few noteworthy items that have changed compared to the same quarter of last year. Cost of products sold deleveraged by 70 basis points, primarily driven by onetime COVID-19 vaccine manufacturing-related costs, unfavorable currency impact in the Pharmaceutical business, inflationary pressures as well as unfavorable mix with the enterprise, with a lower portion of sales coming from the Pharmaceutical business. Selling, marketing and administrative margins leveraged by 150 basis points. This represents a 9% reduction versus the prior year, driven by phasing with higher spend earlier in the year as well as proactive management of costs given the current inflationary environment. We continued to invest strategically in research and development at competitive levels, investing 16.2% of sales this quarter. The $3.8 billion invested was an 18.6% reduction versus the prior year, driven primarily by phasing with higher spend earlier in the year. Interest income was favorable to prior year by just over $100 million, driven by higher rates of interest earned on cash balances. The other income and expense line was an expense of $1.2 billion in the fourth quarter of 2022 compared to an expense of $9 million in the fourth quarter of 2021. This was primarily driven by onetime COVID-19 vaccine manufacturing-related exit costs, higher Consumer Health separation-related costs, higher costs related to the Abiomed acquisition and lower gains on securities. As we announced in Q2 2022, we continue to have commitments and obligations related to the COVID-19 vaccine, including external manufacturing network exit cost and required clinical trial expenses, associated with the Company’s modification of its COVID-19 vaccine research program and manufacturing capacity to levels that meet all remaining customer contractual requirements. Regarding taxes in the quarter, our effective tax rate was 16.2% versus 2.1% in the same period last year. The increase was primarily driven by more income in higher tax jurisdictions versus the prior year. Additionally, the Company benefited from onetime tax items in the fourth quarter of 2021 that did not repeat in the current year. Excluding special items, the effective tax rate was 16.2% versus 10.4% in the same period last year. I encourage you to review our upcoming 2022 10-K filing for additional details on specific tax matters. Lastly, I’ll direct your attention to the box section of the slide, where we have also provided our income before tax, net earnings and earnings per share adjusted to exclude the impact of intangible amortization expense and special items. Now, let’s look at adjusted income before tax by segment. In the fourth quarter of 2022, our adjusted income before tax for the enterprise as a percentage of sales increased from 25.6% to 31.3%. Pharmaceutical margins improved from 33.9% to 38.2%, primarily driven by SG&A and R&D phasing, with higher spend earlier in the year, partially offset by the negative impact of currency and cost of products sold. MedTech margins improved from 18.1% to 25.3%, primarily driven by SG&A and R&D phasing, with higher spend earlier in the year, favorable portfolio mix and supply chain efficiencies, partially offset by inflationary pressures. Finally, Consumer Health margins improved from 18.6% to 22%, driven by brand marketing phasing with higher spend earlier in the year and supply chain efficiencies, partially offset by inflationary pressures. This concludes the sales and earnings portion of the Johnson & Johnson fourth quarter and full year 2022 results. I’m now pleased to turn the call over to Joe Wolk. Joe?

Operator:

Certainly. [Operator Instructions] Our first question today is coming from Terence Flynn from Morgan Stanley. Your line is now live.

Joe Wolk:

Good morning, Terence. I’ll handle the first question, and then I’ll kick the question of CARTITUDE over to Joaquin. With respect to guidance, I would say, just given all the macroeconomic uncertainty, geopolitical uncertainty, we thought this was the right approach at this point in time to come out with guidance in the ranges that we did. I wouldn’t classify it as conservative per se. What I would say in terms of our outlook for the P&L, is that we’re assuming a lot of carryover, quite frankly, of the inflationary impact that we had in 2022. As you can imagine, the way the accounting would work, we built inventory at higher cost in 2022. That’s set on the balance sheet at year-end and will flow through mostly the first half of 2023. If there’s any element of conservatism, I would say, it probably resides in the fact that we’re not assuming any deflationary relief as we go throughout the year. So, we do think these costs will be at a higher level for some time. But as you saw with our fourth quarter results and really the outlook for 2023, we’re doing everything we can responsibly to prioritize our top investments for the long term as well as manage costs in the interim.

Operator:

Thank you. Next question today is coming from David Risinger from SVB Securities. Your line is now live.

Joaquin Duato:

Thank you for the question. And turning to what you mentioned, our 2025 targets. We continue to work towards accomplishing our previously stated goals of on one hand, delivering growth every single year in our Pharmaceutical group through 2025 despite of the loss of exclusivity of STELARA, at the same time, continue to advance our differentiated pipeline and achieving $60 billion in revenue by 2025. So, we continue to work towards these goals. As we have discussed multiple times, the growth by 2025 is going to be driven mainly through the strength of our currently marketed portfolio as well as new indications of this marketed portfolio. Some examples, continuous growth of DARZALEX in first line, TREMFYA, which is gaining share, both in psoriatic arthritis and in psoriasis, and we expect a readout of our IBD studies in ulcerative colitis and Crohn’s in 2023 will provide a significant additional leg of growth for TREMFYA; ERLEADA, which is now in different indications in metastatic and non-metastatic prostate cancer will have some readouts of studies in high-risk localized prostate cancer in 2023, providing an additional leg of growth; our INVEGA SUSTENNA franchise in the U.S. as well as our pulmonary arterial hypertension franchise with UPTRAVI and OPSUMIT has been affected by COVID-19, but that we expect that will continue to deliver growth. So, that is the mainstay of our growth prospects towards 2025. And I will go later about the disconnect. Then connected with that, we are also excited about our new product launches, specifically growth of SPRAVATO, growth in CARVYKTI that I just mentioned before and also TECVAYLI, which we got the approval very recently; and as I commented, the filing of Talquetamab, everything in multiple myeloma. At the same time, we continue to make significant progress in some of the key products in our pipeline. A sample of them we commented that were opportunities of more than $5 billion. Example of them, milvexian, our oral anticoagulant, the combination of RYBREVANT plus lazertinib in non-small cell lung cancer, our TARIS platform in bladder cancer. And finally, nipocalimab in autoantibody-mediated diseases. So, those are the key drivers of our growth moving into 2025. If I think about the main disconnect between our forecast and the Street forecast, it’s our multiple myeloma portfolio. As I commented earlier, we see our multiple myeloma portfolio helping treat into cure rather than cannibalizing each other. And as a matter of fact, some of the studies that we have now in place show that ambition of combining our therapies. I mentioned CARTITUDE-4, moving CARVYKTI into earlier lines of therapy; TECVAYLI and Talquetamab, our two bispecific antibodies are being studied in combination with one another, and TECVAYLI or Talquetamab are also being a study in combination with DARZALEX. So, I see that as the major source of disconnect with the Street. Then further to that, I continue to see disconnects in SPRAVATO, our treatment for treatment-resistant depression; significant disconnects also in ERLEADA because of the indications in high-risk patients with localized prostate cancer that will read in 2023. We see a disconnect, as I commented in our pulmonary arterial hypertension franchise with UPTRAVI and OPSUMIT, which have been impacted by the pandemic, but we see strong growth moving forward. And then, finally, in the expectations for Xarelto loss of exclusivity, which we see that in the back half of this decade. So, those are elements that I have reflected as disconnect. So, as I said, we continue to drive towards our 2025 goal of $60 billion and posting growth every year. I think it’s a reflection of the strength of our current portfolio and how well we are executing in our pipeline.

Larry Biegelsen:

Good morning. Thanks for taking the question. Just a two-part one for me. Joe, can you provide a little more color on the cadence of operational sales growth in Pharma and devices? How much lower do you expect the first half to be versus the second half? And what are you assuming for market growth in each of the segments in ‘23? And Joaquin, just to follow up to David’s question there on the $60 billion, it implies a 6% CAGR between 2022 and 2025. How should we think about the ramp to $60 billion? 6% do you expect it to be more back-end loaded? Thanks for taking the questions.

Joaquin Duato:

Thank you. And regarding to your question, Larry, as we have discussed and commented, we see above market growth in 2023 for our Pharmaceutical group, which would be the 12th consecutive year of our market growth. And we continue to see positive growth in 2024 despite the loss of exclusivity in STELARA. And then we would see again pick up our growth above market in 2025. That’s the sequence that we will see. Certainly, the actual growth rate will be impacted by the FX and we don’t anticipate and we don’t project FX. And when we were establishing our $60 billion goal, we were thinking about the FX at the moment. We don’t change the $60 billion because we don’t know what the FX would be by 2025. But for purposes of you understanding how we see that, we see above market growth in 2023; we see positive growth in 2024; and then, we see a pickup of growth, a significant one, in 2025 above market.

Chris Schott:

Great. Thanks so much. Just one question and one quick clarification. I guess, on operating margins, and this is a question maybe beyond ‘23. I’m just trying to think through the balance of, I guess, on one hand, some of the inflation headwinds potentially decreasing as you work through some of this inventory, I guess balanced against the STELARA LOE and some of the dissynergies from the spin. So, I guess, as something kind of bigger picture about operating margins, is 2023 a decent proxy going forward, or could we see either modest erosion in margins or expansion, or is it too early to call? I’m just trying to get just some sense of how that plays out. And then my second question, which is just maybe a clarification on some of the immunology comments you made regarding 4Q. I think you mentioned unfavorable mix and rebate dynamics as headwinds. Should we expect those dynamics to continue in ‘23? And I guess, are they getting worse, or is this more just a continuation of what you’ve seen in the last few years that rebates are just kind of like gradually going up for that franchise as a whole? Thanks so much.

Joaquin Duato:

Thank you. And Chris, regarding the dynamics in the immunology market, overall, what we see is that the patient mix is changing, putting more pressure in our overall net price by having a higher participation of some channels, we are lower priced. We see those situations continuing into 2023, but not getting worse. Simply the situation that we are now will continue into 2023, but will stabilize from where we are.

Matt Miksic:

Hi. Thanks so much for taking the question. So, I had just one on -- a follow-up on guidance. Joe, if you could talk a little bit about following up on some of the conservatism and maybe the bright spots, the China assumptions that you’ve made for procedure disruption and maybe VBP, if you could give us a sense of how long into ‘23, you expect that to go? And then what you assume for the STELARA LOE? And then, on this sort of conservative side on the bright spot, I think you just kind of covered, I guess, the ortho trends. I understand you aim at this mid-single-digit range for performance, but you had a very, very strong back half in the U.S. And I’m just wondering does that kind of strength in ortho and the spine, for example, which is kind of well above sort of historical ranges. Does that kind of continue into ‘23, or are we assuming that we went into in some comp challenges there, or how -- what sort of elements are contemplated in your guidance, that would be helpful?

Operator:

Thank you. Next question today is coming from Trung Huynh from Credit Suisse. Your line is now live.

Joaquin Duato:

Thank you for the question. And it’s difficult for us to comment on some of your topics there. There’s no approved biosimilars at this time, and we are going to continue to monitor the situation. As we have commented, we expect the erosion curve of STELARA to be likely steeper than that of REMICADE, given the evolution of the biosimilar market and the fact that STELARA is a self-administered product, as well as potentially to your point, potentially interchangeability in the label. So, that’s how we see the STELARA loss of exclusivity. In 2023, when we think about the STELARA in the U.S., we see the sales of STELARA flat to declining, obviously, given the price pressures. That will be offset also by continuous volume growth that we see in STELARA. So, that’s the perspective that we have for STELARA in 2023. Overall, we have a very strong immunology franchise. I commented on TREMFYA before, the continuous progression in psoriasis, psoriatic arthritis, the readout of our ulcerative colitis and Crohn’s disease studies, which is exciting. And also, in 2023, we may have some data from our Phase 2 study of our oral IL-23, which we think it’s a very exciting underappreciated opportunity in our pipeline, too.

Chris Shibutani:

Thank you very much. The multiple myeloma franchise, obviously, very central to your objective for 2025. Between the CAR-T sort of gradual launch that you have based upon supply and the bispecifics, can you talk about what that interplay has been since the approval and launch, and what you’re expecting through the year in 2023? Thank you.

Jessica Moore:

Sorry. Sorry, Kevin. We have time for one last question.

Louise Chen:

Hi. Thank you for taking my question here. So I wanted to ask you about the timing of data readouts first half or second half and your expectations for a few products. First one is nipocalimab and rheumatoid arthritis. And then, your oral IL-23 I saw that a trial was finished and what your next steps are here and when you might have some data? And then lastly, just on your RYBREVANT and lazertinib, are you still expecting a potential interim readout for lung cancer here? Thank you.

Jessica Moore:

Thank you, Louise, and thanks to everyone for your questions and your continued interest in our company. We apologize to those that we couldn’t get to because of time, but don’t hesitate to reach out to the Investor Relations team with any questions that you may have. I would now like to turn it over to Joaquin for some brief closing remarks.

Operator:

This concludes today’s Johnson & Johnson’s fourth quarter 2022 earnings conference call. You may now disconnect.

Unidentified Company Representative:

Please note that today's meeting may include forward-looking statements relating to, among other things, the company's future financial performance, product development, market position, and business strategy and the anticipated separation of the company's Consumer Health business. You're cautioned not to rely on these statements, which are based on current expectations of future events, using the information available as of today's date, and are subject to certain risks and uncertainties that may cause the company's actual results to differ materially from those projected. In particular, there is significant uncertainty about the duration and contemplated impact of the COVID-19 pandemic. A further description of these risks, uncertainties, and other factors can be found in our SEC filings, including our 2021 Form 10-K, which is available at investor.jnj.com and on the SEC's website. Additionally, several of the products and compounds discussed today are being developed in collaboration with strategic partners or licensed from other companies. These clients acknowledge those relationships.

Joe Wolk:

Thank you, Jess. Good morning, everyone. We appreciate you joining us today. As Jess just shared, we are pleased to report solid results across our business segments in the third quarter. We accelerated operational sales growth across all three segments, and we're able to meet earnings expectations despite significant inflationary impacts to input costs. This performance reflects the strength of our business and versatility of our operations despite persistent global macroeconomic challenges. Given Johnson & Johnson's 136-year history, we are no stranger to periods of unfavorable macroeconomic conditions, but we have a proven track record of navigating through periods of challenge and volatility. With a diversified portfolio and strong balance sheet, we've repeatedly demonstrated our ability to deliver results in the short-term while executing against our long-term strategy, focused on improving health outcomes and access to care. Let me share a few enterprise highlights from the quarter. We continue to deploy effective strategies to provide the products, medicines and treatments that consumers and patients rely on in the face of supply chain pressures. Our teams have been working tirelessly to help mitigate the impact of these challenges by working with our partners to make sure we're meeting demand. We continue to invest for growth, driven by innovation, as demonstrated by the recent opening of our R&D campus in San Francisco, which will expand our R&D presence in the Bay Area. I had the pleasure of being at the opening for this campus. Seeing it in person only reinforces for me that the combination of science, technology and data analytics will be the future of medicine. We also made further progress in the separation of Kenvue, the name of the planned new Consumer Health company. In addition to announcing the name, brand, visual identity and purpose, Larry Merlo was named as the Non-Executive Chair Designate. Congratulations, Larry. Thibaut, Ashley and Jennifer will provide updates on notable events for their segments later in the call. Turning now to cash and capital allocation. Year-to-date, we generated free cash flow in excess of $13 billion. At the end of the third quarter, we had approximately $34 billion of cash and marketable securities and approximately $32 billion of debt for a net cash position of approximately $2 billion. Our capital allocation priorities remain unchanged, and our strong balance sheet affords us the flexibility to pursue multiple capital allocation priorities concurrently. Investing in innovation and R&D is our top priority. And through three quarters, we have increased our R&D investment by approximately 8% over the same period last year. In addition to investing in organic growth opportunities, our team continues to evaluate strategic acquisitions and other external collaborations that would enhance our current portfolio, build upon our capabilities and enable us to play in higher-growth markets, while delivering strong financial returns. In mid-September, our Board of Directors authorized a share repurchase of up to $5 billion of Johnson & Johnson common stock. This program underscores our confidence in the business and our pipeline, while also delivering returns for our shareholders. This program, combined with our dividends, has yielded nearly $11 billion being returned to shareholders already in 2022. Moving on to full year 2022 guidance. As evidenced by the third quarter, operational sales growth across all three businesses, healthcare as well as our business continues to be rooted in strong fundamentals, despite various macroeconomic pressures. We continue to see a strengthening US dollar relative to other currencies. And as seen on this slide, inflation in the US remains at levels not experienced in decades and not unique to the US. You saw some of this impact reflected in this quarter's gross margin eroding in comparison to Q3 2021, attributable to both currency and higher input cost. Despite these pressures, we are reaffirming our operational sales and reported adjusted earnings per share midpoints and tightening the ranges. On sales, we are narrowing our base business operational sales range to $97.5 billion to $98 billion or a growth rate of 7% at the midpoint. While this full year operational sales guidance is an acceleration to our year-to-date growth, it does imply a slight deceleration when comparing to the third quarter growth, driven by the loss of exclusivity of ZYTIGA in EMEA and during the month of September. We don't speculate on currency impacts. However, using the euro spot rate relative to the U.S. dollar as of last week at 0.97, there is an estimated negative impact of foreign currency translation of approximately 490 basis points, resulting in an estimated reported sales growth between 1.8% to 2.3% compared to 2021 or $93 billion to $93.5 billion. Regarding other lines on the P&L. While we were able to absorb some of the inflationary pressures this year, we are lowering our full year operating margin projection due to the impacts of inflation across most spend categories to a decline of approximately 50 basis points. Given year-to-date trends on favorable employee benefit-related items, we are increasing our other income estimates to a range of $1.7 billion to $1.8 billion. Regarding interest income and expense, again, based on our year-to-date experience, whereby we have a higher cash balance earning at rates higher than previously anticipated, we are increasing the range of our estimate to $175 million to $200 million, of income. And finally, we are maintaining our effective tax rate estimate, which is reflective of current law, to a range of 15.0% and to 15.5%. Considering these revised estimates, we are increasing our adjusted earnings per share on a constant currency basis of $0.03 at the midpoint. The updated range is $10.70 to $10.75 or a midpoint of $10.73, reflecting a growth rate over 2021 of 9.5%. While not predicting currency movements, but to provide some insights on the potential impact on EPS, our reported adjusted EPS is expected to be negatively impacted by approximately $0.68 per share. As a result, and by tightening the range, our reported adjusted earnings per share is $10.02 to $10.07, which maintains the previous midpoint of $10.05. I appreciate that, many of you are turning some of your attention to 2023. We are actively finalizing our plans for next year, but allow me to provide some preliminary qualitative perspectives to consider as you develop your models. We remain confident that we'll continue to grow our pharmaceutical business every year towards our goal of $60 billion in Pharmaceutical sales by 2025, despite the STELARA LOE, which is anticipated to occur in the second half of 2023 in the US. For MedTech, we expect our investments in innovation and commercial capabilities to continue to enhance our competitiveness. At this time, we anticipate positive procedure trends with the caveats that COVID-19 continues to be a dynamic situation regionally, lingering headwinds from hospital staffing and some impact from volume-based pricing in China. For Consumer Health, we are seeing the benefits of our strategic price increases, and a reduction in supply chain disruptions, although some challenges are expected to continue into 2023. We expect inflationary pressures and higher input costs to persist, and we are continuing to take actions to offset these challenges. While some inflationary pressures are improving, keep in mind that, certain products we manufacture in 2022 will be sold and flow through our P&L in 2023. As far as standing up Kenvue as an independent company, we expect to announce further details on the type of separation, as well as stand-up cost estimates, and how we are addressing stranded costs later this year or early in 2023. We remain on track to complete the separation in mid to late 2023 as indicated in the initial announcement we made in November of 2021. Finally, as previously mentioned, we don't speculate on currency movement, but utilizing the euro spot rate of last week, we estimate an unfavorable currency impact on 2023's adjusted earnings per share of approximately $0.40 to $0.45 or $0.10 more than the $0.30 to $0.35 impact I referenced in July's call. 2022 has proven to be an active and unpredictable year, yet Johnson & Johnson continues to reliably meet the needs of patients while navigating the volatile global economic and operating environment. The executive committee could not be prouder of our team members across the globe for their commitment to excellence. We are continuously inspired by their dedication and unwavering focus on delivering growth for our stakeholders while staying true to our credo. I am now pleased to welcome our worldwide chairs, starting with Thibaut for Consumer Health, soon to be officially Kenvue.

Ashley McEvoy:

Thank you, Thibaut. Well, good morning. So, last year was clearly a banner year of our new product innovation and we are continuing that momentum in 2022 with four new products -- first-in-kind new products launched just in third quarter alone. And clearly, these launches are really contributing to our enhanced competitiveness. So in quarter three, we launched our next-generation TECNIS Symfony OptiBlue. It's our latest presbyopia-correcting intraocular lens; our ACUVUE OASYS MAX contact lens; the HELIOSTAR balloon ablation catheter; and the OCTARAY Mapping Catheter. So to just have a quick refresh on ACUVUE OASYS 1-Day MAX. All of us know, we live digitally intense lives, and this lens was custom designed to really meet those digitally intensive lifestyles. It builds upon our industry-leading portfolio. OASYS is ranked number one. It's the largest brand in the category, and it's unbeaten in comfort across 31 clinical trials. Moving over to our Biosense Webster business. We have a launch of our HELIOSTAR balloon ablation catheter. This catheter is unique. It's a one-shop balloon technology, and it enables PV isolation in 12 seconds with customized energy delivery and our one integrated 3D mapping solution. So we are already seeing the impact HELIOSTAR has resulted in an 86% freedom from documented atrial arrhythmia at 12 months. So this is our entry into the single-shot ablation. Really just a couple of the ways that our team is delivering differentiated solutions really through a focus on breakthrough science and a consistent focus on doctors' critical needs. So I'm very encouraged by the strong innovation to-date and even more excited about the potential of our pipeline to come. And when I start to think about 2023, we are very focused on our mission to make the future of health care smarter, less invasive and more personalized. You've heard me consistently say this is how we can show up in health care. We will continue, particularly in today's times, a little bit of uncertain times to prioritize programs that are strengthening our core, that are really getting us on the forefront of shaping the new frontiers and medical intervention and a consistent drumbeat of always improving our competitiveness. We know that health care has an unbelievable amount of humility, but also amazing purpose. And as Joe has mentioned, we are -- it's very clearly in a dynamic time. We're going to continue to manage through the macroeconomic factors like hospital staffing, like inflation, like supply constraints and some of the overhang of the pandemic. But we are encouraged with procedural volumes in many parts of the world. They're recovering quite nicely. Some parts of the world are still a little bit below pre-COVID levels, but we are confident in the resiliency and agility of the MedTech industry and our anticipated continued recovery across the world. So thank you, and I'm pleased to turn it over to Jennifer.

Jessica Moore:

Thanks, Jennifer, Thibaut and Ashley. This concludes the prepared remarks portion of our earnings call. Kevin, could you please provide instructions and open the line for Q&A.

Chris Schott:

Great. Thanks so much. Just a couple of -- just a two-parter for Joe. Can you just elaborate a little bit more on 2023 operating margin dynamics? It seems like you're seeing some modest operating margin erosion this year due to inflation. Should we be thinking about a similar step down in 2023, or is there a better ability to manage some of these inflation pressures as I guess some of these start to ease as you go through the year? And maybe a second question, just as we think about 2023, just tying some of the segment comments together, and as we think about top line, is there any reason to assume a meaningful deviation from the operational growth trends that you're seeing in 2022 as we look out to 2023? And I guess maybe specifically in that, is the STELARA LOE, a large enough of a headwind next year that we need to start to think about that impacting growth, or is that more like a 2024 and beyond issue? Thanks so much.

Jennifer Taubert:

Hi, Chris. Good morning. So for 2023, we anticipate another year of above-market growth for the Pharmaceuticals group. These results, we anticipate to be driven by continued growth of our key brands like DARZALEX, TREMFYA, ERLEADA, INVEGA, SUSTENNA and UPTRAVI. And this really coming from a combination of increased penetration as well as continued market share gains. And then we also continue -- or expect continued uptake of our new launches. So products like CARVYKTI, TECVAYLI that I just mentioned, products like Spravato, et cetera. And so while we do anticipate STELARA LOE really in that late September time frame or towards the end of the year, we believe that we've got a lot of tailwinds with our existing portfolio and our new launches to continue to have another year of above-market growth in 2023.

Thibaut Mongon:

Yes, absolutely. 2023, we expect that the world will continue to be extremely volatile, inflationary pressure, supply chain disruption, geopolitical environment and continued impact from COVID pandemic in certain parts of the world. So we -- with that in mind, we are certainly prepared to navigate this environment, thanks to the quality of our brands, the strengthening of our execution capabilities around the world. And as you referenced to innovation, we continue to play a big part in our results. Moving forward, we see that the innovation we bring to market this year are extremely well received by consumers around the world, and we expect this to continue in 2023.

Ashley McEvoy:

No, I would just say, consistent really building on the momentum in 2022. So for the first three quarters of the year, we're looking at near 7% growth. And so, our eyes around keeping that momentum from a demand generation on revenue next year and having a revenue number that beats the market. Clearly, in today's environment, the cost of doing business has gone up. And so, we are doing everything we can to manage and mitigate that to remain competitive from -- typically, we have one or two points of price erosion. We've actually been commanding price/mix realization in today's environment through supply chain efficiencies, admin efficiencies and some price/mix realization. We do see some of the downsides in China from VBP that we're weathering through those and earning some of those tenders going forward. But we'd like to very much keep the investment going in R&D because, as you can see in the past couple of years, it's really benefited from accelerating our growth curve.

Operator:

Thank you. Our next question today is coming from Larry Biegelsen from Wells Fargo. Your line is now live.

Ashley McEvoy:

Sure. Thank you, Larry. So I have to, first, by giving a shout-out to the MedTech team, it was a really strong quarter of 8% and 7% year-to-date. And they just have really maniacal focus is what I would say on competitiveness and customer centricity. When we -- and Joe alluded to this, Larry, if you look at -- I'll go around the world a little bit. We are seeing procedures recovering. I think we're benefiting that, posting very strong September, but also a quarter-end of 8%. In the United States, we started to see surgical procedures tick up predominantly it did at the latter part of the quarter. We do see diagnostic procedures more in the mid-single digits, so colonoscopies as an example in quarter three. So we're expecting that to continue. Now, you'll recall that we're anniversarying Omnicron hitting kind of in the thanksgiving time frame in December, so that should be a healthy comp, but we also expect in a very focused micro surgeons in the winter surge. Europe is recovering nicely. August was a little bit of a slowdown given the holiday season, but really September picked up. Asia is in fast recovery, I would say, in India and Japan. And China is still on quarter three, recovered nicely versus quarter two, but they're still below pre-COVID levels. So we expect that bolus to continue. We are moving forward. We have a strong position in China. We have a very diversified position in China. We are moving through some of the VBP actions. That's what you saw in our Joints business, we were actually up 10% in our knees and our hips in the United States, but we had negative growth in the quarter, really due to the volume-based procurement wins on pricing actions that we'll come through that for next year. So thank you for the question, Larry.

Operator:

Thank you. Our next question is coming from Louise Chen from Cantor Fitzgerald. Your line is now live.

Jennifer Taubert:

Hi, Louise, thanks so much for the question. So, the projections that we gave you about the $60 billion in revenue by 2025 really is all based on our current portfolio and our current pipeline, so that doesn't have anything factored in right now in terms of M&A. Anything that we did there, we would look at to be additive. When we take a look at how we're going to get there, we really believe we're going to have a compound annual growth rate of at least 5%, with growth in every year, and that includes through the STELARA LOE. We think we've got eight key brands that we'll be able to post double-digit growth through 2025. And as we take a look through our pipeline and portfolio between now and then 14 novel therapies filed with potential to exceed $1 billion, and we've got five of which we think actually have potential to exceed $5 billion, so that's products like Novavax vaccine, which is in our partnership with Bristol-Myers Squibb; amivantamab and lazertinib combination, which I mentioned for non-small cell lung cancer that we've got good data coming through; nipocalimab, which is progressing really nicely through the various stages of clinical development. That's the auto antibody asset that we brought in from the Momenta acquisition. We have our TARIS platform that is progressing nicely for bladder cancer, and we have CARVYKTI. While we're still in the early stages of launching and ramping that asset, based on the strength of the data and the clinical trials remain really bullish on what CARVYKTI is going to mean for patients with multiple myeloma around the world. And so I think based on our existing assets and the continued growth, I mean if you take a look at DARZALEX and the results that we just posted quarter, 39% growth, consistent with what we've been seeing as well as growth in assets like TREMFYA, ERLEADA, et cetera. You take a look at the existing portfolio, you layer in on top of that what's coming through with the pipeline, and that's what gives us the confidence to hit that $60 billion organically. That being said, in line with Joe, we're constantly looking for ways that we can continue to augment and further build our pipeline and to do so out of a position of strength. And so predominantly, we keep our innovation engine going, bringing in things in the earlier stages, which is usually our sweet spot because we can put our R&D machinery against it as well as our terrific regulatory and commercial and market access capabilities to really build things out. But that doesn't rule out later-stage acquisitions or in-market acquisitions as well.

Joshua Jennings:

All right. Good morning. Thanks for taking my questions. Wanted to just ask Ashley and maybe Joe as well, just to comment on your thoughts on the resiliency of the medical device industry during a recession and in particularly, the Johnson & Johnson's medical device business and maybe parse out which device franchises could be more resilient, which could be less. And then a quick follow-up, just partly related with cardiology procedures thought to be more resilient during recession being -- most of them being life-saving. Any updated thoughts just on strategic rationale to build out your cardiology franchise and add to the Biosense Webster division? Thanks for taking the questions.

Operator:

Thank you. Our next question is coming from Joanne Wuensch from Citi. Your line is now live.

Ashley McEvoy:

Yes. No, thank you, Joanne. We always talk about BWI because it is a market leader, and yet the category still has very low penetration. Less than 12% of eligible patients are actually getting cardiac ablation. And we love this example, because we think when we think of health care, we love to kind of intercept disease before it sets in. And if you can go manage cardiac arhythmia through cardiac completion, you can really prevent a stroke. So just a huge acknowledgment of how close that team is to customers really around the world. How -- the innovation cadence, they really have many first-in-kind. And if it's not first-in-kind, their second generation will ultimately become the standard-of-care is what they've shown and just a true sense of competitiveness. So, in quarter three, BWI was up about 19%, Joanne, and as I mentioned, about 24% in the US, but 13% OUS, and very healthy growth in Europe, a very healthy growth in Asia. That is a category that, like joint, is going to go through a bit of a VBP impact in some quarters to come, but we have very differentiated innovation, and we're building kind of local on-the-ground capability to endure through those. And when I think about the state of innovation, it's just making sure that we can, from an industry penetration, take that from 12% penetration and double that. And that really is the single-minded focus of all of the innovation is to locate better lesions, deliver better lesion, make it a safer, less fluoro in the procedure, make it safer for electrophysiologists and quite frankly, scale it. There's a shortage of electrophysiologist. So we invest a lot of money on market creation. Thank you, Joanne.

Geoff Meacham :

Hey, guys. Thanks so much for question. Just had a few pharma ones. On the I&I market, I know you guys obviously have the STELARA LOE next year. But would you expect there to be a lot of market disruption from the flood of HUMIRA biosimilars launching before? I'm just trying to think of the indirect impact on your business. And then the second question is on your cell therapy portfolio. You guys called out CARVYKTI. Any qualitative comments you have on the commercial rollout, one more quarter in? And is there an update on the CAR-T for timing that you could provide for us? Thank you.

Jessica Moore:

Thank you, Geoff. Kevin, we have time for one last question.

Terence Flynn:

Hi. Thanks so much. Maybe a couple of pharma ones for me as well. I was just wondering, as you think about the combined franchise for STELARA and TREMFYA next year, can that grow versus this year? And then based on clinicaltrials.gov, it looks like the nipocalimab Phase 2 RA trial recently completed. So just wondering if you can provide any color if you're going to advance that into a Phase 3 trial for RA? Thank you.

Jessica Moore:

Thank you, Terence, and thanks to everyone for your questions and your continued interest in our company. We apologize to those that we couldn't get to because of time, but don't hesitate to reach out to the Investor Relations team with any remaining questions you may have. I would now like to hand it over to Joe for some closing remarks.

Joe Wolk:

Great. Thanks, Jess. Thank you, Thibaut, Ashley, Jennifer and Jess, for participating in today's call. And as Jess said, thanks to all of you for your time today. Hopefully, you saw with our third quarter performance, the strength of Johnson & Johnson across all of our segments and our collective ability to manage macroeconomic headwinds as well as the unfavorable impact from a stronger US dollar. We certainly take seriously our responsibility to be a reliable, strong investment in many ways for shareholders even though uncertainty may be high. Have a great day, and we look forward to our next conversation.

Jessica Moore:

Please note that today’s meeting may include forward-looking statements relating to, among other things, the company’s future financial performance, product development, market position and business strategy and the anticipated separation of the company’s consumer health business. You are cautioned not to rely on these statements, which are based on current expectations of future events using the information available as of today’s date and are subject to certain risks and uncertainties that may cause the company’s actual results to differ materially from those projected. In particular, there is significant uncertainty about the duration and contemplated impact of the COVID-19 pandemic. A further description of these risks, uncertainties and other factors can be found in our SEC filings, including our 2021 Form 10-K, which is available at investor.jnj.com and on the SEC’s website. Additionally, several of the products and compounds discussed today are being developed in collaboration with strategic partners or licensed from other companies. These slides acknowledge those relationships.

Jessica Moore:

Thank you, Joaquin. This is Jessica Moore, Vice President of Investor Relations for Johnson & Johnson. As a reminder, you can find additional material, including today’s presentation and associated schedules, on the Investor Relations section of the Johnson & Johnson website at investor.jnj.com. We continue to implement enhancements in order to assist you in evaluating our performance. In addition to today’s presentation and associated schedules, we will be posting the transcript of today’s call as well as an Excel version of key financial schedules. I will now review the second quarter sales and P&L results for the corporation and the three segments. Following, Joe will provide additional business and financial commentary, before sharing an overview of our cash position, our capital allocation priorities and updated guidance for 2022. The remaining time will be available for your questions. We anticipate the webcast will last up to 60 minutes. Now, let’s move to second quarter results. Worldwide sales were $24 billion for the second quarter of 2022, an increase of 3% versus the second quarter of 2021. Operational sales growth, which excludes the effect of translational currency, increased 8% as currency had a negative impact of 5 points. In the U.S., sales increased 2.3%. In regions outside the U.S., our reported growth was 3.8%. Operational sales growth outside the U.S. was 13.9%, with currency negatively impacting our reported o-U.S. results by 10.1 points. Excluding the net impact of acquisitions and divestitures, adjusted operational sales growth was 8.1% worldwide, 2.4% in the U.S. and 14.2% outside the U.S. Turning now to earnings, for the quarter, net earnings were $4.8 billion and diluted earnings per share, was $1.80 versus diluted earnings per share of $2.35 a year ago. Excluding after-tax intangible asset amortization expense and special items for both periods, adjusted net earnings for the quarter were $6.9 billion and adjusted diluted earnings per share was $2.59, representing increases of 4.3% and 4.4% respectively compared to the second quarter of 2021. On an operational basis, adjusted diluted earnings per share increased 10.9%. I will now comment on business segment sales performance highlights. Unless otherwise stated, percentages quoted represent the operational sales change in comparison to the second quarter of 2021 and therefore, exclude the impact of currency translation. As stated last quarter, we plan to keep our comments brief to leave more time for Q&A. Please refer to the slides for additional segment and franchise commentary. Beginning with Consumer Health, worldwide Consumer Health sales of $3.8 billion decreased 1.3%, with a decline of 3.6% in the U.S. and growth of 0.6% outside the U.S. Operational sales growth, which excludes the effect of translational currency, increased 2.3% as currency had a negative impact of 3.6 points. Excluding the impact of acquisitions and divestitures, worldwide growth was 2.9%. Results were primarily driven by strategic price increases; growth in OTC outside the U.S. due to a strong cold, cough and flu season and digestive health category recovery. This growth was partially offset by a weaker allergy season and supply constraints in the U.S., although these have improved from prior quarters. Furthermore, the Consumer Health business was negatively impacted by regional COVID-19 mobility restrictions, mainly affecting the Skin Health/Beauty franchise. Moving on to our Pharmaceutical segment, worldwide Pharmaceutical sales of $13.3 billion increased 6.7%, with growth of 4.2% in the U.S. and 9.8% outside of the U.S. Operational sales growth, which excludes the effect of translational currency, increased 12.3% as currency had a negative impact of 5.6 points. Excluding the impact of acquisitions and divestitures, worldwide growth was 12.4%. Excluding COVID-19 vaccine sales, worldwide operational sales growth was 8.6%. Results in the quarter were impacted by unfavorable prior period adjustments offset by favorable discounts. Pharmaceutical growth was driven by our broad portfolio of products paired with strong commercial access and execution, enabling us to continue to deliver above-market adjusted operational sales growth, including five assets with double-digit growth in the quarter. Growth was due to strength from DARZALEX, STELARA, ERLEADA and TREMFYA, along with our paliperidone long-acting portfolio, which was partially offset by biosimilar competition for REMICADE, along with the decrease in IMBRUVICA sales. DARZALEX and ERLEADA continued to drive strong operational sales growth with increases of 46.1% and 56.9% respectively. STELARA growth of 18.6% was driven by strong market growth and meaningful share gains in Crohn’s disease and ulcerative colitis. This represents 5.4 points and 7.4 points of share gain, respectively, in the U.S. Results in the quarter benefited from favorable discounts partially offset by unfavorable prior period adjustments for a net favorable impact of approximately 400 basis points. TREMFYA grew 29.7%, driven by market growth and share gains in psoriasis and psoriatic arthritis. This represents 2.3 points and 3.2 points of share gain respectively in the U.S. Results in the quarter were impacted by an unfavorable prior period adjustment of approximately 750 basis points in unfavorable patient mix. IMBRUVICA operational sales declined 7.2% worldwide due to increased competition particularly in the U.S. IMBRUVICA maintains its market leadership position worldwide and continues to drive operational growth outside of the U.S. despite ongoing competitive pressures. Given these results, we remain confident in our ability to deliver our 11th consecutive year of above-market adjusted operational sales growth in 2022. I will now turn your attention to the MedTech segment. Worldwide MedTech sales of $6.9 billion decreased 1.1%, with growth of 1.6% in the U.S. and declines of 3.6% outside of the U.S. Operational sales growth, which excludes the effect of translational currency, increased 3.4% as currency had a negative impact of 4.5 points. Excluding the impact of acquisitions and divestitures, worldwide growth was 3.4%. Operational sales also grew sequentially versus the prior quarter despite headwinds related to regional COVID-19 mobility restrictions as well as labor and supply constraints. Drivers for growth across the MedTech business include procedure recovery, focused commercial strategies and differentiated new products driving enhanced or sustained market share positions in nearly all of our 11 priority platforms, each generating over $1 billion in annual sales. For additional context, all franchises were affected by regional COVID-19 mobility restrictions and selling days had an immaterial impact on results in the quarter. Now, turning to our consolidated statement of earnings for the second quarter of 2022. I’d like to highlight a few noteworthy items that have changed compared to the same quarter of last year. Cost of products sold deleveraged by 50 basis points, primarily driven by increased supply network-related cost with the COVID-19 vaccine and inflation, partially offset by favorable mix. We continued to invest strategically in research and development at competitive levels, investing 15.4% of sales this quarter. The $3.7 billion invested was a 9.1% increase versus the prior year primarily due to portfolio progression in pharmaceutical and MedTech. The other income and expense line was an expense of $273 million in the second quarter of 2022 compared to a net income of $488 million in the second quarter of 2021. This was primarily driven by litigation, higher unrealized losses on securities and consumer health separation costs in the current year, partially offset by favorable employee benefit plan-related items. Regarding taxes in the quarter, our effective tax rate was 17.6% versus 5.8% in the same period last year. This was primarily driven by a 2021 one-time tax benefit from an internal reorganization of certain international subsidiaries. Excluding special items, the effective tax rate was 15.4% versus 14.8% in the same period last year. I encourage you to review our upcoming second quarter 10-Q filing for additional details on specific tax matters. Lastly, I will direct your attention to the box section of the slide, where we have also provided our income before tax, net earnings and earnings per share adjusted to exclude the impact of intangible amortization expense and special items. Now, let’s look at adjusted income before tax by segment. In the second quarter of 2022, our adjusted income before tax for the enterprise as a percentage of sales increased from 33.4% to 34%, primarily driven by favorable product and segment mix, partially offset by inflation and portfolio progression in R&D. Pharmaceutical margin improved from 39.4% to 42%, primarily driven by favorable product mix and brand marketing expense leverage. MedTech margins declined from 28.6% to 26.5%, driven by inflation, unfavorable product mix and increased investments to support new product launches and research and development. Finally, Consumer Health margins declined from 28.6% to 25.9% due to commodity inflation, partially offset by supply chain efficiencies and one-time favorable items in 2021. This concludes the sales and earnings portion of the Johnson & Johnson second quarter results. I am now pleased to turn the call over to Joe Wolk. Joe?

Operator:

Certainly. [Operator Instructions] Our first question is coming from Terence Flynn from Morgan Stanley. Your line is now live.

Joaquin Duato:

Thank you. So, thank you for the question. And let me start giving you a perspective on our myeloma franchise, which is one of the areas of strength for our Pharmaceutical business. On one hand, we continue to have a great progression with DARZALEX with 47% growth in this quarter. And Jess will update you on the exact numbers of the conversion from subcu to – from IV to subcu. What are the exact numbers?

Joaquin Duato:

Okay. So it continues to move in the right direction, given the enhanced convenience and ease of use for the patient that our subcu formulation offers. So DARZALEX is doing very well, and we feel very confident about the continuous progression of DARZALEX. On the other hand, we are also proud of the commercial launch of CARVYKTI in the U.S. following FDA approval and also the recent approval of CARVYKTI in EMEA. And together with that, to complement the strength of our myeloma franchise, we have received recently two breakthrough designations on our CD3 redirectors, one for teclistamab and another one for talquetamab. So we are proud to have a very comprehensive myeloma franchise that, due to its breadth, will enable us to award to try to convert myeloma into – from an uncurable disease to a chronic disease and potentially when they occur by sequencing and combining this treatment. So great idea of strength for the Pharmaceutical business of Johnson & Johnson, and it’s an area that connects on how we are executing in our pipeline and progressing and what we discussed in our November R&D Day, where we portray our Pharmaceutical pipeline as one of the important drivers of us being able to achieve a $60 billion number in 2025. So it’s a good sign of how we are progressing in our pipeline and in our existing portfolio with DARZALEX.

Larry Biegelsen:

Good morning. Thanks for taking the question. So just I’ll ask a high-level macro question. So Joaquin and Joe, at a high level, what are your assumptions for the macro headwinds in the second half? Joe, what’s getting better? What’s not? I’m sure people would love to hear about input costs and inflation; COVID trends around the world, especially China; and lastly, hospital labor shortages. Thanks so much for taking the question.

Operator:

Thank you. Our next question is coming from Chris Schott from JPMorgan. Your line is now live.

Joaquin Duato:

Thank you, Chris. And let me start with the M&A question first, and then Joe will address the operating margin question. So M&A has always been an important component of Johnson & Johnson innovation, as I was talking in the past 5 years, we executed about 40 acquisitions, some major licensing agreements, investing over $16 billion. And specifically in our Pharmaceutical business, about half of our innovation, it’s coming sourced externally. So when we look at M&A, we took – we take a strategic approach. The first thing we try to look at is what is the improvement in the standard of care that we are looking in that particular opportunity and to what extent it enables us to get into higher growth markets. And we are agnostic about which sector. So we try to look at those opportunities in the context of the improvement in standard of care, entering to higher-growth markets and delivering a fair financial return. So as we look at the opportunities today in the market, we are not opportunistic about it, and we are still looking always at the fundamentals of these companies. And obviously, there are different opportunities in the market that are interesting and can complement our existing franchises or built into adjacencies. When it comes to MedTech, the focus continues to be strengthening our current strongholds and also accessing some high-growth market segments to accelerate growth. And the target areas are the ones that we are operating today

Operator:

Thank you. Our next question today is coming from Joanne Wuensch from Citi. Your line is now live.

Joaquin Duato:

Joe, do you want to start with the targeted price increases and I go then to the volumes.

Joaquin Duato:

When it comes to hospital volumes and the trajectory of MedTech in general, right. Overall, our MedTech business delivered 6% competitive growth in the first half of 2022 and delivered just over 1% sequential operational growth Q2 versus Q1. So, that is in the middle of the market headwinds due to mobility restrictions inflation and supply challenges. So, a very resilient performance of our J&J MedTech business. The fundamentals of our business remain strong and competitive, and we continue to see market share positive trajectory in nearly all of our 11 priority platforms in which we are maintaining or gaining share in the most recent period of Q1 2022. And we see also good progression in our pipeline and new products launched. Overall, for the market, when we are talking about the market specifically, we saw improvements in procedure volume in North America, in EMEA and in Lat-Am. That remain above pre-COVID levels through the quarter. So, that was the positive side. On the other hand, we saw the impact of regional mobility restrictions in Asia Pacific. Moving forward, we estimate that we will have a continuous improvement in the second half of the year due to continued market recovery and also our own competitive momentum while, at the same time, we are going to continue to monitor the COVID-19 dynamics and the mobility restrictions in Asia Pacific.

Louise Chen:

Hi. Thanks for taking my question here. So, I wanted to ask you about milvexian and Factor XIa inhibitors and what you see the market opportunity to be. Also, what data will you be presenting at ESC this year? And then can you give any color on indications you will be pursuing in your Phase 3 studies? Thank you.

Operator:

Thank you. Our next question is coming from Josh Jennings from Cowen. Your line is now live.

Joe Wolk:

Hi Josh, this is Joe. Let me try to answer the first part of that question, and then I will turn it over to Joaquin for the second part, the first part being around volume recovery. To your point, and it’s something that we struggle with internally, it’s really still clunky when it comes to comparative analysis versus prior periods. So, we do look back at 2019, I can tell you our operational sales growth for MedTech over the first six months is about 10% overall. I would say half of that is – maybe two-thirds is really attributable to just a great job that Ashley and her team have been doing with launching new products and better execution. So, our cadence of innovation has improved. We have got a lot of new offerings across really all four of those major franchises and we are picking up market share because of that. And then I would say probably the rest is procedure volume. Again, it gets really difficult to really draw comparisons around procedure volume because we still are dealing with the impact of COVID in the second quarter alone in China. That impacted growth and procedures were down roughly 25% with a little bit improvement towards the last month from what we saw in April and May. So, we continue to look at that as well. But I would say the improvement in MedTech is really come from the stated goals that you heard a couple of years ago from Ashley and team, and that’s a better cadence of innovation. I think we are going to – we had 10 new products launched in the first half of this year. Roughly the same amount is relied upon in the second half and then again, attracting market share with better effectiveness through our sales force and commercial efforts.

Operator:

Thank you. Our next question is coming from Chris Shibutani from Goldman Sachs. Your line is now live.

Joaquin Duato:

Thank you. Great question, Chris. Overall, we see a recovery in the immunology market with new patient levels already exceeding pre-COVID levels. So, we are optimistic about the recovery, specifically utilizing the metric of new patients. So, that’s progressing well for the immunology market. When it comes to TREMFYA, it continues to deliver strong growth worldwide, with net trade sales growing in the quarter about 30%, despite of headwind of a prior period adjustment that has reduced about 750 basis points. So, a strong performance of TREMFYA. When it comes to share, I think it was commented that we capture about 2.5 points incremental in psoriasis and about a larger amount in psoriatic arthritis, where we are already the market share leader. It was three points in psoriatic arthritis. It’s difficult to tell you where this is coming from. I mean we are assuming that this is going to be coming from older therapies that are there in the market, and that’s where it’s coming from. But clearly, TREMFYA is doing really well, both in psoriasis and in psoriatic arthritis. And psoriatic arthritis is the market-leading in new-to-brand share. We are also pleased with the fact that we have published recently first and best-in-class 5-year durability data, and also that we have been able to be the only IL-23 therapy to demonstrate inhibition of structural damage in PSA. So, we are very positive about the trajectory of TREMFYA, which is a reflection of the strength of our immunology franchise. Continuing with the future of TREMFYA, which I think it’s important for you to consider, we are now fully enrolled in our trial in ulcerative colitis, and we are nearing fully enrollment completion in our trial in Crohn’s disease. So, that predicates well for the growth of TREMFYA moving forward. Addition to that – in addition to that, we presented very encouraging and interesting data in IBD in combination of TREMFYA with SIMPONI, so guselkumab that show best-in-class results and best-in-class data, and we are very pleased with that. And also, if you look at our pipeline, we are also continuing to progress into Phase 2 with our own oral IL-23. So, very strong future of TREMFYA, one of the key products in our growth moving forward, a very strong future for our franchise in immunology.

Operator:

Thank you. Our final question today is coming from David Risinger from SVB Securities. Your line is now live.

Joaquin Duato:

Thank you for the question and a great question. First, it’s difficult for us to comment on the content of the legislation or the feasibility of that legislation passing. There has been a lot of ups and downs there. While we are very closely following the dynamics, the situation is still fluid. So, it’s difficult for us to comment on the actual legislation or in the feasibility. Now, if we believe that the legislation is going to base on the language that we know from the Senate Finance Committee, as you pointed out, that will have a significant detrimental effect on the ability of the industry, of the companies to be able to invest in R&D and to develop new medicines. Just for perspective, the biopharmaceutical industry invested about $120 billion in R&D in 2020. Johnson & Johnson, ourselves, in our pharmaceutical business, we invested $12 billion in R&D in 2021. So, as a company that invests heavily in R&D, we can tell you that the type of legislation that was proposed by the Senate Finance Committee with Medicare price setting will have a chilling effect in innovation that will be translated in less new medicines for patients. Again, for perspective, since 2000, the pharmaceutical industry has introduced about 1,000 new medicines. The impact that this will have may affect the advances that we have in multiple areas that are still needed to be able to advance patient care. So, it’s a very seamless situation that will affect innovation, will affect our ability to invest in R&D and to develop new medicines. Now, we are also engaging with different stakeholders in trying to educate them about the impact of this type of legislation and innovation. But at the same time, we also want to sit at the table and participate in discussions to address what we believe is the major issue, which is patient affordability and patient access, specifically in Part D. So, we think that, that’s something that the industry has to address with the relevant stakeholders, and we are very willing to sit at the table and shoulder the consequences of being able to address the patient affordability issue. Now, I always have – I always need to remember to you that in a price-constrained environment, Johnson & Johnson performs relatively better than most of our peers and competitors based on a number of factors. First, our diversification. Second, we have about half of our sales that come outside of the U.S. And third, specifically in the pharmaceutical business, we have been able to deliver above-market growth in the face of mid-single digit niche price decreases. So, we know how to grow in a difficult pricing environment. As a matter of fact, all of our growth comes from volume. So, if you are thinking about where to be in these circumstances, Johnson & Johnson really, it’s a good place based on its diversification and our ability to drive growth through volume.

Joaquin Duato:

Thank you, everybody, for participating in the call. Again, very pleased with the solid results achieved by our teams year-to-date. It shows the quality and the market leadership of our franchises and the great execution of our company in the middle of these challenges. We are also making good progress in the three strategic priorities that I outlined at the outset of this call regarding the consumer separation and the creation of the new Johnson & Johnson, our ability to continue to grow in our pharmaceutical business through the STELARA patent expiration and our continued recovery and competitive growth and MedTech. As we conclude today, also a quick reminder on our recent ESG investor update, which highlighted progress against our 2025 Health for Humanity goals. I encourage all of you to listen to the webcast replay on our website if you didn’t have a chance to do it already. We look forward to connecting with all of you again and keeping you updated on our continuous progress on future earnings calls. Thank you very much.

Joe Wolk:

Good morning. This is Joe Wolk, Executive Vice President and Chief Financial Officer of Johnson & Johnson. Thank you for joining us today to discuss our company's first quarter 2022 financial results and full year 2022 outlook. While many things have changed in the world since our last call, much has stayed the same for Johnson & Johnson. We continue to deliver reliable growth and generate meaningful free cash flow, enabling us to invest and advance our pipeline, increase our dividend for the 60th consecutive year and continued to make a positive impact across the landscape of health care. It is, however, important to take a few moments to recognize the current events that are impacting the world we're living in. Today, while we're all still managing through the global pandemic, as evidenced by the current surge of cases in China, we also acknowledge the increasing hardship brought on by the war in Ukraine. We remain focused on the safety of our employees and their families. Guided by our credo and grounded in our purpose, our hearts are with all those affected by these crises and hope for a rapid resolution to both. Now, I'd like to turn the program over to Jessica Moore, Vice President, Investor Relations, to take you through our Q1 results.

Joe Wolk:

As Jess just mentioned, Johnson & Johnson posted solid performance for the quarter, continuing to invest in the business for the long-term success, while overcoming multiple macroeconomic headwinds, including inflationary pressures and higher input costs. These external challenges include limited availability and rising prices of certain commodities; as well as increased costs for labor, energy and transportation. These impacts are pervasive across the enterprise, but most notable in Consumer Health. We expect these pressures will continue to some degree throughout the remainder of 2022. However, mitigation efforts are underway, including cost improvement initiatives, strategic price increases and contract negotiations with external supply partners. We are committed to sustaining supply of the products, medicines and treatments that consumers and patients want and need. Turning to our segments and notable events in the quarter. MedTech led our enterprise performance with nearly 9% adjusted operational sales growth. We continue to drive this business forward and are increasing the value of our pipeline through innovation, internally and externally. We were pleased to see a steady uptick in surgical procedures this quarter with the easing of COVID restrictions in many parts of the world, but we recognize that the situation is fluid, which requires monitoring. Building on more than 20 major new product launches in 2021, MedTech announced the addition of two new innovations to our ATTUNE portfolio, the ATTUNE cementless fixed bearing knee with AFFIXIUM 3DP Technology and the ATTUNE medial stabilized knee system. In our Pharmaceutical business, we continue to deliver above-market growth driven by volume as evidenced by our recently published 2021 Janssen US Transparency Report, which reflects our fifth consecutive year of price decreases across the portfolio despite inflationary pressures. We also continue to advance our Pharmaceutical pipeline. This quarter, we received FDA approval for Carvykti, a CAR-T therapy for the treatment of multiple myeloma developed together with our partner, Legend Biotech. We are partnering with clinics utilizing a phased approach to begin patient dosing, and the feedback to date has been positive. We also filed Teclistamab, our BCMA CD3 bispecific antibody seeking EMA approval, and we also received priority review from the FDA, potentially expanding our multiple myeloma portfolio further. In our Consumer Health business, we remain focused on delivering on our 2022 performance objectives, continuing to achieve above-market growth in our over-the-counter medicines business, while navigating industry-wide supply constraints that have primarily impacted our Skin Health/Beauty business. We continue to be excited about the activity related to the announcement we made in November on the creation of two new industry-leading companies, the new Johnson & Johnson and the new Consumer Health Company. For the new Johnson & Johnson, the portfolio will remain well diversified with 25 brands delivering over $1 billion in sales annually, holding market-leading positions across key therapeutic areas and franchises. The financial hallmarks of Johnson & Johnson will remain the same, including a well-defined capital allocation strategy, a disciplined approach to inorganic growth and a strong balance sheet, while also creating opportunities to sharpen focus on execution and clinically differentiated innovation. The new Consumer Health Company will also have a strong financial profile and be better positioned to drive incremental growth, realizing increased potential in new markets through a more agile operating model. The company will continue to deliver science-backed innovation and enhanced digital consumer-centric solutions. The Consumer Health separation team is making substantial progress related to our efforts in establishing the new independent company. As previously mentioned, we cannot disclose new financial information specific to Consumer Health in order to preserve optionality on the various separation pathways. Our time lines remain unchanged. We anticipate announcing key executive leadership appointments for the new Consumer Health Company in the coming months, with plans to provide the new company name and headquarters location around the middle of this year. In the second half of 2022, we plan to provide the updated path forward and applicable financial information such as refined standup cost estimates and potential short-term dissynergies. Finally, consistent with previous communications, we expect to execute the separation in 2023. You have our ongoing commitment adhering to the regulatory framework to provide transparent updates for material decisions on a timely basis. Turning now to cash and capital allocation. We generated free cash flow for the quarter of nearly $3.4 billion. At the end of the first quarter, we had approximately $30 billion of cash and marketable securities and approximately $33 billion of debt for a net debt position of approximately $3 billion. Our capital allocation priorities remain unchanged. Internal innovation remains critical to our future growth and a top priority. In the first quarter, we increased R&D investment by approximately 9% compared to the first quarter of 2021. We also continue to evaluate opportunities to complement the current portfolio with acquisitions that build upon our capabilities, address portfolio gaps or play in higher-growth markets while yielding solid financial returns. As I mentioned earlier, we were pleased to announce today that our Board of Directors approved an increase in our quarterly dividend for the 60th consecutive year from $1.06 per share to $1.13 per share, an increase of 6.6%. Moving to full year 2022 guidance and key considerations. I'll start with comments on our COVID-19 vaccine and foreign exchange impacts, essentially the only items with updates from our January guidance. As market demand for all COVID-19 vaccines is currently challenged by global supply surplus and vaccine hesitancy in developing markets, we have made the decision to suspend guidance for sales of our COVID-19 vaccine. This will enable investors to focus on the performance of our core businesses, which drive the current and future value for investors. We are maintaining the total adjusted operational earnings per share guidance we provided in January, absorbing, if need be, the modest income impact from the COVID-19 vaccine. Regarding foreign exchange, as you know, we don't offer guidance or predictions on currency movements. But to give you a sense of the impact currency may have on potential full year reported results, utilizing the euro spot rate relative to the US dollar as of last week at 1.08, there is an incremental unfavorable currency impact of $1.1 billion on reported sales and an unfavorable $0.25 for reported adjusted earnings per share versus the calculation related to January's guidance. The full year unfavorable impact is now projected to be $2.5 billion on reported sales and $0.45 on reported adjusted earnings per share. All other line items for which we provide guidance remain the same as communicated in January. To reiterate, we are maintaining our adjusted operational earnings per share guidance. We don't provide quarterly guidance, but do understand that you find value in us providing some qualitative considerations as you update your models. In Consumer Health, we expect supply constraints to continue throughout the year but not to the same extent in the second half. As a result, we anticipate that the back half performance will improve over the first half. For MedTech, while the first quarter demonstrated faster recovery than we anticipated, our full year expectations remain fairly intact. We anticipate continued market recovery and uptake from recently launched products and are monitoring the ever-changing COVID dynamics, particularly the surging cases in China. Similar to Consumer Health, we expect the second half to be stronger than the first half. As a reminder, with respect to growth rates, the second quarter was the strongest quarter for MedTech in 2021. The expectations for the Pharmaceutical base business remain the same. We anticipate delivering another year of above-market adjusted operational sales growth with relatively consistent growth throughout the remainder of the year. In summary, Johnson & Johnson had a solid start to the year despite managing macroeconomic headwinds, and we remain confident in our business. I would like to recognize the continued efforts of our 144,000 global colleagues focused on delivering our innovative healthcare solutions to our credo stakeholders. Their unwavering dedication and support continue to inspire. And on behalf of the executive team, I'd like to extend our gratitude. I am now pleased to welcome to the call, Ashley McEvoy, Thibaut Mongon and Jennifer Taubert, our Worldwide Chairs to address your questions. Kevin, can you please provide instructions and open the line for Q&A?

Larry Biegelsen:

Good morning. Thanks for taking the question. So many different places to go. But Joe, I'll start with M&A. You know, there were comments on the tape stating that you're eager to deploy cash to M&A, especially for devices. So maybe for you or Ashley, can you add more color to your thinking there and the types of opportunities to consider? You know, you've talked about reaching the top of the peer set in devices. That would seem to require a relatively large deal or a series of small to medium-sized deals to move the needle. Is that a fair way to think about it? Thanks for taking the question.

Ashley McEvoy:

Yes. No, Larry, maybe before I get to M&A, just kind of some macro thoughts on MedTech in the quarter. I'm pleased with the results of the quarter. We saw positive signs of the market recovery. Clearly, while COVID has not disappeared, health systems around the world are becoming increasingly more resistant with each passing wave. And as we know, the world is -- is a lot more equipped to manage the pandemic, and quite frankly, so is Johnson & Johnson. So encouraged to see in quarter one that we continue to maintain our path to above-market performance. We referenced that this is kind of a growth at scale, if you will, 11, $1 billion platforms, really most of them growing or maintaining share. And we saw robust sales growth across all four of our franchises in all four of our regions. Some standout, encouraging to see both vision surgery and Vision Care, both double-digit performance and growing market share, really fueled by innovation in ACUVUE and TECNIS. We are the world leader in electrophysiology, still a category that has significant under penetration. We've had 11 consecutive years of double-digit performance and really significantly enhanced our share gain. We're the world leader in biosurgery. The business was up almost 10%, really driven by a clinically differentiated portfolio. And then finally, and enthusiastically, I say we had strong performance in joints really by penetrating some new sites of care like ASCs, both with hips and knees. So when I look forward, I'm encouraged by the organic agenda that we see in innovation, like with the likes of the FDA approval on ACUVUE Theravision, the first drug-eluting contact lens. As Joe mentioned earlier, around really shoring up high-growth segments in knees with ATTUNE fixed bearing, and then really with CERENOVUS the launch of EmboGad, the balloon catheter. So continue to advance robotics and digital surgery. You'll hear us talk about MONARCH 14,000 cases with a big pipeline of new indications, and then VELYS completing over 2,000 cases. So when I think about the future of M&A, Larry, we're going to continue to do tuck-ins and to really digitize the patient experience. You heard us talk about CUPTIMIZE as an example around really adding a precise delivery to hit navigation to improve outcomes. You're going to see us continue to penetrate fast-growing segments like what we have in neurovascular, as an example, 90% of our capital deployment has been to $1 billion or more, but we do intend to make sure that we are well positioned to be in the highest growth end state markets.

Chris Schott:

Great. Thanks so much. Maybe Ashley, just following up on some of your MedTech comments. Can you specifically comment on China in terms of the impact you're currently seeing to the business and your outlook for that market specifically, given some of the lockdowns that we're seeing there? And then my kind of core question was just on IMBRUVICA. It seems like prescriptions here are really starting to see some erosion. I'm trying to understand the dynamics you're expecting going forward. So is this -- especially maybe in the US market, are you expecting that this erosion continues? Or do you see dynamics in place that we could start to see some of those prescription trends start to stabilize a bit? Thanks so much.

Jennifer Taubert:

Great. Thanks a lot. Hi, Chris and hello, everybody. A few comments on the Pharmaceutical business, and then I'll get to the question on IMBRUVICA. First, for our pharm business, I was really proud that we delivered $12.9 billion in worldwide sales. We're definitely above-market adjusted operational growth of 9.3%. And this is our sixth quarter where we achieved worldwide sales exceeding $12 billion. And as I look across the globe, the growth was really broadly based across our portfolio in the regions, with particularly strong growth in EMEA, Asia Pac and Latin America. During the course of the quarter, we really continued to maximize the value of our key brands, so strong double-digit growth across six of them, including DARZALEX, ERLEADA, TREMFYA, INVEGA SUSTENNA, [Privado] (ph) and EDURANT. And we also had a number of important milestones, the first being the FDA approval of Carvykti, which is our first cell therapy for patients with relapsed or refractory multiple myeloma. The teclistamab filing in the EU was mentioned. The FDA approved expanded label indications for CABENUVA to be administered every two months for the treatment of HIV in virologically suppressed adults and adolescents. And we presented great new data on TREMFYA in our approved indications of psoriasis and psoriatic arthritis, as well as from our Phase II studies, where we're evaluating the product in Crohn's Disease and also in UC. So if we take a look at IMBRUVICA more specifically, IMBRUVICA sales did decline for the quarter, 3.9%, and this really was a US story. Outside the US, our sales actually grew 4.5%. In the US, performance was impacted by both competitive factors with a number of new competitors in the market as well as market softness. We haven't seen that market fully rebound to the pre-COVID levels yet. As we take a look at IMBRUVICA, IMBRUVICA has really changed the standard of care for adults with CLL and other B-cell malignancies. And it is the only BTKI that’s demonstrated overall survival and a high rate of progression-free survival at five years with up to eight years of safety follow-up. So, we remain really confident in the efficacy and safety profile of the product. It's the market share leader and continues to be the most comprehensively studied and prescribed BTKI with over 250,000 patients worldwide. So we continue to work to develop the asset. We do see further growth opportunities through the introduction of new indications and new combination therapies, as we take a look at IMBRUVICA plus venetoclax that we're working to develop and we filed in the EU. We're also taking a look at first line [ph] and CL and really trying to bring that forward. So I think you can anticipate there will continue to be strong competition in that market. We continue to believe in and invest in IMBRUVICA.

Joanne Wuensch:

Good morning and thank you for taking the question. I'd like to spend a little bit of time talking about the middle of the income statement with all of the multiple headwinds on those factors. How do you think about managing it? What are the levers to pull? And how do you think about raising prices in this environment for each of your key divisions?

Operator:

Thank you. Our next question today is coming from Chris Shibutani from Goldman Sachs. Your line is now live.

Jennifer Taubert:

Sure. Thanks for the question. So let me start off with STELARA. So STELARA sales were $2.29 billion in the first quarter, and that was 9% growth. And we continue to see a lot of strength in STELARA. Ex-US, the product had nearly 18% growth. In the US, what we saw was growth around 3.6%. And what this really was due to, we saw an impact in the US due to the Omicron variant and the impact that it actually had on staffing resources that particularly impacted a number of areas where you had more resource-intensive delivery of care, and GI offices was definitely one. As we take a look at Crohn's Disease and Ulcerative Colitis, our share positions remain strong and with very strong positive momentum. We actually gained over five share points in CD and six share points in ulcerative colitis. So really strong growth and momentum. And with -- in psoriasis, as anticipated with TREMFYA and a very strong growth in psoriasis and psoriatic arthritis, we expected the STELARA sales there to start tailing off, and that's in line with our expectations. So we continue to have a very strong positive outlook for STELARA going through the rest of the year in CD and in Crohn's -- excuse me, Crohn's and ulcerative colitis, where we've really been realizing the growth. And likewise, when you take a look at TREMFYA, we saw 44.5% growth in psoriasis and psoriatic arthritis in the quarter. So together, really, really nice performance there. Question on XARELTO. So XARELTO in the US, we did see sales decline. That was largely driven by a net unfavorable prior period adjustment. And most of this has actually been a positive adjustment that took place in 2021. So when you do the comparable, it was negative. And so that was really due to the vast majority of that. With Xarelto, we continue to see nice share gains and growth at a prescription level across the indications, whether we're talking about CAD and PAD, really the newest indication set, but also across AFib and VTE. And so it really was around the net unfavorable PPA and a little bit of channel mix as well with some of the mix shifting into 340B and Medicaid in some of the lower-priced channels.

Louise Chen:

Hi. Thanks for taking my question. So I wanted to ask you about CARVYKTI. And what gives you confidence in your ability to meet some of the manufacturing complexity associated with CARVYKTI? And how much capacity do you think you'll be able to bring online this year, both in the US and potentially globally as well? Thank you.

Operator:

Thank you. Your next question is coming from Josh Jennings from Cowen. Your line is now live.

Joe Wolk:

I'm going to check the transcript on that, Josh, just to be sure. But listen, I think what you would hear, as Joaquin was sitting here, is that he supports all the businesses with respect to innovation. We realize that our calling card is innovation, and we're going to have growth across all of our franchises when we have products that matter that are differentiated, that are beyond the current standard of care and meeting consumer needs as well. I actually want to credit Ashley and her team for the way they've managed their P&L. They've been conscious about moving more of their investment into R&D. You saw a record number of 20 plus new product launches last year that are considered meaningful. We're going to be very close to probably a very similar number this year. And so that portfolio has taken very much the same approach that I would say Pharmaceuticals did almost a decade ago when the focus is very well understood and where we want to play because we've got a strategic or competitive advantage will be capitalized upon. I don't know, Ashley, if you want to add anything more, but I think that certainly, there is continued support, but a lot of the credit goes to Ashley and her team in terms of managing their levels of investment throughout the P&L.

Joe Wolk:

I would maybe underscore too is that gives us the confidence to go out and add in inorganic opportunities when the opportunity presents itself using the criteria of strategic fit as well as financial value creation. So a stronger internal pipeline that gets hopefully success out in the acquisition markets.

Operator:

Thank you. Our next question today is coming from Terence Flynn from Morgan Stanley. Your line is now live.

Jennifer Taubert:

Yeah. So I understand Terry's comment really was around the US and what we're seeing in terms of COVID. So as we exited last year, really in the December time frame and entered this year into really January and February, we did see the Omicron variant impact the US business. And what we saw there really, as already mentioned before, we did see staffing shortages because so many people got sick. People weren't able to go into work. And so in a higher – more intensive resource settings in some of the markets, we did see slowdown in terms of delayed visits and new patient starts. What we are seeing now is we're looking towards the end of March and in early April, we're seeing nice recovery there. And so this really, hopefully was something really just at the end of last year and the beginning of this year, and it does look to be more specific to the US than to any of the other markets.

Thibaut Mongon:

Look, clearly, we continue to see the impact of COVID on the life of our consumers. And that has an impact -- the differentiated impact by category. We are looking at China very specifically right now to see how the situation evolves there. What I would say that COVID has really shifted consumer behavior to digital space and digital solutions. And so -- and we see it in the continued growth of our e-commerce channel, representing more and more of our business. So that's what makes all more resilient is ability to count on multiple channels is something that is showing us well in a provident environment. Having said that, we need to continue to monitor how the situation evolves around the world.

Matt Miksic:

Thanks. Thank so much for taking the question. So maybe for Ashley. I was hoping you could provide a little bit more color on med devices in Q1 and the trajectory exiting March. You had pretty impressive growth across the board, so congrats on that. But investors are often trying to think to just figure out the difference between inpatient segments like orthopedics or cardio or advanced surgery and how those are recovering potentially at different rates in the US? And what you might be seeing there? As well as any color you could provide on how, say, Europe and Japan overseas developed markets compared with the recovery trends we've seen in the US? Thanks.

Operator:

Thank you. Our next question today is coming from Geoff Meacham from Bank of America. Your line is now live.

Jennifer Taubert:

So thanks for the opportunity to talk about our multiple myeloma portfolio in response to your question. So as we take a look at the myeloma market despite the advances to date in therapies, there is still so much unmet need there, given the underlying heterogeneity of the disease. And so it's really important that there are treatment choices. And what we're really trying to do is to have a strong portfolio of highly effected -- highly effective treatments and actually ultimately shoot for a cure. And so as we take a look at the market with DARZALEX -- in DARZALEX FASPRO right now, we're really seeing this as a foundational therapy multiple myeloma. And so irrespective of others and LOE and those types of things, you noted, it's a lot of combination therapy and things like that. That does not fundamentally change the opportunity for DARZALEX and FASPRO. What I'm also really excited about is then you add in CARVYKTI that was recently approved, as we mentioned, for triple refractory multiple myeloma. And we really think that this will ultimately become a preferred treatment for patients with relapsed/refractory multiple myeloma. We also mentioned teclistamab in the filing of teclistamab. And this really is the first-ever BCMA CD3 specific. And we think that this is going to be a great off-the-shelf option and for patients who really are triple-class exposed and who are really not eligible for CARVYKTI or don't have access. And then in the future, we're not stopping there. We're also working on Talquetamab, and this would be the first and potentially best-in-class GPRC5D bispecific that we think could be potentially sequenced combined to help transform outcomes. And so as we take a look at our portfolio, we really think that these assets are additive and complementary versus something where they would be cannibalizing each other. And we really think that these are the important advances that are going to really help transform multiple myeloma in the future and going forward versus any of the older therapies.

Operator:

Certainly. Our final question today is coming from Danielle Antalffy from SVB Leerink. Your line is now live.

Ashley McEvoy:

Well, thank you, Danielle. Appreciate the question and hope you are well. We -- in US, the ASCs, I think, are -- it's still relatively low penetration, I would tell, from a macro US, less than 20%, but I think it's the fastest growing as we know. In a COVID environment, we've seen the model evolve to create a safe, more patient-friendly experience that addresses a patient sentiment of not wanting to go into a hospital setting. Certain procedures have gone there early sooner than later. I'd say hips or migraine and knees, less spine per se, less complicated. Obviously, trauma case is still happening in the hospital setting. We've done a lot of work recently to modify our business model to make it a capital-efficient flow, if you will, in inventory management, on the personalization of care using digital assets to kind of your pre-op and your post-op experience less full of friction. And we're taking a lot of experience in the US ASCs to really what we're doing in China in the Tier 2 and the Tier 3 cities as well as we deliver care. So I'm optimistic that this channel will continue to evolve. I do think that we think we start competitiveness there, and we're making sure that we really have a sustainable business model going forward. Thank you.

Joe Wolk:

Great. Thanks, Jess. And as Jess alluded to, we certainly do appreciate your questions and the chance to interact with you. I'd like to remind everybody as we close that we do have the opportunity to engage with shareholders at next week's annual meeting on April 28. Also be on the lookout for an update on our commitments to ESG. On June 8, we will be issuing our Health for Humanity Report, which is an in-depth review on the progress we are making on our 2025 goals. Thank you for your time and your interest in Johnson & Johnson. Have a great day.

Jessica Moore:

Good morning. This is Jessica Moore, Vice President of Investor Relations for Johnson & Johnson. Welcome to our company's review of business results for the fourth quarter and full year of 2021 and our financial outlook for 2022. Joining me on today's call are Joaquin Duato, Chief Executive Officer; and Joe Wolk, Executive Vice President, Chief Financial Officer. 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 & Johnson website at investor.jnj.com, where you can also find additional materials, including today's presentation and associated schedules. Please note that today's presentation includes forward-looking statements regarding, among other things, our future operating and financial performance and the anticipated separation of the company's Consumer Health business. We encourage you to review the cautionary statement included in today's presentation, which identifies certain risks and factors that may cause the company's actual results to differ materially from those projected. In particular, there is significant uncertainty about the duration and contemplated impact of the COVID-19 pandemic and other marketplace dynamics. This means that results could change at any time, and the contemplated impact of COVID-19 on the company's business results and outlook is the best estimate based on the information available as of today's date. A further description of these risks, uncertainties and other factors can be found in our SEC filings, including our 2020 Form 10-K and subsequent Form 10-Qs, along with reconciliations of the non-GAAP financial measures utilized for today's discussion to the most comparable GAAP measures. These materials are also available at investor.jnj.com. 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. Moving to today's agenda, I will review the fourth quarter sales and P&L results for the corporation and the 3 business segments and additionally, full year 2021 results for the enterprise. Joe will provide some additional business commentary, insights about our cash position and capital allocation deployment and our guidance for 2022. Joaquin will close the call by sharing his perspective on the healthcare environment and his strategic priorities as the new CEO of Johnson & Johnson. The remaining time will be available for your questions. We anticipate the webcast will last up to 90 minutes. Now to recap the fourth quarter. Worldwide sales were $24.8 billion for the fourth quarter of 2021, an increase of 10.4% versus the fourth quarter of 2020. Operational sales growth, which excludes the effect of translational currency, increased 11.6% as currency had a negative impact of 1.2 points. In the U.S., sales increased 3%. In regions outside the U.S., our reported sales growth was 18.5%. Operational sales growth outside the U.S. was 21.2%, with currency negatively impacting our reported OUS results by 2.7 points. Excluding the net impact of acquisition and divestitures, adjusted operational sales growth was 12.3% worldwide, 3.1% in the U.S. and 22.4% outside the U.S. I would like to remind everyone that our 2020 fiscal year included additional shipping days, which negatively impacted 2021 fourth quarter growth by approximately 400 basis points and full year growth by about 100 basis points. These impacts can be roughly applied across all segments, but were more heavily skewed to the U.S. Turning now to earnings. For the quarter, net earnings were $4.7 billion, and diluted earnings per share were $1.77 versus diluted earnings per share of $0.65 a year ago. Excluding after-tax intangible asset amortization expense and special items for both periods, adjusted net earnings for the quarter were $5.7 billion and adjusted diluted earnings per share were $2.13, representing increases of 14.4% and 14.5%, respectively, compared to the fourth quarter of 2020. On an operational basis, adjusted diluted earnings per share increased 17.2%. For the full year 2021, consolidated sales were $93.8 billion an increase of 13.6% compared to the full year of 2020. Operationally, full year sales grew 12.2%, with currency having a positive impact of 1.4 points. Sales growth in the U.S. was 9.3%. In regions outside the U.S., our reported year-over-year sales growth was 18.2%. Operational sales outside the U.S. grew by 15.3%, with currency positively impacting our reported OUS results by 2.9 points. Excluding the net impact of acquisition and divestitures, adjusted operational sales growth was 12.8% worldwide, 9.5% in the U.S. and 16.6% outside the U.S. Net earnings for the full year 2021 were $20.9 billion, and diluted earnings per share were $7.81 versus diluted earnings per share of $5.51 a year ago. 2021 adjusted net earnings were $26.2 billion and adjusted diluted earnings per share was $9.80, representing increases of 22.2% and 22%, respectively, versus full year 2020. On an operational basis, adjusted diluted earnings per share increased by 20.2%. Beginning with Consumer Health, I will now comment on business segment sales performance for the fourth quarter, highlighting items that build upon the slides you have in front of you. Unless otherwise stated, percentages quoted represent the operational sales change in comparison to the fourth quarter of 2020 and therefore exclude the impact of currency translation. While not part of the prepared remarks for today's call, we have provided additional commentary on our website for the full year 2021 sales by segment to assist you in updating your models. Worldwide Consumer Health sales totaled $3.7 billion and grew 1.8%, with growth in the U.S. of 1.3% and 2.1% outside the U.S. Excluding the impact of acquisitions and divestitures, worldwide adjusted operational sales growth was 2.9%. Consumer Health was negatively impacted by the 2020 additional shipping days worth approximately 400 basis points, which can be roughly applied to all franchises as well as industry-wide external supply constraints, primarily due to raw material availability and labor shortages largely reflected in our Skin Health and Beauty business worth approximately 360 basis points. Adjusting for these items, solid results were primarily driven by above-market growth in OTC. E-commerce continues to have strong double-digit growth. Finally, when comparing to 2019, Consumer Health grew approximately 4% in the quarter. When adjusting for acquisition and divestitures, sales growth was closer to 5%. Over-the-counter medicines globally grew 15.8% due to increased incidents in U.S. adult and pediatric fever and worldwide category recovery in cough, cold and flu and digestive health. The U.S. also saw share gains primarily in TYLENOL and MOTRIN. Strength was seen across multiple areas in the portfolio, including analgesics, upper respiratory, digestive health, naturals and anti-smoking aids. The Skin Health and Beauty franchise declined 7.1%, driven by external supply constraints, primarily in NEUTROGENA and OGX and divestitures worth approximately 230 basis points, primarily due to Sedona, the salon-based portion of Dr. Ci Labo in Asia Pacific. Declines were partially offset by market recovery and e-commerce strength. Oral Care declined globally 6.5% as compared to strong double-digit growth in the prior year, driven by the floss divestiture worth approximately 170 basis points and category declines in EMEA. Declines were partially offset by successful brand building and promotional campaigns in Asia Pacific. The Baby Care franchise declined 0.8% with U.S. declines of 7.5% and growth of 1.3% outside the U.S. Declines were driven by prior year retailer stocking and external supply constraints in the U.S., partially offset by e-commerce growth of AVEENO Baby and Asia Pacific. Wound Care declined 6.4%, primarily due to the divestiture of the professional tape business worth approximately 150 basis points, partially offset by strong performance of Band-Aid brand and adhesive bandages in the U.S. Women's Health grew 1.3%, driven by market recovery in Latin America. Moving on to our Pharmaceutical segment. Worldwide Pharmaceutical sales of $14.3 billion grew 17.9%, enabled by strength in all regions, with U.S. sales increasing by 4.2% and OUS sales increasing by 36.9%. Worldwide sales included a $1.6 billion contribution from the COVID-19 vaccine. Excluding the net impact of acquisition and divestitures, worldwide growth was 18.6%. Our strong portfolio of products and commercial capabilities has enabled us to deliver the tenth consecutive full year of worldwide above-market adjusted operational growth. Our immunology therapeutic area delivered global sales growth of 7.1% driven by strong performance of TREMFYA and STELARA, offset by declines in REMICADE due to biosimilar competition. TREMFYA was up 82.8% worldwide, with continued share growth and additional penetration into the psoriatic arthritis indication. U.S. share increased nearly 3 points in both the psoriasis and psoriatic arthritis indications. STELARA grew 5.1% worldwide driven by strong share gains in Crohn's disease and ulcerative colitis, with increases of roughly 4 points and roughly 6 points, respectively, in the U.S. Current quarter growth was impacted by a negative prior period rebate adjustment and reserve adjustment recorded in Q4 2021 in the U.S. worth approximately 700 basis points on worldwide growth for the quarter versus the prior year. Our Oncology portfolio delivered another robust quarter with worldwide growth of 12.3%. DARZALEX continued its double-digit performance with 33.4% growth in the quarter, driven by share gains, increased penetration of the subcutaneous formulation in the U.S. and EU and continued launches globally. DARZALEX grew share across all lines of therapy with nearly 8 points of share growth in the U.S. this quarter. ERLEADA grew 61.3% worldwide, driven by strong share uptake, increased market penetration in the U.S. and new launches outside of the U.S. IMBRUVICA maintained its market leadership position, however, declined 3.1% worldwide due to competitive pressures from novel oral agents. U.S. decline was partially offset by growth in all regions outside of the U.S. Neuroscience grew 7.1% worldwide driven by the paliperidone long-acting portfolio posting market and share growth due to increased new patient starts, strong persistency globally and the launch of INVEGA HAFYERA in the quarter. The cardiovascular, metabolism and other business declined 13.8% worldwide due to competitive pressures in INVOKANA and biosimilar competition for PROCRIT. Our pulmonary hypertension portfolio was roughly flat, driven by COVID-19 market constraints and generic entrants and other pulmonary hypertension, offset by U.S. share uptake in both OPSUMIT and UPTRAVI. I'll now turn your attention to the Medical Devices segment. Worldwide Medical Devices sales were $6.9 billion, growing 5.3%. Excluding the net impact of acquisition and divestitures, primarily the divestiture of ASP, adjusted operational sales grew 5.6% worldwide. The medical devices market continued to be impacted by COVID-19, with the Omicron variant contributing to a softening of recovery trends in medical and surgical procedures, especially late in the quarter. Consistent with prior COVID-19 surges, impacts were more acute in areas deemed to be more deferrable in nature, including spine and knees. Comparing to 2019, Medical Devices grew about 4% on an adjusted operational basis. On a full year basis, Medical Devices growth versus 2019 was just over 4.5%, building on the pre-COVID growth momentum. Interventional Solutions continued to demonstrate strong performance, delivering another quarter of double-digit worldwide growth at 15.3% driven by market recovery, successful penetration of new products and commercial execution across both electrophysiology and CERENOVUS. Advanced Surgery grew 7.6% worldwide, driven by market recovery; expansion into Tier 2 and 3 hospitals in China; and performance of newer products such as ENSEAL X1 in Energy, ECHELON+ in endocutters and SURGICEL powder in biosurgery. MONARCH system orders in the fourth quarter marked the highest number of orders in any quarter since launch. And more importantly, as a positive indicator of MONARCH technology adoption and patient treatment regimens, we continue to see strong growth in the number of MONARCH-enabled bronchoscopy procedures with total procedures since launch exceeding 12,000. In fact, 2021 MONARCH procedures more than doubled those performed in the prior year. General Surgery grew 1.7% worldwide, led by wound closure, primarily due to market recovery, coupled with innovation penetration. Inventory dynamics in the prior year negatively impacted wound closure U.S. results by about 350 basis points and positively impacted results outside the U.S. by about 250 basis points. Worldwide orthopedics declined 0.7% versus prior year, reflecting the continued impact of COVID-19 on procedures. Worldwide trauma delivered growth of 2.0%, driven by continued market stabilization and the success of recently launched products, partially offset by competitive pressures in China. The positive impact on growth from prior year inventory contractions in China was primarily offset by the additional shipping days in 2020. Worldwide hips grew 2.7%, driven by continued strength from our portfolio, including the ACTIS stem and technologies such as VELYS hip navigation, sustaining our leadership in the anterior approach. Growth in the outpatient surgery channel in the U.S. and market recovery outside the U.S. were additional contributors to growth. Worldwide knees was relatively flat with a decline of 4.2% in the U.S. and growth of 6.5% outside the U.S. The U.S. market was negatively impacted by COVID-19 and healthcare resource constraints on procedures. These impacts were partially offset by strong growth in the outpatient channel and positive momentum from recently launched products, including the VELYS Robotic-Assisted Solution and our ATTUNE portfolio. Growth outside the U.S. was driven by market recovery and success of products such as ATTUNE Revision. Lastly, in Orthopedics, worldwide spine declined 9.4%, primarily driven by a deceleration in procedure volumes related to COVID-19 and health system resource constraints. Partially offsetting this decline are the positive impacts from the continued success of new products such as X-Pac, CONDUIT and SYMPHONY and prior year inventory reductions in China contributing approximately 360 basis points to worldwide growth. Worldwide Vision grew 11%. Contact lens and other grew 7.1% worldwide. U.S. growth of 9.4% was driven by successful commercial campaigns and adoption of recently launched ACUVUE OASYS MULTIFOCAL for presbyopia. U.S. growth was impacted by inventory fluctuations in both the current and prior year worth about 550 basis points. Growth outside the U.S. of 5.8% was driven by market recovery, coupled with strength of new product launches such as ACUVUE DEFINE FRESH. Surgical Vision grew 22.1% globally, with both the U.S. and OUS businesses growing double-digits. These positive results were driven by market recovery and share gains from recent differentiated product launches across all Surgical Vision product lines, including TECNIS Eyhance and TECNIS Synergy in our ocular lenses used in cataract surgery. Now regarding our consolidated statement of earnings for the fourth quarter of 2021, 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. As reported earlier, our adjusted earnings per share of $2.13 reflects a reported increase of 14.5% and an operational increase of 17.2%. Cost of products sold leveraged by 270 basis points, primarily driven by favorable mix within the pharmaceutical business; a reduction in prior year COVID-19 related costs in the Medical Devices business; and favorable mix within the enterprise, with a larger portion of sales from the pharmaceutical business. Selling, marketing and administrative margins remained relatively flat, driven by increased brand marketing expense in the Consumer Health business, mostly offset by expense leveraging in the Pharmaceutical business. We continue to invest in research and development at competitive levels, investing 19% of sales this quarter. This was higher than the fourth quarter of 2020 by 110 basis points driven by portfolio progression in the Pharmaceutical business and higher investment in the Medical Devices business. The other income and expense line is a net expense of $9 million in the fourth quarter of 2021 compared to net expense of $2.4 billion last year. This was driven by lower litigation expenses. Regarding taxes in the quarter, our effective tax rate increased to 2.1% compared to a benefit of 5.5% in the fourth quarter of 2020. This increase was primarily driven by the prior year tax benefit associated with litigation expenses, partially offset by one-time tax benefits in the fourth quarter of 2021. Excluding special items, the effective tax rate was 10.4% versus 11.4% in the same period last year. I encourage you to review our upcoming 2021 10-K for additional details on specific tax matters. Lastly, I'll direct your attention to the box section of the slide, where we have also provided our income before tax, net earnings and earnings per share adjusted to exclude the impact of intangible amortization expense and special items. Let's now look at adjusted income before tax by segment. In the fourth quarter of 2021, our adjusted income before tax for the enterprise as a percentage of sales increased from 24.9% to 25.6%, primarily driven by the COVID-19 recovery. The following are the main drivers of adjusted income before tax by segment

Joaquin Duato:

Thank you, Joe, and good morning, everyone. It is a pleasure to join you all for my first earnings announcement as CEO of Johnson & Johnson. We appreciate everyone tuning in today, and thank you for your interest in our company. Despite continued and evolving impact from COVID-19 globally, Johnson & Johnson delivered another strong year of sales and earnings growth. Full year Johnson & Johnson adjusted operational sales growth of 12.8% reflects the tenth consecutive year of adjusted operational above-market growth from Pharmaceuticals, the ongoing positive growth momentum from Medical Devices and continued competitive growth in Consumer Health. These strong results contribute to my confidence in our ability to achieve 2022 operational sales and earnings per share growth in the high single digits, with EPS growth that is higher than sales despite macroeconomic factors such as inflation. This, coupled with our differentiated portfolio of pipeline innovation, further strengthens my confidence in our long-term growth potential. In recent months, I have been busy meeting and listening to our customers, partners and members of the Johnson & Johnson family around the world. As part of these conversations, I have thought about the underlying constant of our business, the secret ingredient to our success. It is our people, their dedication and their eagerness to ask the toughest questions and seek the boldest and bravest answers. I'm deeply optimistic about our future, and I feel energized about the potential for our business. In the last 2 years, COVID-19 has changed global perceptions and attitudes towards healthcare. It has shown us that there is significant opportunity for change and improvement in order to better serve patients, customers and communities around the world. The global response to the pandemic has also created a renewed sense of optimism about the power of science. Around the world, people are focused on personal and societal health in new and urgent ways. And importantly, people are demanding that companies deliver on their promises and act with purpose. Johnson & Johnson will continue to answer that call. We strongly believe the future ahead of us looks brighter and healthier for every patient and consumer. We are determined to achieve this future, grounded by the same mission and credo that always guided us. In 2022, we will run our business as we always have, with these segments, maximizing opportunities for each individually. And I would like to share a bit about our near-term priorities as we focus on successfully creating a new independent Consumer Health company as well as continuing to build on our individual global leadership in Pharmaceuticals and Medical Devices while enhancing synergies, which uniquely position us to accelerate growth and bring differentiated therapies that span both segments. At the end of last year, I laid out my top 3 priorities for a new era for Johnson & Johnson, and those priorities remain unchanged. These priorities are equally important for our success and include driving Medical Devices to become a best-in-class performer. We continue to focus on improved execution as evidenced by market share momentum as well as our improved cadence of innovation and organic and inorganic expansion into higher growth markets and market segments. We have 11 platforms in Medical Devices, which are over $1 billion. And as we have shared previously, we are gaining or holding share in almost all of this. This includes building upon our global market-leading positions in areas like electrophysiology, biosurgery and contact lenses and gaining market share in areas where we have been more challenged like Surgical Vision. The team has also launched over 20 new products during 2021, including the VELYS Robotic-Assisted Solution in orthopedics and 2 new intraocular lenses in Surgical Vision. Next, delivering on our Pharmaceutical business commitments and long-term growth goals. We are continuing to build upon our promising pharmaceutical pipeline, which we expect to continue to deliver above-market growth rates and are focused on our previously announced long-term goal of growing to a $60 billion segment by 2025. We are continuing to maximize the value of our existing medicines with 13 marketed medicines across 6 therapeutic areas, each to exceed $1 billion in revenue by 2025. We expect to file 36 significant line expansions for these 13 products through 2025. Here, it is important to note that these expansions are largely derisked because the products are in the market today, so there is good insight into their overall profiles. In addition, we expect 14 novel therapy filings through 2025, each with the potential to exceed $1 billion in revenue and 5 of this with the ability to exceed $5 billion. We remain confident in our ability to manage through the potential patent expiries as we have done in the past and continue to grow at above market rates. And finally, ensuring the successful creation of the new Consumer Health company. In the coming year, we will take the steps necessary to be in a position to separate our Consumer Health business from our Pharmaceuticals and Medical Device businesses during 2023. This will advance more targeted business strategies, accelerate growth and deliver improved outcomes for both patients and consumers, which ultimately will deliver greater value to shareholders. Our Consumer Health business is competitive in terms of growth and over the past few years has made significant progress improving the margin profile. And as we advance towards a successful new stand-alone Consumer Health company, we will continue to drive this business with the same focus we always have. Our best-in-class team is delivering science-backed innovation across OTC, Skin Health and our Specialty business with a focus on digital, consumer-centric solutions and seamless end-to-end customer experience. As Joe noted, we continue to believe that a fit-for-purpose corporate structure and a dedicated capital allocation strategy will provide the Consumer Health business with the agility and flexibility to continue to grow its iconic portfolio of brands and innovate new products in the fast-paced consumer market. And we expect this new and independent company, with nearly $15 billion in 2021 sales, will continue to be a global leader in the consumer health industry. And the new Johnson & Johnson at nearly $80 billion in sales in 2021 will continue to be the largest, most diversified healthcare company in the world and will retain the benefits of scale. We'll enhance our ability to be more focused with our operations, making the new Johnson & Johnson poised to bring integrated and comprehensive care to patients through the use of new technology and innovative science. As we continue to focus on our 3 sectors today, we have no intention of sitting on the sidelines. Our strong financial position, along with the clear priorities we have for our business, position us well to deliver near-term financial expectations and invest for the long-term value creation. We'll have the flexibility to continue to invest in innovation and maintain our track record of growing our dividend while aspiring to be bolder with strategic value-creating acquisitions that will enhance the new Johnson & Johnson in higher growth markets. At this critical time for healthcare and our global society, we understand the significant role we play, and we accept the responsibility and challenges of the future. I hope you will all join us as we step forward into this new era. Thank you. And with that, let me turn it back to Jess to open the Q&A.

Operator:

[Operator Instructions]. Your first question comes from Louise Chen with Cantor.

Joaquin Duato:

Thank you. Thank you for the question. As we commented, our strong financial performance in 2021 is enveloped in a very strong financial profile, giving us the latitude to manage both for the long-term while meeting the short-term expectations of the financial community. As Joe commented, too, we are about to turn from a net debt to a net cash position for the first time in over 4 years. So we'll have to -- we'll have the flexibility to continue to grow our dividend, be bolder in strategic acquisitions and enhance the new J&J position in higher growth markets. And if warranted, we also would consider share repurchase programs. I believe that these priorities position us well for the future. And I think it's important to consider that when we get into 2022, we'll continue to manage the business strategically, one. The separation and the creation of the new consumer company, it's not going to slow us down of any priorities. So we continue to think about how we are going to opportunistically deploy cash for both organic and inorganic initiatives. And in other words, I wanted to make clear that if the right opportunities are there, in medtech and pharmaceuticals, the work stream of the separation won't held us back from forging ahead. When it comes to Pharmaceuticals, as you mentioned, we presented our outlook for the business in our November R&D review. And we explained to you that we were anticipating -- we are anticipating above-market growth rates reaching $60 billion by 2025, growing every single year there. So when we think about those results, it's important to remember that we do not factor there any future acquisitions or collaborations and that we are confident to reach those goals without inorganic activity. That said, one of the pillars of our success has been our agnostic view related to innovation and our desire to lean in for the new Johnson & Johnson for opportunities to build our current portfolio and our current portfolio, both in pharma and medtech remains there, and we need to look for that to enhance our growth profile. In fact, over the past 5 years, our investments in organic R&D and externally sourced innovation have been about equal. We continue to look to opportunities to be able to enhance our pharmaceutical portfolio. And we have been very proficient in identifying opportunities that have a high probability of success very early on as we have done, for example, with Legend. And also, we have been good looking at the post proof-of-concept opportunities like we did with Momenta. In the future, we'll continue to look for all types of opportunities early on post proof-of-concept. And we also will look at other opportunities of large size that we'll have to fulfill higher from a financial perspective, given the higher operational complications that these opportunities may take. But yes, we are constantly looking at M&A as a key source of growth for our business. Our position in cash today makes us been more aggressive in that area, and we'll continue with our focus on taking acquisitions, but not excluding, if the situation is granted, to look at medium-sized also opportunities.

Jessica Moore:

Next question, Rob?

Larry Biegelsen:

Joe or Joaquin, can you help us think about device growth in Q1? How has January '22 trended relative to January 2021? And how are you thinking about medtech market growth in 2022? Previously, I think you expected about 4% to 5% growth. Is that still the case with Omicron and J&J's growth relative to that? How are you thinking about that?

Joaquin Duato:

Yes, I would continue building up on Joe's comment that as the Omicron surge resolves, we anticipate that the markets will continue to improve as the year progresses. It is very difficult to predict when Omicron is going to peak, but we are beginning already to see cases decreasing in areas where the surge began like, for example, in the UK, and some regions in the U.S. already nearing peaks. So while COVID-19 may temporarily delay necessary medical and surgical interventions, the vast majority of these procedures cannot be ignored completely. And at the same time, hospitals, as Joe was referring, are getting better dealing with these situations. So while the path is not going to be linear, we expect an improvement as the year starts to go on and the fundamentals of the medtech market remain intact with disease prevalence and the need for surgery and change. So we believe we are optimistic of the value of the market in the long term, and we are optimistic about our medtech business and its ongoing recovery and improvement in the overall competitive position. So when we are facing 2022 on the medtech side, both from a market perspective and also from a Johnson & Johnson perspective, we look at it optimistically. And we think that the situation will clearly improve as Omicron surge resolves and the year progresses.

Operator:

Your next question is from Josh Jennings with Cowen.

Joaquin Duato:

Thank you, Joe. So overall, as I have commented in our Pharmaceutical Analyst Day and also in the different conferences that I have participated, medtech, it's going to be a key priority for me in my tenure. I see medtech and pharmaceuticals being the core of the new Johnson & Johnson that, as Joe commented, will remain the largest and more diversified healthcare company. So clearly, medtech, it's going to be a key area of focus for us in every aspect. When it comes to medtech and its market performance, I have to highlight that we have seen a very clear ongoing recovery in our medtech performance. We went from 1.5% growth in 2017 to nearly 4% in 2019, and we are ending the year at 4.6%. And when you adjust for the 53rd week, we are in about 5%. So we are clearly improving our performance in the medtech space, driven by some market segments which are really delivering in a very strong way. For example, in interventional, our growth ending the year was 15.3%. Our ambition, our growth in the year was 11%. So we have clearly outstanding performance there. And in most of the platforms that we participate, we are gaining share or maintaining share, improving our position. It's difficult for me to bracket exactly what the growth is going to be and when it's going to happen. But our goal clearly is to make our medtech sector a best-in-class performer. So that's going to be a defining element of my tenure, and we are going to be working towards that. We are going to be improving our commercial execution as we are doing today. We'll continue to invest in our organic pipeline that is delivering. We have had the highest level of innovation in our medtech business in 2021 ever, and our pipeline today has the highest value as measured by net present value that we have ever had. And also, we recognize that we need to do and we need to continue to be active in external innovation in order to be able to participate in markets where growth is occurring that we are not participating today or to build upon adjacencies our existing businesses that are going to further our growth. So as in any business, when it comes to their business allocation, we'll continue to drive our winners, and we'll try to efficiently manage the areas in which we are more challenged. And we'll continue to look for opportunities externally that will complement our portfolio and will enable us to enter into higher growth markets. Overall, our past acquisitions suggest that we have been good in managing smaller deals and tacking deals, and that is our base case. But at the same time, we don't have an artificial ceiling in our deal size. We are always looking for any opportunity that exist in the marketplace. But as I said before, when I was commenting about pharmaceuticals, we do know that larger deals are much harder to make work, both financially and operationally, and they will always have a higher bar. So very important for us and for the new Johnson & Johnson, the focus in our medtech business and how much we are going to prioritize this area of our business.

Operator:

Your next question comes from Chris Schott with JPMorgan.

Joseph Wolk:

Yes. Thanks for the question, Chris. With respect to operating margins, I think the 50 basis points is probably something that is reasonable to expect this year given some of the inflationary pressures that we've outlined, likely to be experienced in the first half of this year. That being said, given the size of our company, we do think we can always improve kind of the infrastructure, our operating model to find some leverage in the P&L. I won't commit to any -- to say it's each and every year. I think that's going to be very much dependent upon the opportunities that are presented to us in any given year. And if we've got an opportunity to invest disproportionately in R&D, on a particular asset, we will do that, and we just have to size up that opportunity. But I do think as a general rule, given the size of our company, that we should find some opportunity to operate where we can leverage. I would like to see us as we separate the company, maybe be relabeled as more of a growth company. And therefore, we may reposition that, taking that top line growth and putting that back into the business. But as you can see, even in recent years, we've had, I would say, significant operating margin improvement, but we have not starved investment. R&D was up over last year's record-setting year by $2.6 billion or 20%, as Jess mentioned. So we feel that we're finding that right balance, and we'll continue to do so moving forward.

Joseph Wolk:

And Chris, my job will be to keep him disciplined, right? But he's going to conduct that anyway.

Operator:

Next question is from Joanne Wuensch with Citibank.

Joseph Wolk:

It's a great question, Joanne, and thank you for it. It's -- and it certainly has been a moving target as we had certain thoughts as '22 would shape up in the beginning of December to where we are actually ending up today. We've tried to address all the risks that are appropriate based on the information that we have as of January 26. And so we've taken into account, I think, a favorable outlook and an improving trend in Medical Devices, but also the fact that it's going to be a slower start to the year for some of the factors that we mentioned. The same type of position was taken with consumer and some of the supply constraints from some of our suppliers. So I think it's the right balance for where we stand today. We know from the last 2 years that things will likely change, and we'll adjust accordingly. In Pharmaceuticals, there's really not much of a change there. We expect that to be pretty stable. We enjoyed our 10th consecutive year of above-market growth, and we're planning for an 11th year in 2022. We did take note of some of the larger insurers who commented last week during their earnings calls about reduced office visits. So we'll continue to monitor that. But given the portfolio in Pharmaceuticals and various severe diseases that we address with our products, we don't see much change there.

Jessica Moore:

Thank you, Joanne. Rob, next question, please.

Matthew Miksic:

So I have one follow-up on just the topic you were touching on, Joaquin, around R&D investment, and then I’ve a follow-up for Joe, if I could, on inflationary pressure. So you mentioned a couple of times the investments in R&D and in particular, in med devices. I'm wondering if you could talk a little bit about which one of your -- ones of your programs you're sort of seeing the most investment? And then also in particular, either through R&D investment or M&A, how you see sort of digital playing a role in your sort of organic and strategic investments this year? And the follow-up for Joe is just on inflation. It's a topic that I think everyone is struggling with how to understand the ways that this is impacting margins and businesses. Joe, you mentioned a couple of things about the way that you're offsetting some of these pressures in consumer, perhaps labor and supply costs. I was wondering if you could maybe just touch on the different ways it's affecting your different businesses and how you're managing through that? I appreciate that.

Joaquin Duato:

Thank you. So going into medtech, R&D and medtech innovation, let me start by the fact that during 2021, we launched over 20 significant products across each segment of the Medical Device business. Some examples of that, for example, in electrophysiology, we had a limited launch of our QDOT MICRO in Europe. QDOT is a first-in-kind smart micro catheter, which is designed to deliver about 2x to 3x the amount of energy; and at the same time, reduce the total patient exposure and provided exposure to fluoro and reduced total procedure time. And that's helping us in driving our position in electrophysiology. In Orthopedics, we continue our enhancements in orthopedic knees, both with the differentiated next-generation VELYS Robotic-Assisted system. And at the same time, we had the introduction in December of the ATTUNE Cementless fixed bearing base. So these introductions are making us more competitive in the knee space, in the knee arena. In advanced surgery, we have some augmentations to energy to our energy portfolio with our ENSEAL X1 Curved Jaw Tissue Sealer. And in Vision, we introduced our ACUVUE OASYS MULTIFOCAL contact lenses; and in Surgical Vision, our intraocular lenses, TECNIS Eyhance and TECNIS Synergy. So great innovation, which is driving our better performance in market performance. When it comes to our pipeline, there are a number of exciting things coming up, for example, our next-generation diagnostic catheter in electrophysiology and also a potential solution in pulsed field ablation. So all these areas make us believe that we're going to remain extremely competitive in electrophysiology. We continue to prioritize the expansion of our VELYS digital surgery potentially into the hip space and also foot and ankle solutions in orthopedics. And specifically, to your question on digital surgery, that's a very important area for us. We have a bold ambition there, and we are already making progress. The first launch was our MONARCH robotic system. Our MONARCH robotic system, it's enabling in the luminal bronchoscopies. And we have already launched it in the U.S., and it's progressing really well. And we are also studying our MONARCH robotic system to deliver energy and also a payload of pharmaceuticals for being able to do local treatment of early lung cancer lesions. At the same time, we have also submitted a 510(k) expansion of MONARCH for a potential treatment in kidney stones that will give us an expanded market in this area. I commented on our successful launch of our robotic system with VELYS, and we recognize that we will have to continue to be committed to develop in Ottava and entering into the general surgery market with a highly competitive offering, and we are working through that as soon as possible, and we will provide updates as we progress.

Operator:

The next question is from Danielle Antalffy with SVB Leerink.

Joaquin Duato:

As I have commented in the past occasion, Danielle, our preference is clearly both in medtech and in pharma to look for earlier-stage deals or smaller tuck-in deals in which we can deploy our own capabilities in development, manufacturing and commercialization in order to create value. And that's where we have been successful, and we are always trying to look for opportunities in that context in market segments that are going to enable us to enter into higher growth areas or to complement through adjacencies our existing portfolio. So that is the way we have been creating value in a very significant way, both in pharma and in medtech. While our past history always suggest smaller deals, as I said before, we don't have an artificial ceiling as far as far as deal size. It has to be something that has to be workable financially and in terms of value creating for shareholders. And typically larger deals are harder to make work both financial and operationally. So that's where we make it more of an emphasis in areas where we have a higher chance of creating value. We are open to midsized and larger deals, and we have demonstrated that we have done that in the past like we did, for example, with Actelion, but we tend to prefer this small new molecule, new device that we can, as I said before, apply a lot of our scientific technology, regulatory expertise and ultimately create this $1 billion platforms that we have, both in medtech and in pharmaceuticals. So that's our preference. That's our strategy, but we always remain open to investigate any opportunity or possibility that may be out there. It just has a higher bar from a financial and operational perspective.

Operator:

Next question is from the line of Chris Shibutani with Goldman Sachs.

Joaquin Duato:

Chris, and let me take this opportunity also to express how optimistic we are about the future of Pharmaceuticals, and we express in our Pharmaceutical R&D Day that we are very confident of being able to continue to deliver above market growth through the STELARA patent expiration in the U.S. And we are also very confident on the strength that we are showing also in immunology, for example, with TREMFYA, growing 88% and really exceeding expectations. So we are very confident on the potential of TREMFYA, which has exceeded already $2 billion in sales and has gained share both in psoriasis and psoriatic arthritis. So very, very positive about the future of our Pharmaceutical portfolio and also about the strength of STELARA in the immunology market. Regarding the erosion of STELARA, we are going to provide you updates as time goes by. We'll see how things play out with the competitor that it's going to go patent. We'll also learn from our experience with REMICADE, which will be a very good proxy for us and have no doubt, as we approach 2023, we'll be able to provide you a more accurate guidance of what we expect. We -- as I said, we remain optimistic that we'll be able to deliver growth during the STELARA patent expiration every single year. Thank you, Chris.

Joaquin Duato:

Thank you, everyone, and thank you for your comments and questions today in this my first call as CEO of Johnson & Johnson. Every day, as I get into this job, I am reminded of the importance of our mission to continue to work in changing the trajectory of health for humanity. And it's a purpose that energizes everyone at Johnson & Johnson, the 140,000 employees of Johnson & Johnson. We are proud of our performance in 2021 and believe we are extremely well positioned for 2022. We look forward to keep you informed throughout the year. And until then, please be well. Thank you very much.

Sarah Wood:

Good morning. This is Sarah Wood, Senior Director, Investor Relations, for Johnson & Johnson. Welcome to our Company's review of business results for the third quarter and our updated financial outlook for 2021. On today's call is Joe Wolk, Executive Vice President, Chief Financial Officer; and So, during the Q and A portion of the call, Joe will be joined by Ashley McEvoy, Executive Vice President, and Worldwide Chair, Medical Devices. Thibaut Mongon, Executive Vice President and Worldwide Chair, Consumer Health, and Jennifer Taubert, Executive Vice President and Worldwide Chair Pharmaceuticals. 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 & Johnson website at investor. jnj.com, where you can also find additional materials, including today's presentation and associated schedules. Please note that today's presentation includes forward-looking statements. We encourage you to review the cautionary statements included in today's presentation, which identifies certain risks and factors that may cause the Company's actual results to differ materially from those projected. In particular, there is uncertainty about the duration and contemplated impact of the COVID-19 pandemic and other marketplace dynamics. This means that results could change at any time. And the contemplated impact of COVID-19 on the Company's business results and outlook is a best estimate based on the information available as of today's date. A further description of these risks, uncertainties, and other factors can be found in our SEC filings, including our 2020 Form 10-K and subsequent Form 10-Qs, along with reconciliations of the non-GAAP financial measures utilized for today's discussion to the most comparable GAAP measures. These materials are also available at investor.jnj.com. 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. Moving to today's agenda, I will review the third quarter sales and P&L results for the corporation and the three segments. Joe will provide some additional business and financial commentary before providing an overview of our cash position and capital allocation, and then conclude with updated guidance on 2021 results. The remaining time will be available for your questions. We anticipate the webcast to last up to 60 minutes. Now let's move to the third quarter results. Worldwide sales were $23.3 billion for the third quarter of 2021, an increase of 10.7% versus the third quarter of 2020. Operational sales growth, which excludes the effect of translational currency, increased 9.9% as currency had a positive impact of 0.8 points In the U.S., sales increased 7.9%. In regions outside the U.S., our reported growth was 13.8%. Operational sales growth outside the U.S. was 12.1% with currency positively impacting our reported OUS results by 1.7 points. Excluding the net impact of acquisitions and divestitures, adjusted operational sales growth was 10.6% worldwide, 8% in the U.S. and 13.5% outside the U.S. Turning now to earnings, for the quarter, net earnings were $3.7 billion and diluted earnings per share was $1.37 versus diluted earnings per share of $1.33 a year ago. Excluding 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 $2.60, representing increases of 18.7% and 18.2% respectively compared to the third quarter of 2020. On an operational basis, adjusted diluted earnings per share increased 16.4%. I will now comment on business segment sales performance, highlighting items that build upon the side you have in front of you, unless otherwise stated, percentage is quoted, represent the operational sales change in comparison to the third quarter of 2020 and therefore, exclude the impact of currency translation. Beginning with consumer health, worldwide consumer health sales of $3.7 billion increased 4.1% with growth of 4.5% in the U.S. and growth of 3.7% outside of the U.S. Excluding the impact of divestitures, worldwide growth was 5.7%. Although there is variability across the franchises due to the impact of COVID-19, the overall portfolio is performing well. When comparing to 2019, the consumer health business grew approximately 8% operationally in the quarter. Over-the-counter medicines saw strong growth of 18.2% globally due to share gains in the U.S., along with an increase of pediatric fever incidences and demand for vaccination symptom relief that drove increased sales of Tylenol and Motrin globally. Additionally, category recovery increased demand for cough, cold, flu, and Digestive Health brand such as IMODIUM. Sales outside the U.S. benefited from prior-year comparisons, specifically prior-year reduction in consumption in China. Our skin health beauty franchise declined by 3% globally, largely due to the 330 basis point impact of the divestiture of Sedona, the salon-based portion of [Indiscernible] in Asia Pacific. Excluding this impact, the franchise experienced modest growth driven by strong performance in AVEENO and NEUTROGENA facial moisturizing and body care driven by COVID-19 market recovery and e-commerce growth, partially offset by external supply constraints and lost sales from the sun aerosol recall. Oral Care declined 4.5% globally, largely due to the impact of divestitures worth approximately 300 basis points. Excluding this impact, the franchise declined due to external supply constraints for Listerine in the U.S. and negative comparisons to prior-year COVID-19 related impacts in EMEA, partially offset by strong performance in Asia-Pacific, driven by strong promotions and brand building behind Listerine's germ fighting ability. The baby care franchise declined 1.2% globally, resulting from Asia-Pacific COVID-19 lockdowns and competitive pressure, mostly offset by strong Aveeno performance, along with category and e-commerce growth in the U.S. Our Women's Health franchise grew 0.8% globally, primarily due to lapping prior-year COVID-19 impacts. And finally, our Wound Care franchise declined 4.8% globally, driven by unfavorable comparisons to prior-year stocking in the U.S. and competitive pressure in Asia-Pacific. Moving on to our Pharmaceutical segment. Worldwide Pharmaceutical sales of $13 billion increased 13.2% with growth of 12.2% in the U.S. and growth of 14.6% outside of the U.S. Excluding the net impact of acquisitions and divestitures, worldwide growth was 13.8%. Additionally, as a reminder, for comparison purposes, Q3 of 2020 was negatively impacted by access-related constraints due to COVID-19, resulting in a decrease of roughly 200 basis points in total across key brands. Our strong portfolio of products and commercial capabilities continue to enable us to deliver adjusted operational growth at above-market levels. The immunology portfolio delivered strong global sales growth of 11.7%, driven by double-digit performance of STELARA and TREMFYA, offset by declines in REMICADE due to biosimilar competition. STELARA continued to show strength in all regions, growing at 21.7% driven by market growth and share gains of roughly 4 points in Crohn's disease and nearly seven points in all sort of colitis in the U.S. TREMFYA was up 63.5% with strong double-digit growth worldwide due to continued positive share growth and additional penetration into the psoriatic arthritis indication. U.S. share increased over 2 points in psoriasis and over 3 points in psoriatic arthritis. Oncology also delivered another strong quarter with global sales growth of 16.5%. DARZALEX continued its double-digit performance with 42.9% growth in the quarter, driven by share gains, increased penetration of the subcutaneous formulation in the U.S. and EU, and continued launches globally. DARZALEX grew share across all lines of therapy with nearly 5 points of share growth in the U.S. this quarter, as an example. ERLEADA also continued its global uptake with growth of 65.8% in the quarter, driven by global market share gains, which increased in the U.S. alone by nearly 2 points across all indications led by the metastatic indication. IMBRUVICA grew 2.5% globally due to the brand's market leading share position, but was partially offset by modest share losses in the U.S. and a market that remains constrained due to temporary COVID-19 impact on new patient starts. In addition, growth was negatively impacted by a prior period adjustment in the U.S. that was worth nearly 350 basis points on worldwide IMBRUVICA growth. Neuroscience grew 4.6% globally, driven by paliperidone long-acting portfolio, posting market and share growth due to increased new patient starts and strong persistency in the U.S. The cardiovascular, metabolism, and other business declined 12.4% globally due to competitive pressures and INVOKANA and biosimilar competition for PROCRIT. Pulmonary hypertension achieved strong growth of 16.1% driven by OPSUMIT growth of 17.1% and UPTRAVI growth of 18.8%, both driven by market penetration and share gains. And lastly, global sales in the quarter included a $502 million contribution from the COVID-19 vaccine, bringing the year-to-date total to 766 million. Through the first 9 months of the year, revenue has been recorded at a not-for-profit price of $7.50. I'll now turn your attention to the medical devices segment. Worldwide medical devices sales of $6.6 billion increased 7% with growth of 0.8% in the U.S. and growth of 13.3% outside of the U.S. Excluding the impact of divestitures, worldwide growth was 7.6%. In the medical devices segment, we have seen mixed marketplace recovery as the COVID-19 Delta variant and related factors impacted our sales across most of the categories in which we participate within the quarter with certain procedures such as spine and knees within Orthopedics deemed to be more elective in nature, continuing to lag in terms of recovery. The Interventional Solutions franchise delivered another quarter of worldwide double-digit growth at 13.2% driven by market recovery, success of new products in both electrophysiology and neurovascular, and strong commercial execution. Worldwide surgery grew 10.2%, primarily driven by recovering procedure volumes and market expansion in Asia Pacific. Advanced Surgery grew 12.6% globally, driven by the positive impact of procedure recovery, new product introductions, and China Tier 2 and 3 hospital market expansion across Endo cutters, biosurgicals, and energy, partially offset by continued competitive pressure in Endo cutters and energy in the U.S. Building on the MONARCH robotic milestone communicated last quarter, we reached another significant commercial achievement, now enabling over 10,000 bronchoscopy procedures. General Surgery grew 8.1% globally. Wound Closure is the largest contributor with growth driven by procedure recovery, China Tier 2 and 3 hospital market expansion, and continued competitive growth in both traditional and barbed suture markets. The Worldwide Orthopedics franchise declined 0.3% with U.S. declines of 4.5% reflecting the impact of COVID-19 on procedures within the quarter, partially offset by 6.8% OUS growth. Trauma grew 3.7% globally, 5.3% increase in the U.S., and a 0.9% increase outside the U.S. Results reflect global market recovery dynamics and success of recent product introductions like our cannulated compression headless screws, advanced nailing systems and FIBULINK. Hips grew 2.3% globally, driven by recovery and procedures primarily outside the U.S. and continued leadership in the anterior approach supported by our robust portfolio of new products, such as ACTIS femoral stem, PINNACLE dual mobility and VELYS hip navigation. In Q3, we introduced new image guidance capability for VELYS hip navigation, which support surgeons who prefer the posterior approach in addition to the anterior approach. Needs grew 2.1% this quarter, reflecting recovery of procedures, especially in markets outside of the U.S. Growth in the U.S. outpatient surgery channel and continued momentum from recently launched products, including the VELYS Robotic-Assisted Solution and our ATTUNE portfolio. Results in the quarter also benefited from the timing of international tender orders worth approximately 350 basis points of global growth. Lastly, within Orthopedics, Spine declined 11% globally, driven primarily by a deceleration in procedure volume related to COVID-19. The Worldwide Vision franchise grew 10% this quarter, primarily driven by market recovery, commercial initiatives, and new products driving enhanced competitiveness. Contact lens global growth of 6.4% reflects continued positive momentum for our market-leading ACUVUE portfolio, success of commercial initiatives, and recently launched products such as ACUVUE OASYS MULTIFOCAL, and ACUVUE DEFINE FRESH. The decline of 4.3% in the U.S. includes a negative impact of prior year stocking worth about 10 points. Surgical vision delivered global growth of 22.1% driven by market recovery across all regions and success of recently launched products continuing to enhance competitiveness, including TECNIS Eyhance and TECNIS Synergy. Now, regarding our consolidated statement of earnings for the third quarter of 2021, I'd like to highlight a few noteworthy items that have changed compared to the same quarter of last year. Cost of products sold improved by 200 basis points, driven by recovery from prior-year COVID-19 related impacts and favorable enterprise mix from growth in Pharmaceuticals. We continue to invest strategically in Research and Development at competitive levels, investing 14.7% of sales this quarter. This $3.4 billion investment was a 20.5% increase versus the prior year due to portfolio progression. In process research and development reflects a partial impairment expense of $900 million for assets associated with the acquisition of Auris. The other income and expense line changed from a net expense of $1.2 billion in the third quarter of 2022 to net expense of $1.9 billion in the third quarter of 2021, primarily due to an increase in litigation-related charges. Joe will provide more details on both the IP R&D and litigation-related charges. Regarding taxes in the quarter, on a GAAP basis, our effective tax rate was 4.7% in the third quarter of 2021 compared to 19.2% in the third quarter of 2020, mostly driven by unfavorable tax reserves and positions from the prior year, which did not reoccur. Along with lower income and higher tax jurisdictions driven by one-time current quarter special items. excluding special items, the effective tax rate was 13.5% versus 19% in the same period last year. I encourage you to review our upcoming third quarter 10-Q filing For additional details on specific tax matters. Lastly, I'll direct your attention to the boxed section of the slide, where we have also provided our income before tax, net earnings, and earnings per share adjusted to exclude the impact of intangible amortization expense and special items. Now let's look at adjusted income before tax by segment. In the third quarter of 2021, our adjusted income before tax for the enterprise as a percentage of sales remained fairly consistent to the prior year with some changes between our 3 segments. Pharmaceutical margins declined from 46.4% to 43.9% driven by research and development investment to enable portfolio progression. Medical Devices margin improved from 21.6% to 25.5%, driven by recovery from prior-year COVID-19 related impacts and overall expense leveraging resulting from sales recovery. Finally, consumer health margins declined from 24.4% to 23.3%, driven by a 2020 one-time item and increased brand marketing expenses partially offset by COGS improvement. That concludes the sales and earnings portion of the Johnson & Johnson Third Quarter results. I'm now pleased to turn the call over to Joe Wolk.

Jennifer Mc Intyre:

Thank you, Joe. Good morning, everyone. Rob, can you please provide instructions for those on the line wishing to ask a question?

Chris Schott :

Great. Thanks so much for the question. I guess just first, can you just quantify or elaborate on the impact that the Delta variant head on 3Q results in your guidance. I guess I'm trying to get to was the impact you saw in the third quarter basically in line with what you had contemplated in guidance, or did we have upside elsewhere in the portfolio that offset some of those slowdowns that you mentioned that hit part of the businesses? And then just maybe building on that as we think out to 2022, I know you're not giving guidance yet, but is there more in the way of COVID recovery that can aid growth next year as you think about the portfolio as a whole? I guess I'm trying to get to this base pharma growth sustainable at these levels. And should we think about still Device growth, maybe above historic levels as we get COVID more in the rearview mirror a bit? Thanks so much.

Ashley Mc Evoy :

Sure. Thanks, Joe. And thanks for the question, Chris. When I look at quarter three as we share, procedures across most categories in which we participated did decelerate through the quarter, primarily due to obviously the Delta. So if I take you a little bit around the world, Asia-Pacific in aggregate continues to operate above pre - COVID levels. However, COVID does continue to be a challenge with like mobility restrictions being reinstated or remaining in places like Japan, Australia, Southeast Asia. China clearly is setting a new pace for the world. When we look in the United States, we saw procedure trends decelerate in quarter 3. You'll recall on our quarter 2 call, we were feeling pretty good around 5% growth procedures in May. We saw a stabilization in June and July. In August, we saw the numbers of procedures dip around mid-single digit, and we saw that continue into the early part of September. We are starting to see, qualitatively, recovery from hospital systems the past four weeks, where we look at early indicators of really filling the patient funnel. We look at diagnostic procedures and the past four weeks we're seeing diagnostic procedures in the United States flat relative to pre-COVID numbers. And as we talked about, we do expect some micro-surges in areas like the Northwest as well as the Midwest. And then, in EMEA, rounding it out, we are encouraged that countries are beginning to ease its strict mobility restrictions and are really starting to resume procedures, given the vaccine deployment accelerations, the decrease in rates of new cases and hospitalizations, and overall, procedure volumes are gradually improving, like Spain, Italy, Germany are all above pre -COVID. The UK, where I was just there 2 weeks ago, clearly below 2019, long waiting list, really working to go, make progress on that patient funnel. I'll turn you to Jennifer for any other commentary.

Joseph Wolk :

Great. Thanks, Ashley and Jennifer and Chris, I know you asked about medical devices and pharmaceuticals. But to be complete, Thibaut I know you had great success in the quarter, 6%, almost 9% when you compare to Q3 of 2019, maybe give a little bit of an outlook as to what you're seeing for the balance of the year and into next?

Joseph Wolk :

Great. Thanks, Thibaut. Jen, back to you.

Operator:

Your next question comes from Josh Jennings with Cowen and Company.

Joseph Wolk :

Yeah, thanks for the question, Josh. Let me start this response by underscoring just our conviction in the safety based on decades of science that these products are safe. What we've done is acknowledge that there's an established process that allows companies facing abuse of toward systems to resolve claims in an efficient and equitable manner. We initiated this process specifically for our cosmetic talc claims, both for current and future. And while we believe the cases lack merit, and by the way, an overwhelming number of courts, juries, and judges who have opined on this to full adjudication ultimately agree with us. We did establish a $2 billion qualified settlement fund. But as you note in your question Josh, it's really the bankruptcy courts that will ultimately decide this. It's not plaintiff's attorneys. It's not Johnson & Johnson. But we do know that based on prior experience precedent, that claimants are far better off and clarity and resolution is in the best interest of all stakeholders. So we'll continue to monitor the process, but we're really beholden to how the bankruptcy court decides to proceed and their timeline.

Operator:

Next question comes from the line of Larry Biegelsen with Wells Fargo. Please proceed with your question.

Ashley Mc Evoy :

Thanks for the question, Larry. And before I get to quarter 4, let me just give a quick frame for quarter 3 just at a macro level. First is really the market. And while COVID-19 has temporarily disrupted the MedTech markets, we absolutely believe that the underlining foundation of these end-state markets continue to remain attractive really due to what we say are oodles of clinical unmet need and quite frankly, the overall state of the technology on the S-curve. Quick refresh is our standing and our competitiveness as the second largest MedTech Company with 11 platforms delivering at least a billion in annual sales, we are very much focused on competitiveness and innovation. In quarter 2, almost all of our priority platforms held or gained share. Some notables include continuing to enhance our global market position in electrophysiology. Biosurgery gaining share and hips seeing the impact of recent innovation in surgical vision. Now seeing several sequential quarters of share gains and even seen stabilization in knees year-to-date. So this is really about our focus on commercial effectiveness and our ability to deliver innovation. As Joe mentioned earlier, in 2021, we had 17 new product launches year-to-date. And this is a significant amount over last year. So year-to-date through 2021, Larry, we are tracking to 5% growth versus 2019. We did achieve 4% growth in quarter 3. Obviously, that's an improvement of how we exited 2019 the full year. And then last, I would just say, you heard us talk a lot about digital surgery. We're absolutely committed to leading in the future of surgery and making our medical innovation smarter, less invasive, and more personalized. Joe talked a little bit about our MONARCH reaching 10,000 patients this year, has a very rich pipeline. VELYS Knees is now approved in 5 countries. Our smart digital tools continue to scale. And lastly, Ottava, our soft tissue offering, you heard us share we're experiencing a temporary setback in its development. Transformational innovation is all kinds of fun, I will tell you. It's highly complex, but sometimes we do experience technical challenges, but we are absolutely committed to resolving our challenges, continuing to invest and bringing to market a competitive differentiated offering as soon as possible. When we look at quarter 4, we do expect to see continued improvement. We do expect hospitals are going to have to continue to continue to manage through labor shortages. I don't expect that to get better in quarter 4 nor in 2022, but they've been quite master rolling how to manage patient flows. We are when I talk to hospital systems over the past three weeks and particularly in United States, they are ramping up again and resuming elective procedures. We're keeping our eye on vaccination rates, patients sentiment, the cold weather. But we do -- we are planning for a strong recovery in quarter 4 versus how we exited quarter 3.

Operator:

Next question is from Louise Chen with Cantor.

Joseph Wolk :

Thanks, Louise, for the question. I'll try to address that one. What I would say is, first off, I'd probably repeat the words I had both to congratulate Alex, as well as Joaquin. Alex clearly on a stellar career, a great run as his tenure as CEO. And he'll be a very active Executive Chairman, I suspect. It's not as if he's riding completely off into the sunset. Joaquin values the same principles that have made Johnson & Johnson successful. That's investing in innovation and making sure that we've got differentiated products and solutions to improve the standard of healthcare across the globe. The nice thing about the transition is, I don't expect any significant bumps. They've worked together for a number of years. The strategies that they have talked about and that you'll probably see in the early part of Joaquin 's tenure have been contemplated with Alex in mind and they've collaborated as Chair and Vice Chair over a number of years. So I would expect as the organization does a very smooth transition. With respect to CSO, we have not had a chance to acknowledge just really the impact that Paul has had on the scientific community not just here at Johnson & Johnson, but across the globe. He was a pioneer in infectious diseases. When nobody had an answer for HID, Paul emerged as clearly a leader there. And then just most recently his notable leadership on the COVID-19 vaccine, again here at J&J but also on the global stage. I think the -- probably the greatest testament to Paul's legacy is the fact that our R&D investment this year is 23% higher through nine months than what it was last year, and last year was a record-setting year in terms of what we've invest in innovation. We've got a great team of scientists that Paul has assembled over the years across all of our therapeutic areas, across all of our franchises. And I just look forward to the success that they will continue to carry on that Paul has really, I guess, cemented in terms of how we approach our business.

Operator:

Next question is from Matthew Harrison with Morgan Stanley.

Jennifer Mc Intyre:

Sure. Hi, it's Jennifer. So we are really looking forward to our upcoming PDUFA date in the 4th quarter for our BCMA CAR-T. This is going to be our first entry into cell therapy, and so the total team from R&D to supply chain to commercial has been really, really invested in this asset over the past couple of years preparing to launch. I think the results that you've all seen, and they're really deep and durable responses that have been proven through our clinical programs really highlight that this is going to be a really meaningful and transformational asset for patients. As we have been planning the launch, we're really taking a thoughtful approach to scaling our global manufacturing, making sure that we're learning from those who come before us, and that we're really going to plan to deliver an optimal patient experience and patient treatment or provider treatment center experience as well as we scale up. So the team has been working very heavily on this and we're gearing up for what we believe will be a very successful launch for patients hopefully later this year. I also want to call out the very strong partnership that we have with Legend Biotech, where we've been attached at the hip throughout and we're so excited to be working in partnership with them to be bringing that to market. I'm looking forward to a good launch later this year.

Operator:

Your next question comes from Matt Miksic with Credit Suisse.

Ashley Mc Evoy :

Thank you for the question, Matt. As Sarah shared in quarter 3, knees grew 2% versus 2020, and a lot of that was due to really two-folds. One is the state of innovation, so the VELYS knee robot is obviously getting some nice traction. As Joe shared earlier, the utilization rates are very encouraging from hospital systems that have adopted this new technology. That coupled with a very proven differentiated ATTUNE knee implant, with a revision offering, as well as the cementless rotating platform have all really helped [Indiscernible] up, I would say, our portfolio in knees. And then you mentioned the channel and we are seeing really healthy growth in the ASC channel. We continue to be encouraged by our market share gains predominantly enjoined in ASC. And really we started to deploy what we call an advanced case management, which is really how you simplify the pre -op planning in ASC and that new advanced case management service is starting to really take effect. And we expect to have these new sites of care start to really improve not just in [Indiscernible], not just in the U.S., but even in areas of Europe and really moving joints to more of a day surgery. Thank you for the question.

Matthew Harrison:

Just we hadn't touched on it this call, but the sort of pivot to commercial, would love to get your sense of how we should think about timing and the sort of catalysts for that product becoming a commercial product, whether next year or the year after.

Joseph Wolk :

Matt, this is Joe. Thanks for raising the point because I do think that underscores in that question just the strength of our core business, right? So vaccines in and of itself this year is not for profit. As Jennifer said, we'll rely on the science and the data to guide us how we proceed commercially. But you should all consider that as upside to our base plan. We're so proud of the results that we've been able to accomplish, the investment in R&D, and just the strength of the portfolio not just this year, but how it really sets up for the balance of this decade, I think is something that people should take away from the call. I always smile a little bit whenever there's vaccine news because it seems to be overly pronounced impact on our stock, good or bad. And it always just makes me chuckle a little bit because of the strength of our business is really in our pharmaceutical medical device and consumer strength these days.

Joseph Wolk :

That was a 60-second spot, Jennifer. Thibaut is going to tell you about the rates on that one, if you say. Jen.

Operator:

Your last question comes from Danielle Antalffy with SVB Leerink.

Ashley Mc Evoy :

Thanks for the question, Danielle. I think what we're planning for quarter four is I think we'll still continue to see micro-surges in cases. There will always be little hot spots. Hospitals are still going to experience some labor challenges. We don't see that getting better in the near-term immediately. I will qualify that so to say that they have been quite frankly masters at understanding how to manage patient flow and procedure flow. When we look at diagnostic and routine screenings and surgical procedures, we expect the trends will continue to recover globally, similar to the trends we saw in quarter two where surgical procedures grew low single-digit above 2019 baselines. As we've referenced, there are more procedural backlogs in the highly elective procedures like knees and spine. And we expect those to recover, although maybe not as in terms of hospital capacity, at levels significantly above 2019 in the near-term. But I would just say going into November, relative to where we were entering November last year, we are encouraged to look at the worldwide case data, to look at the worldwide hospitalization data and the freeing up of mobility restrictions. So we are encouraged by quarter [Indiscernible] performance from 2021 Q4 versus last year. You'll recall we ended around 1.5% Medical Devices did in revenue versus 2019. So we are anticipating a healthier recovery.

Jennifer Mc Intyre:

Thanks, Danielle, for your question and thanks to everyone for your questions and your continued interest in our Company. Our apologies to those we couldn't get to today because of time, but please don't hesitate to reach out to Investor Relations as needed. I will now turn the call back to Joe for some brief closing remarks.

Operator:

Thank you. This concludes today's Johnson & Johnson Third Quarter 2021 earnings conference call. You may now disconnect.

Chris DelOrefice:

Good morning. This is Chris DelOrefice, Vice President of Investor Relations for Johnson & Johnson. Welcome to our Company's review of business results for the Second Quarter and our updated financial outlook for 2021. Joining me on today's call is Joe Wolk, Executive Vice President, Chief Financial Officer. Also joining Joe and myself during the Q&A portion of the call will be Jennifer Taubert, Executive Vice President and Worldwide Chair, Pharmaceuticals, Thibaut Mongon, Executive Vice President and Worldwide Chair, Consumer Health, and Ashley McEvoy, Executive Vice President and Worldwide Chair, Medical Devices. 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 web site at investor.jnj.com, where you can also find additional materials, including today's presentation and associated schedules. Please note that today's presentation includes Forward-looking statements. We encourage you to review the cautionary statement included in today's presentation, which identifies certain risks and factors that may cause the Company's actual results, to differ materially from those projected. In particular, there is uncertainty about the duration and contemplated impact of the COVID-19 pandemic. This means the results could change at any time, and the contemplated impact of COVID-19 on the Company's business results and outlook, is a best estimate, based on the information available as of today's date. A further description of these risks, uncertainties, and other factors can be found in our SEC filings, including our 2020 Form 10-K and subsequent Form 10-Qs, along with reconciliations of the non-GAAP financial measures, utilized for today's discussion, to the most comparable GAAP measures are also available at investor.J&J.com. 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. Moving to today's agenda. I will review the second quarter sales and P&L results for the corporation and the 3 business segments. Joe will provide insights about our cash position and capital allocation deployment, and will outline our updated guidance, inclusive of the COVID-19 vaccine for 2021. Then we will begin the Q&A session with each of the segment leaders providing a brief update on their respective businesses. The remaining time will be available for your questions. We anticipate the webcast will last up to 75 minutes. Now, let's move to the second quarter results. Worldwide sales were $23.3 billion for the second quarter of 2021, an increase of 27.1% versus the second quarter of 2020. Operational sales growth, which excludes the effect of translational currency, increased 23% as currency had a positive impact of 4.1 points. In the U.S., sales increased 24.9%. In regions outside the U.S., our reported growth was 29.5%. Operational sales growth outside the U.S. was 20.9%, with currency positively impacting our reported OUS results by 8.6 points. Excluding the net impact of acquisitions and divestitures, adjusted operational sales growth was 23.8% worldwide, 25.1% in the U.S. and 22.4% outside the U.S. Turning now to earnings. For the quarter, net earnings were $6.3 billion and diluted earnings per share was $2.35, versus diluted earnings per share of $1.36 a year ago. Excluding after-tax intangible asset amortization expense and special items for both periods, adjusted net earnings for the quarter were $6.6 billion, and adjusted diluted earnings per share was $2.48, representing increases of 49% and 48.5% respectively, compared to the second quarter of 2020. On an operational basis, adjusted diluted earnings per share increased 44.9%. I will now comment on business segment sales performance, 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 2020, and therefore exclude the impact of currency translation. Beginning with Consumer Health. Worldwide Consumer Health sales totaled $3.7 billion and increased 9.2%, with increases in the U.S. of 12.4% and growth of 6.3% outside of the U.S. Excluding the impact of divestitures, worldwide growth was 10%. Year-to-date adjusted operational growth was 3.3% and is more reflective of performance given the quarterly fluctuations of COVID-19 impacts. The over-the-counter medicines grew 8.9% globally, driven by strong growth in ZYRTEC, due to both the timing of and increased incidents in the allergy season. Digestive Health grew double-digits driven by U.S. PEPCID, new SKU stocking in the Club Channel, coupled with share growth and increased COVID-19 related healthcare professional recommendations for the hydration benefit offering, ORSL, in the Asia Pacific region. The skin health beauty franchise grew 12.9% globally, with the U.S. increasing 23% and OUS increasing 1.4%. Skin health beauty outside the U.S. was negatively impacted by approximately 300 basis points due to divestitures. Worldwide growth was driven by market recovery in key markets, increased U.S. stocking for new products, and comparisons to COVID -19 related destocking dynamics. NEUTROGENA and AVEENO delivered strong performance in the U.S., primarily due to market recovery, new product innovation, and higher stocking due to the NEUTROGENA rapid firming product launch, partially offset by competitive pressures. OGX and [Indiscernible] growth was driven by share gains and market growth in hair care. Oral Care grew 2.5% globally due to strong OUS performance for LISTERINE, reflecting accelerated category and increased demand from continued successful promotional campaigns. Divestitures in the quarter, negatively impacted results by 310 basis points. The Baby Care franchise grew by 5% as a result of market recovery and OUS strength in Johnson's and AVEENO Baby in eCommerce. Wound Care delivered strong growth of 13.4%, driven by U.S. market growth with increased consumer behaviors focused on preparedness and infection prevention, and seasonal stocking versus prior year COVID-19 destocking dynamics. Moving on to our Pharmaceutical segment. Worldwide Pharmaceutical sales of $12.6 billion grew 13.6%, with strength in both the U.S. increasing by 12.2% and OUS with sales increasing by 15.4%. Excluding the impact of divestitures, worldwide growth was 14.1%. Global sales in the quarter included a $164 million contribution from the COVID-19 vaccine. Additionally, as a reminder for comparison purposes, Q2 of 2020 was negatively impacted by access-related constraints due to COVID-19, resulting in a decrease of roughly 300 to 350 basis points in total across key brands. Our strong portfolio of products and commercial capabilities continues to enable us to deliver strong adjusted operational growth at above market levels. Our immunology therapeutic area delivered global sales growth of 17%, driven by strong double-digit performance of STELARA and TREMFYA offset by declines in REMICADE due to biosimilar competition. STELARA continued to show strength in all regions, growing at 30.5% driven by increased market growth and share gains, with U.S. share increasing roughly 4 points in Crohn's disease and nearly 8 points in ulcerative colitis. TREMFYA was up 36.8% with strong double-digit growth worldwide due to share gains, continued global expansion into new markets, and additional penetration into the psoriatic arthritis indication that was approved in 2020. U.S. share increased over 2 points in psoriasis and nearly 3 points in psoriatic arthritis in the quarter. Our oncology portfolio delivered another strong quarter with growth of 21.5%. DARZALEX continued its exceptional performance trajectory growing 53.8%, driven by share gains and increased penetration of the subcutaneous formulation in the U.S. and EU. DARZALEX continues to grow share across all lines of therapy, with nearly 4 points of share growth in Line 1 in the U.S. this quarter. ERLEADA also continued its global momentum with growth of 73.7% in the quarter, driven by market share, which increased by nearly 2 points across indications, and penetration gains, especially in the metastatic indication. IMBRUVICA grew 12.5% globally due to volume gains driven by our market-leading share, but was partially offset by modest share losses in the U.S. to novel oral competition and a market that remains slightly depressed due to temporary COVID-19 impacts on new patient starts. In neuroscience, our paliperidone long-acting portfolio had strong double-digit growth of 10.6%, driven by market and share growth due to increased new patient starts and strong persistency. Cardiovascular, metabolism, other declined 7.3% this quarter, driven by continued biosimilar competition for PROCRIT and competitive pressures in INVOKANA, which was partially offset by growth of 1.8% in XARELTO due to continued demand strength. Lastly, our pulmonary hypertension portfolio achieved growth of 8.7% with OPSUMIT growth of 11.9% and UPTRAVI growth of 9.8%, both driven by market penetration and share gains. I'll now turn your attention to the Medical Devices segment. Worldwide medical devices sales of $7 billion grew 57.2%, with the U.S. increasing 77.2% and OUS increasing 41.9%, primarily due to the recovery of procedures from COVID-19 restrictions that occurred in the second quarter of 2020, coupled with the success of recently launched products and commercial activities across the business. Selling days had a minor positive impact on growth this quarter. We expect the full-year impact from selling days, excluding the impact of the 53rd week in 2020, to be minimal. Given the extent of the procedure disruption from COVID-19 in 2020, I thought it may be helpful to provide context for our current quarter performance versus the second quarter of 2019. Worldwide Medical Devices grew about 7% versus Q2 2019, with 8 of our 11 billion-dollar platforms showing growth versus 2019. The pace of market recovery in knees, spine, and vision-surgical, has been slower than the other markets in which we compete as these procedures are perceived to be more deferrable by patients. Geographically, both the U.S. and Asia-Pacific markets surpassed Q2 2019. While EMEA and Latin America markets have been slower to recover, and Q2 results remained at or below 2019 levels. Looking at results for each of our platforms, Interventional Solutions delivered another strong quarter with worldwide growth of 71.3% and strong double-digit growth versus the second quarter of 2019. Electrophysiology reinforced our global market share leadership position growing 74.4%, driven by recovery in the market coupled with our market expansion activities, the strength of our broad-based portfolio, and new products. Worldwide orthopaedics delivered 48.6% growth versus the prior year, driven primarily by market recovery and success of newer product launches. Worldwide trauma delivered growth of 24.8%, reflecting market recovery, strength of our comprehensive portfolio, and success of newer product introductions. This quarter, we expanded our market-leading portfolio of products with the launch of a next-generation Variable Angle Clavicle Plate System designed to enhance plate to bone fit on a broad range of patients and simplify implant selection for the surgeon. And we launched an advanced tibial nailing system, designed to provide a more stable implant solution and create efficiency within the healthcare system by streamlining instrumentation across our portfolio. Worldwide hips grew 68.1% this quarter, driven by market recovery, our continued leadership position in the anterior approach, demand for the ACTIS Stem, aided by our other enabling technologies, such as VELYS Hip Navigation and innovative commercial programs focused on expanding coverage and access for hip fracture patients in parts of Europe and Latin America. Knees returned to growth this quarter, increasing 94.6% globally, primarily due to market recovery. Results reflect continued COVID-19 challenges and the related impact on procedures in markets like India, Japan, and Australia, and other dynamics, including faster recovery trends in primary knee procedures compared to revisions. This quarter, we began commercialization of our VELYS Robotic-Assisted Solution for total knee procedures in the U.S. We believe this launch, along with our differentiated VELYS Digital Solutions and ATTUNE knee platform, including the second half 2021 launch of ATTUNE Cementless Fixed Bearing Knee with AFFIXIUM 3D Printed Technology, will enhance our portfolio and competitiveness as procedures continue to recover. Spine returned to worldwide growth this quarter, increasing 51.7%, reflecting market recovery and positive impact from recently launched products, SYMFONY, CONDUIT and FIBERGRAFT, as well as strategic partnerships which further enhance our offerings, such as the X-Pac Expandable Cage. Advanced Surgery grew 44.3% versus prior - year. In addition to the positive impact of procedure recovery, Biosurgery delivered sales growth of 48% and positive share momentum driven by new products and commercial strategies to expand market penetration and adoption. Endocutters and Energy both grew around 40% globally, primarily due to procedure recovery, new product introductions, and China Tier 2 and 3 hospital market expansion activities, partially offset by competitive pressure in the U.S. We also achieved a significant milestone within the quarter with our Monarch robotic platform, surpassing a 100 customers and 8,000 procedures. General surgery grew 67.8% globally, with Wound Closure growing 50.1% globally, driven by recovery in the markets, continued strength of our market-leading suture portfolio, including our Plus sutures and STRATAFIX Barb suture family, and a change in channel inventory levels in the U.S., contributing about 6 points to global growth. Global General Surgery sales were positively impacted by 23 points due to a prior-year unfavorable pricing adjustment in the U.S., we communicated last year. Worldwide Vision grew 66% this quarter, primarily driven by market recovery. U.S. Contact Lens growth of 73.6% reflects the strength of our market-leading ACUVUE Portfolio. Commercial initiatives, such as our Prioritize Your Eyes campaign, launched to raise awareness around the importance of routine screenings, new products, including early success from ACUVUE Multifocal, and an inventory build contributing about 5 points. Growth outside the U.S. of 43.1% reflects market recovery and strength of ACUVUE 1-DAY, and recent Asia-Pacific ACUVUE DEFINE FRESH Beauty launch. Global Surgical Vision delivered growth of a 115.8%, driven by market recovery and positive momentum related to new products like TECNIS Eyhance, TECNIS Synergy, which both launched this year in the U.S. market, and VERITAS, our next-generation phacoemulsification device. Now regarding our consolidated statement of earnings for the Second Quarter of 2021, please direct your attention to the box section of the schedule. You will see we have provided our earnings adjusted to exclude intangible amortization expense and special items. As reported this morning, our adjusted EPS of $2.48 reflects a reported increase of 48.5% and an operational increase of 44.9%. 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 improved by 340 basis points, primarily driven by the recovery in Medical Device from prior-year COVID-19 related inventory impacts and fixed cost deleveraging. Selling, marketing, and administrative margins improved 110 basis points due to the recovery of Medical Device sales from the prior year's negative COVID-19 impact. We continue to invest in Research and Development at competitive levels, investing 14.6% of sales this quarter. The $3.4 billion investment was a 25% increase versus the prior year due to portfolio progression. The Other Income and Expense Line showed Net income of $488 million in the Second Quarter of 2021 compared to net expense of 24 million in the second quarter of 2020, primarily due to reduced litigation-related items, partially offset by lower unrealized gains on securities. Regarding taxes in the quarter, on a GAAP basis, our effective tax rate declined from 8% in the second quarter of 2020 to 5.8% in the second quarter of 2021, primarily driven by a one-time tax benefit the Company recognized in the second quarter 2021, resulting from an internal reorganization of certain international subsidiaries. In the second quarter of 2020, the Company recorded additional tax benefits related to the transitional provisions of Swiss tax reform, which benefited the 2020 tax rate. Excluding special items, the effective tax rate was 14.8% versus 16.7% in the same period last year. I encourage you to review our 10-Q for additional details on specific tax matters. Let's now look at adjusted income before tax by segment. In the second quarter of 2021, our adjusted income before tax for the enterprise as a percentage of sales increased from 29.1% to 33.4%. The following are the main drivers of change to the adjusted income before tax by segment. Medical Devices margin improved from 1.2% to 28.6% driven primarily by overall expense leveraging, resulting from the COVID-19 related sales recovery. Consumer health margins improved by 380 basis points, primarily driven by supply chain efficiencies, including the benefit from our SKU rationalization program, partially offset by increased investments in brand marketing expenses. Pharmaceutical margins decreased by 450 basis points, primarily driven by increased research and development investment, inclusive of the COVID-19 vaccine net costs, and general portfolio progression. Moving to important developments, here is a slide summarizing notable developments occurring in the second quarter. I'll highlight a few, starting with our Pharmaceutical business. We continue to make positive progress advancing our strong pipeline of innovative medicines and therapies. As we've shared previously, we are rigorous and focusing on differentiated, transformational medical innovation. In the quarter, we announced our decision not to continue the collaboration and license agreement for Cusatuzumab, an investigational therapeutic antibody that targets CD70. The decision is based upon Janssen's review of all available data and in consideration of the evolving standard of care for the treatment of AML. We received EU approval for PONVORY in relapsing multiple sclerosis, and also U.S. approval of RYBREVANT for the treatment of patients with locally-advanced or metastatic non-small cell lung cancer with epidermal growth factor receptor Exon 20 Insertion Mutations. In addition, we completed our EU filing for Cilta-Cel, a BCMA CAR-T for the treatment of multiple myeloma. We anticipate U.S. approval for our BCMA CAR-T later this year, which will represent a third NME approval this year. Within our Medical Device portfolio, we continue to make meaningful advancements in our innovation pipeline, launching 17 major first-country launches in the first half of 2021, including 8 products this quarter. As noted earlier, we received FDA approval and launched TECNIS Synergy and TECNIS Synergy Toric II intraocular lenses in the U.S. These are next-generation presbyopia correcting lenses, and deliver the widest range of continuous vision, and the best near vision among leading PC IOLs. Finally, within the surgery business, the ENSEAL X1 Curved Jaw Tissue S sealer launched in the U.S., expanding the Ethicon advanced bipolar energy portfolio. That concludes the sales P&L and pipeline highlights for Johnson & Johnson 's Second Quarter. I'm now pleased to turn the call over to Joe Wolk.

Jennifer Taubert:

Well, thank you, Joe, and hello everyone. It's a pleasure to be here with you today. I'd like to start by thanking my Janssen colleagues around the world for their relentless focus on delivering for patients. As a result, I'm proud to share that our Pharmaceutical sector had another strong quarter of above-market growth. As you heard from Chris, our Pharmaceuticals business delivered $12.6 billion in worldwide sales in the second quarter, with adjusted operational growth of approximately 14%. Our base business, excluding the COVID-19 vaccine, demonstrated robust growth at 12.6%. This is our third consecutive quarter with sales exceeding $12 billion, and our growth was broadly based across geographic regions and our therapeutic area. We continue to maximize the value of our industry-leading portfolio, delivering double-digit growth for 9 key brands, including our oncology medicines, DARZALEX, IMBRUVICA, and ERLEADA, our immunology medicines, TREMFYA and STELARA, our pulmonary hypertension medicines, OPSUMIT and UPTRAVI, and INVEGA SUSTENNA and TRINZA in our neuroscience portfolio. Our leading commercial and market access capabilities enabled increased market penetration and share gains across our key promoted brands. And as we shared in our transparency report this year, our growth continues to come from volume gains and not price. This is a strong indication that our life-changing medicines are reaching more patients each day worldwide. It's important to note, we continue to be a trough investor in research and development. This investment fuels our pipeline and builds the foundation for our long-term growth. During the second quarter, we continued to deliver on our pipeline of transformational medicines. I'll highlight just a few of the key milestones and achievements. First, in May, the FDA approved amivantamab now known as RYBREVANT. This is the first by-specific antibody approved for the treatment of non-small cell lung cancer, characterized by EGFR exon 20 insertion mutations. This is our first approved treatment for lung cancer, which we hope will be an important area for us going forward. This is our second NME approval of this year. PONVORY, or ponesimod, was our first 2021 NME approval, and this was by the FDA in March, for the treatment of adults with relapsing forms of multiple sclerosis. In the second quarter, it was also approved by the European Commission and Health Canada. We also advanced our BCMA CAR-T cell therapy program, Cilta-Cel, for patients with multiple myeloma. In the second quarter, the U.S. FDA granted our BCMA CAR-T priority review. A marketing authorization was filed with the European Medicines Agency, and submission was made to the Brazilian Health Regulatory Agency. We anticipate FDA approval of Cilta-Cel as our third NME approval later this year. In addition, our subcutaneous form of DARZALEX continues to benefit an increasing number of patients. In the second quarter, the European Commission approved DARZALEX for 2 additional patient populations; as combination therapy for the treatment of adults with newly diagnosed systemic light chain amyloidosis, which is the first and only approved therapy for this rare and life-threatening blood disorder; and as combination therapy for adults with pretreated multiple myeloma. Additionally, subsequent to the quarter, the FDA -approved DARZALEX FASPRO in combination with pomalidomide and dexamethasone for the treatment of patients with multiple myeloma after first or subsequent relapse, our sixth indication specific to our subcutaneous form of DARZALEX. I'm proud of our Pharmaceutical results in the second quarter and feel confident in our ability to make 2021 our tenth consecutive year of above-market growth. Our outlook for the rest of the year remains strong. Before I close, I'd like to invite you to join us for our Pharmaceuticals business review on November 18. We look forward to sharing a comprehensive overview of our business, our robust pipeline, and our long-term growth outlook. We'll cover our key therapeutic areas, including oncology and immunology, which are always areas of high interest, and we'll delve deeper into some of our newer areas, including our retina and gene therapy pipeline, and the details behind the breadth of our auto antibody program that came through our acquisition of MOMENTA last year. I hope you'll be able to join us. So again, it's a pleasure to have this opportunity to connect with you today. Thibaut, I will now turn it over to you.

Ashley McEvoy:

Thank you. Thank you, Thibaut, and good morning. Thanks for joining. Let me just begin with across JNJ, how privileged we feel to work in healthcare because we recognize that what we do matters, especially now. We're united by our purpose to profoundly change the trajectory of Health for Humanity and we're propelled by our MedTech aspiration to re-imagine the future of health today, in three ways. One is innovating across the continuum of patient care, two is prioritizing and modernizing health, and three is promoting health equity and wellness. We continue to see strong evidence that our focus and actions to impact human health and improve our competitiveness is working. This quarter, MedTech delivered sales of $7 billion, representing adjusted operational growth of 59% versus 2020 and, as Chris mentioned, up 7% versus 2019, bringing our first half of 2021 revenue performance to just over 5% compared to 2019. Our sales reflect market recovery and our positive competitive momentum. Eight of our $11 billion MedTech platforms grew versus the second quarter 2019. And quarter one '21 share trends show, that we have maintained or gained share in ten of these platforms. We have an exciting pipeline, and we've achieved some truly amazing results in the first half of this year which position us well to continue our growth momentum. We've launched 17 major products in the first half of 2021. This is the highest number of first-half of the year launches in 5 years for our business. These include products which will strengthen our core like TECNIS SYNERGY, our most advanced premier intraocular lens in surgical vision; and the ENSEAL X1 Curved Tissue Sealer, a next-generation advanced energy solution in our surgery franchise. We continue to focus on significant global health concerns, including myopia management, where we plan to have a portfolio of solutions for patients. And we are progressing all things digital with solutions covering the entire paradigm of care, including open and laparoscopic procedures, orthopedics, and illuminal, interventional and vision. Our Monarch platform achieved a significant milestone reaching over 100 customers and enabling over 8000 bronchoscopies, which is life-changing, and potentially life-saving, in the detection and treatment of lung cancer. VELYS, our robotic assisted solution for total knee procedures, launched in the United States and received regulatory approval in Australia this month. We're extremely pleased with the early customer engagement and feedback confirming the differentiation of this next-generation solution. And Ottava, our soft tissue digital surgery offering, continues to progress its key development milestones. We also recognize that the digitization of healthcare is happening and rapidly accelerating technology like this, making it possible to deliver new ways of care. An example of this is from our innovative team in China to develop the virtual solution powered by artificial intelligence and machine learning to more effectively train and expand the number of highly skilled electrophysiologists and provide broader access to high-quality care. Learning curves went from novice to experts from a year to 4 months. In the first 4 months of launch, 150 newly trained physicians delivered care to 7500 patients. It's no surprise our Electrophysiology business in China is so strong. And we continue to leverage science to influence industry trends and positively impact patient outcomes and human health. Just this month, the UK modified their NICE guidelines to recommend the use of PLUS SUTURES as a standard of care, giving the evidence supporting their role in reducing surgical site infections and are necessary cost to the healthcare system. Regarding the pandemic, we are seeing light at the end of COVID-19 tunnel, but this remains, as we all know, a very fluid situation. The pace of continued recovery will depend on multiple factors, including the speed at which global populations are vaccinated, healthcare capacity, and the ability to manage through surges, as well as the rate at which patients seek treatment. In closing, and I'd like to emphasize that our strong quarter 2 results and continuing momentum can be attributed to our purpose-driven, globally diverse team, which embody a winning spirit every day. Their resilience, agility, and creativity have taken us to the next level in our business, build stronger relationships with our customers and patients, and defined a clear vision of our future. Thank you. And I look forward to your questions.

Operator:

Yes. Thank you. [Operator Instruction]. Please limit your questions to one question only. Your first question comes from Louise Chen with Cantor Fitzgerald.

Joseph Wolk:

Yes. Thanks for the question, Louise. I think it's probably best maybe that you hear from both Ashley and Jennifer on this specific perspective. Ashley?

Jennifer Taubert:

I can add in. On the Pharma side, most of our core categories are pretty much back to the pre-COVID level, the exception on that actually being CLL. But we're really seeing strength coming back, for example, in the United States and in Europe. And we do anticipate some modest ups and downs, but I think our team really did an extraordinary job last year of partnering with healthcare systems, and physicians, and patients to make sure that they could get on and stay on the therapies that they need. So our outlook for the rest of the year really remains strong for our sector, regardless of what happens with emerging variants and any continued blips as it relates to COVID.

Chris DelOrefice:

Thibaut, do you want to share a little bit about consumer and the momentum you see there, and maybe a couple of the category dynamics as well?

Chris DelOrefice:

Great, terrific. Thanks, Louise. I appreciate the question. Rob, next question, please?

Larry Biegelsen:

Good morning. Thanks for taking the question. Actually, just a finer point on the quarter-over-quarter improvement in device, as you mentioned. Do you expect the continued acceleration relative to 2019 in Q3 and Q4? And Joe, could you just help us think about the operational ex - COVID vaccine sales in EPS cadence in the second half, given the easier comp in Q3 and the extra week in Q4 2020? Thanks for taking the questions.

Joseph Wolk:

Yeah. And Larry, with respect to your question on guidance overall, I think I'd almost have to mirror a little bit what Ashley had said, the comparables were going to be most pronounced for the second quarter. There will be a little bit of benefit as we look into the third and fourth quarter. As you know, we don't provide guidance by quarter. But I really looking at the underlying strength of each of our businesses, improved share in the markets in which we lead and for those that which we don't lead. In addition to the -- what you heard from all 3 of our segment leaders, just an improved cadence of innovation; new approvals, new offerings that offer better healthcare solutions. That's how we're thinking about it. From an EPS perspective, we are challenging our teams to continue to invest. We think when we have 10% top-line growth, and EPS growth, that will approach 20%. We think that's very healthy to take it up today on top of what we delivered in January, which surprised to the upside as well. We want to make sure that we don't only deliver strong results in the current quarter or the next 2 quarters, but really in the middle and back half of this decade as well. We think we're very well-positioned to do that.

Operator:

Your next question comes from the line of Chris Schott with JP Morgan. Please proceed with your question.

Joseph Wolk:

Yes. Chris, let me take a stab at that and maybe, Jennifer, you can chime in with anything that I might have missed. But with respect to the revenue guidance, Chris, I would say, coming into the year, just like every other Company and probably every other industry, we remained a little bit cautious with respect to how the recovery would unfold; would there be new variants? And so we took a, what I thought was a very responsible and prudent approach to our expectations at the beginning of the year. That being said, I don't want to undermine just the operational performance that each of the teams are executing upon as we go throughout this year. What we did learn, and it really is a credit to the leaders that you've heard from today and their teams, just how important it is reaching out to customers during the last 18 months, not only to find out what the status of COVID-19 was and how it was impacting the businesses, but also how Johnson & Johnson could help them in the recovery. And I think that is having some, I'll call it a goodwill factor, with respect to how we're approaching our business today. With respect to operating margins in R&D, I would say that the COVID investment for the vaccine specifically is a small part of it. What we're seeing, and really what we all take great pride in is there's not one big outlying expense item or investment item in the quarter or even year-to-date with respect to milestones. It's really just the maturity of the portfolio, again, across all three segments that really positions us well. Last year, you might recall we increased our R&D investment by $800 million above 2019 levels. Even with all the questions and uncertainty, and even though maybe competitors pulled back a little bit, we know the only right answer was to invest for the long term. We're actually at a pace this year through 6 months, about $1.3 billion above last year's level on a 6 month comparator. So we feel very well-positioned. And again, with how I answered Larry earlier on the EPS accretion, we think we're hitting the mark across all aspects. I don't know, Jennifer, if there's anything else you want to add.

Joseph Wolk:

And just so nobody has a takeaway we're only investing in pharmaceuticals, we're investing in digital surgery capabilities that Ashley mentioned, we're investing in the consumer space, connecting with the consumer in more digital enabled ways. So it's really across the board.

Operator:

Your next question comes from the line of Bob Hopkins with Bank of America. Please proceed with your question.

Chris DelOrefice:

I guess, first real quick, Bob. The 7% is an adjusted OPS growth number. Just for consistency, so you understand underlying organic.

Chris DelOrefice:

Thanks, Bob. I appreciate the question. Rob, next question, please.

Josh Jennings:

Hi. Good morning. Thanks for taking the questions. Joe, I was hoping to just -- as we're thinking about 2022 and you are encouraging the street to exclude COVID vaccine revenues from our forecast. I was hoping just to better understand the COVID-19 vaccine margin impact in 2021. It seems to be margin dilutive, but how we should be thinking about the core businesses margin for a baseline for a great 2022 forecast.

Chris DelOrefice:

Thanks, Josh. Appreciate the question. Rob, next question, please?

Terrence Flynn:

Great. Thanks so much for taking the questions. I guess the first one is just on the duration of protection with the vaccines. Joe, you touched on this a little bit. But maybe just, what's your perspective on how often a booster might be required here, and then can you remind us the timing of your 2-dose Phase 3 trial? And then Jennifer, would love any more details you could provide on the DARZALEX subcu-conversion and the IMBRUVICA competitor dynamics that you mentioned. Thank you.

Jennifer Taubert:

Perfect. So then, as it relates to DARZALEX, starting off with DARZALEX, we saw the very strong results that we had in the quarter. Also, the significance of the additional indications that continue to come through, and our 6th indication specifically for the DARZALEX FASPRO application. As we take a look so far across the business, already 60% of our DARZALEX business is in the subcutaneous form, and that's whether we look at the United States or whether we look outside the U.S. And so very, very rapid adoption as well as expanded into additional patient populations for DARZALEX. We're very, very confident in the uptake and this is really providing significant benefits from patients going from multiple-hour infusions down to a 3-5 minute injection. A lot of good things to come on DARZALEX. As it relates to IMBRUVICA, we're seeing very strong growth for IMBRUVICA outside the United States. Right now, a 22% growth in the quarter. As we take a look at IMBRUVICA overall, we had double-digit growth, but obviously less than that in the U.S.. In the U.S., we're still a bit impacted. The patient volumes and new patients starts are still down a little bit and CLL due to COVID. For these patient populations there can be more of a watchful waiting period or sometimes treatment with older therapies. And so we did see a slower growth rate, particularly in the U.S. in the quarter. but we do anticipate that to rebound as we move forward and more people get vaccinated. As it relates to the competitive dynamics, IMBRUVICA remains a number 1 prescribed treatment in CLL, and Relapsed/Refractory MCL, and also Waldenstrom. It's a number one BTKI wherever they are prescribed. It's also the only agent that's got demonstrated overall survival in first-line CLL, and a safety profile that's supported by over 5 years of follow-up in clinical experience. We believe we've got a great profile that stands up competitively with IMBRUVICA and will continue to be able to deliver great growth for us going forward.

Chris DelOrefice:

Thanks, Terence, appreciate the question. Rob, next question, please.

Matt Miksic:

Hey, thanks so much for taking our question. Just one -- just quick follow-up. I know that there were some questions early on on the tone of the market and COVID and trends for the back half of the year. But just to clarify, specifically for Ashley, the third quarter, for those businesses that are in the past, the Med Device businesses that have been seasonally off, down slightly, flattish from Q2 to Q3. Is that the pattern when you talk about improving momentum? And is that the pattern we should see a normal seasonal pattern or is the momentum you're describing something that would actually take this -- some of those businesses up sequentially? And I have one follow-up if I could.

Matt Miksic:

Super. And then just one on Vision if I could. You mentioned the approval of Synergy in the U.S. I know it's been out. This is the presbyopia correcting IOL that's been out for a while in Europe. Just wondering if you can tell us what that has done for the European business, what the response has been, and how you're thinking about that mapping over to the U.S.? Thanks.

Matt Miksic:

Thanks, Ashley. Appreciate it.

Operator:

The next question comes from the line of Joanne Wuensch with Citi. Please proceed with your question.

Ashley McEvoy:

Thanks, Joanne. I'll start and then I'll turn to my colleagues to talk a bit about M&A and some of the other businesses as well. I would say we were very encouraged. We've had about 750 on-hand demonstrations with our VELYS knee digital surgery offering. We've done about 100 cases to date. What we keep hearing from customers who have been giving us really positive feedback on a couple of things. The value of the system, smaller footprint, the image's interoperative capabilities, and really the ease of integration for surgeons and OR teams, the workflows, reducing the heavy physical and financial burdens of the currently available marketplace offering. It's new. We just got approval also in Australia, so we're going to start to do cases in Australia. And I would say very, very encouraging. We have several different commercial models that were assessing and we're seeing hospitals take really multiple archetypes, so stay tuned on that. And then I think you had a second question, Joanne, on M&A. And I would just say for MedTech point of view. You're seeing, we've invested over $10 billion of capital in M&A, really behind getting into iHealth. Getting more significant into digital surgery. And then really starting to invest in, I'll call it standard of care changing technology. It's like new ways in ablation. For liver ablation was the first indication. Right now we are under clinical trial to partner that technology with our endoluminal Monarch technology for lung cancer, the treatment of tumors -- bleeding tumor cells. We're also in first-in-human in oncolytic viruses and drug delivery using Monarch. As well as starting to get a stronger foothold in the fast-growing area of stroke. Our stroke business was up over 30% in quarter 2 relative to 2019. Again, a procedure that was less affected in the COVID environment that we continue to build down to. But I'll turn to my colleagues to talk a little bit about M&A.

Thibaut Mongon:

And in Consumer Health, I would say that we have a very strong portfolio of iconic brands that we continue to develop very quickly. Mostly, we continuously scan the market for opportunities to find either new go-to-market models or close gaps in our portfolio. But if you look at the acquisitions we have made over the past couple of years, we are really pleased with their performance. All of them, whether it's in self-care or skin health, are performing well. And that's very encouraging for the future.

Chris DelOrefice:

Thanks, Joanne. Appreciate the question. Operator, last question, please.

Jayson Bedford:

Good morning. And thanks for squeezing me in. Two unrelated questions that require, I think, quick answers. I'll ask both upfront. First, on the potential knock-on impact of the vaccine, I appreciate the not-for-profit nature of the product. But do you expect to see a halo effect, meaning do you think the vaccine will help pull through or benefit other areas of the portfolio? And then my second question, maybe for Thibaut. At 28%, how much further can consumer margins go? And then any further commentary on the inflationary pressures that you alluded to in the commentary? Thanks.

Thibaut Mongon:

Yeah. And to your question on consumer. As I said, we have seen the first half, and we continue to expect into the back half of the year pressure in part of our Portfolio in terms of commodity inflation and distribution costs. We are prepared to absorb those. And in terms of margin improvements, we are committed to continuously improve our margin profile. But as I said, it's going to be a mix of continuing search for efficiencies, but also investment in our business, whether it's brand-building activities or new innovation program.

Joseph Wolk:

Great. Thank you, Chris. And thank you really, everyone for joining today's call to discuss our second quarter results and updated outlook. We are incredibly proud of the relentless focus each of our JNJ colleagues apply to really meet patient and consumer needs around the globe, resulting in a strong financial performance this quarter across the enterprise while simultaneously investing for a very strong future. I'm very confident in our outlook for the rest of 2021. Our business is performing even beyond the mathematical year-on-year comps. And hopefully, that's your takeaway today. Thank you for your time and bye for now.

Chris DelOrefice:

Good morning. This is Chris DelOrefice, Vice President of Investor Relations for Johnson & Johnson. Welcome to our company's review of business results for the first quarter and our updated financial outlook for 2021. Joining me on today's call is Joe Wolk, Executive Vice President, Chief Financial Officer. Also joining Joe and myself during the Q&A portion of the call will be; Alex Gorsky, Chairman of the Board Of Directors and Chief Executive Officer; Joaquin Duato, Vice Chairman of the Executive Committee; Dr. Paul Stoffels, Vice Chairman of the Executive Committee and Chief Scientific Officer. 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 & Johnson website at investor.jnj.com, where you can also find additional materials, including today's presentation and associated schedules. Please note that today's presentation includes forward-looking statements. We encourage you to review the cautionary statement included in today's presentation, which identifies certain risks and factors that may cause the company's actual results to differ materially from those projected. In particular, there is uncertainty about the duration and contemplated impact of the COVID-19 pandemic. This means that the results could change at any time and the contemplated impact of COVID-19 on the company's business results and outlook is at best estimate, based on the information available as of today's date. A further description of these risks, uncertainties and other factors can be found in our SEC filings including our 2020 Form 10-K, along with reconciliations of the non-GAAP financial measures utilized for today's discussion to the most comparable GAAP measures are also available at investor.jnj.com. Several of the products and compounds discussed today are being developed in collaboration with strategic partners or license from other companies. This slide acknowledges those relationships. Moving to today's agenda, I will review first quarter sales and P&L results for the corporation and the three business segments. Joe will provide insights about our cash position, capital allocation deployment and we'll spend some time on 2021 qualitative commentary, and we'll outline our updated guidance for 2021. The remaining time will be available for your questions. We anticipate the webcast will last up to 75 minutes. Now let's move to the first quarter results. Worldwide sales were $22.3 billion for the first quarter of 2021, an increase of 7.9% versus the first quarter of 2020. Operational sales growth which excludes the effect of translational currency increased 5.5% as currency had a positive impact of 2.4 points. In the US, sales increased 3.9%. In regions outside the US, our reported growth was 12.2%. Operational sales growth outside the US was 7.3% with currency positively impacting our reported OUS results by 4.9 points. Excluding the net impact of acquisitions and divestitures, adjusted operational sales growth was 6% worldwide, 3.9% in the US and 8.2% outside the US. Turning now to earnings. For the quarter, net earnings were $6.2 billion and diluted earnings per share was $2.32 versus diluted earnings per share of $2.17 a year ago. Excluding after-tax intangible asset, amortization expense and special items for both periods adjusted net earnings for the quarter were $6.9 billion and adjusted diluted earnings per share was $2.59 representing increases of 12.5% and 12.6%, respectively compared to the first quarter of 2020. On an operational basis, adjusted diluted earnings per share increased 8.3%. I would now comment on business segment sales performance 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 first quarter of 2020 and therefore exclude the impact of currency translation. Beginning with Consumer Health, Worldwide Consumer Health sales totaled $3.5 billion and declined 3.3% with declines in the US of 7.4% and modest growth of 0.5% outside of the US. The Consumer Health results reflect negative comparisons due to prior year pantry loading and increased COVID-19 demand, particularly in over-the-counter medicines. Excluding the prior-year COVID-19 comparison, the Consumer Health segment grew low-single-digits in the quarter. Over-the-counter medicines declined 14.8%. Globally results were negatively impacted by the prior-year comparisons, I previously mentioned, coupled with continued impacts of social distancing restrictions resulting in lower cough, cold and flu incidences. Partially offsetting declines were US share gains, primarily in TYLENOL, ZYRTEC and PEPCID as well as strong performance of NICORETTE outside the US. The Skin Health/Beauty franchise grew by 2.8% driven by strong performance outside the US for NEUTROGENA and AVEENO due to new product innovations and strength in e-commerce. Results were partially offset by US COVID-19 related market contraction in makeup removal wipes. Consumers continue to focus on products related to personal health and hygiene, including oral care, which grew 4.5% from continued growth of LISTERINE mouthwash due to category growth and strong promotions partially offset by divestitures. Worldwide growth excluding divestitures was approximately 8%. Additionally the Baby Care franchise grew by 9.5% as a result of strength in Johnson's outside the US, primarily in Latin America and Asia Pacific regions across all categories coupled with AVEENO baby growth in e-commerce globally. Moving on to our Pharmaceutical segment. Worldwide Pharmaceutical sales of $12.2 billion grew 7.1% with strength in both the US, increasing by 6.4% and OUS with sales increasing by 7.9%. Sales in the quarter included a small contribution in the US from Janssen's COVID-19 vaccine, following its emergency use authorization in February. Our strong portfolio of products and commercial capabilities continues to enable us to deliver strong adjusted operational growth at above-market levels with seven key products realizing double-digit growth in the first quarter. Our immunology therapeutic area delivered global sales growth of 5.5%, driven by strong double-digit performance of STELARA and TREMFYA, offset by continued declines in REMICADE due to biosimilar competition. STELARA continue to show strength in all regions growing at 15.4%, driven by increased market growth and share gains. US share increased roughly four points in Crohn's Disease and nearly 10-points in ulcerative colitis. STELARA growth was partially offset by an unfavorable comparison to a prior period pricing adjustment in Q1, 2020, and an unfavorable comparison to increased sales in Q1 2020 resulting from COVID-19 related longer scrip durations in the US and Europe. TREMFYA grew 37.8% with strong double-digit growth in both the US and OUS driven by share gains in psoriasis of 2.7 points in the US, continued global expansion into new markets and continued penetration into the psoriatic arthritis indication that was approved in 2020. Our oncology portfolio delivered another strong quarter with worldwide growth of 14.6%. DARZALEX continued its strong performance growing 42.2%, driven by share growth across all lines of therapy and increased penetration of the subcutaneous formulation in the US and EU. DARZALEX continues to penetrate the frontline setting aided by recently approved line extensions that penetrate new patient populations, posting nearly three points of share growth in Line one in the US this quarter. ERLEADA continued its global momentum with growth of 79.7% in the quarter driven by market share and penetration gains, especially in the metastatic indication. IMBRUVICA grew 5.6% globally with increased volume growth driven by our market-leading share and increased persistency as patients extend the duration of therapy. However, this was partially offset by the market contraction due to temporary COVID-19 impacts on new patient starts. Growth was also negatively impacted by one-time items including the increased demand in Q1 of 2020 related to longer-term scrip durations in anticipation of pandemic-related restrictions and higher levels of clinical trial volume in the same quarter last year. Excluding the impact of these one-time events, global growth for IMBRUVICA would have been double-digits. In neuroscience, our paliperidone long-acting portfolio grew 6.9% driven by market and share growth due to increased new patient starts and strong persistency. Cardiovascular/metabolism/other declined 4.1% this quarter driven by continued biosimilar competition for PROCRIT and competitive pressures in INVOKANA which was partially offset by growth of 11.7% in XARELTO driven by continued demand and a one-time favorable prior period pricing adjustment in the current quarter which contributed over half of XARELTO's growth in the quarter. Lastly, our total pulmonary hypertension portfolio achieved strong growth of 13.7% with OPSUMIT growth of 13.5% and UPTRAVI growth of 20.9% both driven by market penetration and share gains. I'll now turn your attention to the medical devices segment. Worldwide medical devices sales were $6.6 billion growing 8%. Growth versus prior year was primarily driven by market recovery from procedures impacted by COVID-19 along with continued momentum driven by commercial initiatives and our recently launched new products that are further enhancing our competitiveness across several areas of the business. Additionally, selling days positively impacted worldwide growth by 190 basis points. We expect the full-year impact from selling days excluding the impact of the 53rd week in 2020 will be minimal. While recovery dynamics continue to vary across procedure type and geography, our results reflect continued momentum with nine of our 11 priority platforms delivering global growth in Q1 with six of these delivering double-digit worldwide growth. As you consider regional dynamics, Asia Pacific was the first region to be impacted by COVID-19 and experienced the most significant sales declines in the first quarter last year. Asia Pacific realized strong market recovery, primarily in China against this low sales base from the prior year. So that coupled with our commercial efforts to expand into Tier 2 and Tier 3 hospitals in China resulted in strong double-digit growth in this region. COVID-19 remains a dynamic variable in the US. However, the market has been resilient and continues to recover resulting in growth of 5.4% in the US. Sales declined in Europe and Latin America where there continues to be a higher level of COVID-19-related mobility restrictions and procedure deferrals. Looking at results for each of our platforms. Interventional solutions delivered another quarter of strong double-digit growth. Electrophysiology grew 25.7% in the quarter, primarily driven by recovery in the market coupled with the strength of our broad-based portfolio, focus on commercial execution and introduction of new products such as an update to our CARTO 3 System and the CARTO PRIME Mapping Module which further enhanced our market position globally. These new product introductions support improved mapping capabilities and reduced ablation times during atrial fibrillation procedures. Worldwide orthopedics grew 1.2% versus the prior year with continued COVID-19 impacts of procedure recovery. Worldwide trauma delivered growth of 9.5% reflecting market recovery and success of our newer product introductions that continue to support our market-leading position in trauma such as the most comprehensive Cannulated Compression Headless Screw system on the market and the RIA 2 system designed for long-bone grafts. Hips returned to worldwide growth this quarter increasing 3.2% driven by market recovery and our continued leadership position in the interior approach and demand for the ACTIS Stem aided by our other enabling technologies in hip navigation. Knees declined 9.9% globally, primarily due to slower market recovery in these more deferrable procedures in addition to some softness stemming from business mix dynamics. We are on track for the commercialization of our VELYS Robotic-Assisted Solution for total knee procedures in the U.S. We believe the combination of this launch along with our differentiated VELYS Digital Solutions and Attune platform including some cementless offerings will enhance our portfolio and support improve performance, as procedures continue to recover. Spine declined 0.6%, reflecting the continued impact of COVID-19 on this market coupled with some one-time stocking reductions in China resulting from the consolidation to a national distribution model, worth about 250 basis points globally. The decline was partially offset by the success of the recently launched products such as, Symphony, Conduit and Fibergraft as well as partnerships which further enhance our offerings such as, the X-Pac Expandable Cage. Advanced surgery grew 14.3% versus the prior year with double-digit growth globally in endocutters, biosurgery and energy, primarily from robust growth in Asia driven by market recovery and market share gains due to new product launches, globalization of our portfolio, including biosurgery, Surgiflo Plus Thrombin launch in Japan, and commercial investments to expand our coverage in China. In general surgery, wound closure, grew 12% globally with a growth of 6.6% in the U.S. and 15.7% in OUS. Results were driven by recovery in the markets as well as continued strength of our market-leading suture portfolio including the STRATAFIX barbed suture family. The U.S. contact lens growth of 7.2% reflects the strength of our commercial execution and our market-leading ACUVUE portfolio, including the recent launch of Acuvue Oasys, multi-focal lenses which were designed to provide clear vision at all distances. Channel inventory increases related to continued COVID-19 volatility and support of this new product launch contributed about 400 basis points to growth. Growth outside the U.S. of 0.9% reflects a slower market recovery in Japan and Europe. The global surgical vision grew 11.2% due to a combination of a recovery in both cataract and refractive procedures as well as the continued strength of recent product introductions, including Tecnis Toric II and early success of Tecnis Eyhance driving improved share momentum in both the U.S, and OUS markets. Now regarding our consolidated statement of earnings for the first quarter of 2021, please direct your attention to the box section of the schedule. You will see we provided our earnings adjusted to exclude intangible amortization expense and special items. As reported this morning our adjusted EPS of $2.59 reflects a reported increase of 12.6%, and an operational increase of 8.3%. I'd like to now highlight a few noteworthy items that have changed the misstatement of earnings compared to the same quarter last year. The cost of product sold improved versus 2020 as a percent to sales due to favorable product mix in the pharmaceutical business, and favorable volume and mix in the medical devices business. Additionally, in the first quarter of 2020, medical devices results included the establishment of COVID-19 inventory reserve which did not repeat in 2021. Selling, marketing and administrative margins improved due to leveraging the medical devices business, resulting from the recovery of sales from the prior year's negative COVID-19 impact. We continue to invest in research and development at competitive levels investing 14.2% of sales this quarter. This was higher than the first quarter of 2020 by 170 basis points, driven by portfolio progression in the pharmaceutical business. The other income and expense line showed net income of $882 million in the first quarter of 2021, compared to net income of $679 million in the first quarter of 2020, primarily due to higher acquisition, integration and divestiture related activity. However, as a reminder, we treat significant gains as a special item and these gains are therefore excluded from adjusted earnings. Regarding taxes in the quarter, our effective tax rate increased from 11% in the first quarter of 2020 to 16.6% in the first quarter of 2021. This increase is driven primarily by the impact of one-time items in 2020 that did not repeat. Excluding special items the effective tax rate was 16.5% versus 15% in the same period last year. I encourage you to review our 10-Q for further details on specific tax matters. Let's now look at adjusted income before tax by segment. In the first quarter of 2021, our adjusted income before tax for the enterprise as a percentage of sales increased from 35% to 37.1%. The following are the main drivers of change to the adjusted income before tax by segment. Medical devices margin improved by 640 basis points driven by inventory reserves recorded in 2020 associated with the impact of COVID-19, which did not repeat in the current quarter and overall expense leveraging in 2021 resulting from the medical devices sales recovery. Consumer health margins improved by 150 basis points, primarily driven by supply chain efficiencies including the benefit from our SKU rationalization program. Pharmaceutical margins improved by 30 basis points primarily driven by favorable product mix partially offset by increased investment in research and development. That concludes the sales and P&L highlights for Johnson & Johnson's first quarter. I'm now pleased to turn the call over to Joe Wolk.

Paul Stoffels:

Thank you, Joe and I'm pleased to provide an update on our COVID-19 vaccine and our efforts to address the ongoing pandemic, which today has taken the lives of more than three million people globally. From the very beginning, we have worked to develop and deliver a single-shot easily transportable COVID-19 vaccine to help protect the health of people everywhere and reach communities in need globally. We are committed to equitable access and to bringing in affordable COVID-19 vaccine to the public on a not-for-profit basis for the emerging pandemic use. In the last quarter, we announced results from our multi-country phase 3 ENSEMBLE study that demonstrates the vaccine was 85% effective in preventing severe disease across all regions studied and showed protection against COVID-19-related hospitalizations and deaths, beginning day 28 of the vaccination. The vaccine has demonstrated protection across all countries studied and with multiple variants of the virus including the B.1.3.5.1 variant. Based on the robust data, we submitted to health authorities, we received emergency use authority -- authorization from the US Food and Drug Administration, a conditional marketing authorization from the European Medicines Agency and Emergency Use listing from the World Health Organization. We began US distribution in March with plans to begin shipping to Europe in April. In addition, given the threat of variants, we collaborated with the South African Medical Research Council on the Sisonke study, an open-label phase 3b vaccine implementation study among 500,000 frontline healthcare workers in South Africa, where the B.1.3.5.1variant has become dominant and where there is limited supportive care of wide -- or wide availability of COVID vaccines. This variant now makes up more than 60% of cases across the African continent and has been detected in more than 60 countries globally. A single-shot vaccine with demonstrated protection against COVID-19-related hospitalization and death can be critical tool for fighting the global pandemic, particularly with protection across countries with different variants. Last Tuesday, the US Centers of Disease Control and Prevention Advisory Committee on Immunization Practices or ACIP reviewed the reports of an extremely rare disorder involving blood clots in combination with low platelets observed in a small number of individuals following vaccination with a Johnson & Johnson COVID-19 vaccine. Out of an abundance of caution, the CDC and FDA recommended a pause in the use of their vaccine in the US. ACIP will reconvene this Friday and we look forward to their review and the outcome of the meeting. Johnson & Johnson made the decision to proactively delay the rollout of their vaccine in Europe and paused vaccinations in all of COVID-19 vaccine clinical trials, while we've updated guidance for investigators and participants. The safety and wellbeing of the people who use our product is our number one priority. And we strongly support awareness of the signs and symptoms of this extremely rare event to ensure the correct diagnosis, appropriate treatment and expedited report by healthcare professionals. We continue to believe in the positive benefit-risk profile of our vaccine. And in view of the raise -- raging pandemic, that continues to devastate communities around the world, continue to collaborate with medical experts and global health authorities, including the CDC, FDA, EMA, the WHO and the South African Health Products Regulatory Authority, SAHPRA to work toward continuing vaccination to end the global pandemic. We welcome the recent recommendation of SAHPRA to lift the paused in the investigator-led collaborative Sisonke study, provided that specific conditions are met. SAHPRA based this decision on a review of the availability -- of available safety data from Sisonke study as well as adverse event reports in the United States. We look forward to partnering with the South African Ministry of Health to resume vaccinations of healthcare workers in South Africa soon. We are looking forward to the outcome of -- from today's meeting of the European Medicines Agency, Pharmacovigilance Risk Assessment Committee, the PRAC, as it is called and are looking forward to working with EMA to ensure appropriate awareness of this extremely rare event and guidance on diagnosis and treatment of this condition. Johnson & Johnson stands ready to resume shipment of its COVID-19 vaccine in Europe. In addition, we will work with member states to resume vaccinations in all Janssen COVID-19 vaccine clinical trials in Europe. We remain committed to supplying 200 million doses of our COVID-19 vaccine to the European Union plus Norway and Iceland. Moving on to manufacturing, the quality and safety of our COVID-19 vaccine is paramount. On April 3, we announced we would increase our oversight of drug substance manufacturing at the Emergent BioSolution's Bayview facility. Since then, we have worked closely with the U.S. government and with the FDA, including during the ongoing FDA inspection at Emergent Bayview. We will work closely with Emergent and the FDA to address any inspection findings. Our goal remains ensuring all drugs and drug substance for our COVID-19 vaccine meets a high-quality standards and securing emergency use authorization for the drug substance manufactured at Emergent Bayview. We remain committed to delivering 100 million single-shot doses of our COVID-19 vaccine to the U.S. government and helping to bring an end to this global pandemic. In conclusion, I want to note that, COVID-19 is the most severe global health challenge we have seen in our lifetimes. Johnson & Johnson is committed to help the world win the fight against COVID-19 and be even better prepared for possible future pandemics. Now I will turn it over to Chris to start the Q&A.

Chris Schott:

Great. Thanks so much. And I appreciate all the color on the business dynamics here. I just have two questions, centered around, the vaccine I guess, first how do you see this clotting risk issue being addressed. Is this going to be just some sort of safety warning to physicians? Or do you think that's going to be a way to identify certain populations where this might not be an appropriate vaccine? And maybe tied to that, how are you thinking about addressing public safety perceptions, given what seems to be a very rare side effect if in fact [indiscernible] once vaccinations resume. If I could just slip another quick one on vaccines in there, just want to make sure I'm clear as well. On the guidance for 2021, are there vaccine sales beyond Q1 reflective of that guidance? Or just given some the uncertainty is that not being included in the updated guidance? Thanks so much.

Joe Wolk:

And Chris with respect to financial guidance, there is nothing in our future outlook with respect to that at this point in time. So we will -- when it's warranted certainly provide updates. Right now we're just commenting to what was actually experienced in the first quarter. Thanks for your question.

Operator:

Your next question comes from Larry Biegelsen with Wells Fargo. Please proceed with your question.

Alex Gorsky:

Hey, Larry. Thank you very much for your questions. This is Alex. Why don't I go first and look before I respond directly to your question, I just want to give a special shout-out to all of our frontline heroes, especially the 50,000 plus or minus associates of Johnson & Johnson who have been consistently going to work putting on their masks on the supply room floor, on the shop floor manufacturing and really enabling us to continue to serve patients and consumers around the world throughout this pandemic. Two; a very special recognition to the doctors, the scientists, the engineers who have not only been working diligently on our approach to COVID-19, but also to keep our ongoing innovation portfolio on track, and we're very thankful to them. And last but not least, all of our associates who really worked in a very agile flexible and dedicated way throughout this period. I think our results overall today demonstrate that in spite of a lot of variability, unpredictability the Johnson & Johnson remains a very consistent and in fact stronger performer today than we were even a year ago. If you look at our competitive position whether its market share on all of our major $28 billion plus platforms, if you look at our pipeline, progress and development, we clearly have continued to make progress in spite of a lot of other dynamics. So giving specifically to your question on medical -- or medical device marketplace what we would say is, we're seeing continued improvement through the first quarter. If we look at the last couple of weeks of March in the United States, most of the major systems were somewhere in the range of 90% to 105% of their performance back in 2019. If we look across Europe, of course, there's a bit more variability. Markets in Italy, for example, have lagged given the outbreak of COVID-19. In the UK, where you're seeing other markets return more than 90% to 100% range, although, we have continued to see month-to-month and even week-to-week progression across those major markets. As was alluded to in the earlier comments, we would expect that to begin to change in a pretty significant way in the second quarter. Not only as we see more vaccinations, but of course the year-on-year comparisons. And again, what I'd like to highlight is the strong performance across almost all of our medical device platforms. If you take a look at vision surgery up 11%, if you take a look at our EP business up 26%, our surgery business was well up in the double-digits across whether it was energy, biosurgery or endomechanical. Orthopedics particularly large joints, we saw lags slightly, but we know that these are more elective procedures. We feel we remain competitive and we're quite excited about our VELYS launch as well as our fixed-bearing cementless options as well. So we remain confident and actually quite optimistic for our ongoing improvement performance in our medical device sector, as we head through the remainder of the year. Joe, I'll hand it over to you for the question on EPS phasing.

Chris DelOrefice:

Great. Thanks, Larry. Appreciate the questions. Rob, next question, please.

Joanne Wuensch:

Good morning and thank you for taking the question. I want to focus on two areas. The first one is in Vision Care. And I'm trying to parse through, how much of the delivery is easy comp share loss and/or gain and just recovery in elective procedures? And then I want to sort of put the second one on the table, which is, it sounds like orthopedics, particularly, is lagging. Do you have a view on when that may recover? And just more broadly speaking, is there a pattern to segment recovery that you anticipate throughout the year? Thank you.

Chris DelOrefice:

Thanks, Joanne. Appreciate the question. Rob, next question, please.

Bob Hopkins:

Okay. Thank you and good morning. Joe, I was wondering if you could comment on how your 2021 EPS guidance might look if you exclude the impact of COVID reserve release and the spending on the vaccine, just wanted to kind of maybe get a sense for EPS for the true underlying business. And then I'll just state my -- the second topic I'd love you to comment on as well is -- just wanted to get your latest thinking on the potential to shift to more of a for-profit model as we potentially exit the emergent phase. I realize it might be a little early to talk about that, but just wanted to get your latest thinking on the potential to shift to more -- to shift post the emergent phase of this pandemic. Thank you very much.

Joaquin Duato:

Thanks for the question. Our focus from the beginning in this pandemic was to be a partner in addressing this humanitarian crisis. And as a consequence in order to make sure that we facilitate access globally, we decided to go with a not-for-profit model. Our focus now remains to be able to be a participant in addressing this pandemic. And once this pandemic is over, there will be time to discuss different options. But today our focus is to address this pandemic and be an important partner in making an impact globally in stopping COVID-19.