JNJ | Q4 2013

Louise Mehrotra: Good morning, and welcome. I’m Louise Mehrotra, Vice President of Investor Relations for Johnson & Johnson, and it is my pleasure this morning to review our business results for the fourth quarter and full year of 2013. Joining me on the podium today are Alex Gorsky, Chairman of the Board and Chief Executive Officer, and Dominic Caruso, Vice President, Finance and Chief Financial Officer. A few logistics before we get into the details. This review is being made available to a broader audience via a webcast accessible through the Investor Relations section of the Johnson & Johnson website. I’ll begin by briefly reviewing highlights of the fourth quarter and full year of 2013 for the corporation and highlights for our three business segments. Following my remarks, Alex will comment on the 2013 results and provide a strategic outlook for the company. Dominic will then provide some additional commentary on financial results and guidance for 2014. We will then open the meeting to your questions. We expect the meeting to conclude at approximately 10

Alex Gorsky: Well, thank you very much, Louise. I’d like to welcome all of you participating in today’s meeting, especially those, recognizing that we’ve got this big weather storm forecast, at least for those of us here on the East Coast. It’s great that you were all still able to make it. And for all of those of you who are on webcast, welcome. I hope your weather is better, and we’re glad that you could also join us for the event today. When we look back on it, I think and hope you’ll agree, 2013 was really a significant year for Johnson & Johnson. In fact, it’s pretty hard for me to believe that it’s only been a year since we met in a hotel not too far from here in 2012 to review our performance in 2012 and also set out the goals for 2013. And while I think time has passed relatively quickly, I’m also very proud to report just how much we’ve accomplished since last year’s meeting. So let’s start first with our near term priorities. Number one, we’ve exceeded our financial commitments. We continue to restore a reliable supply of the majority of our over the counter products here in the U.S., and we’re working very closely with our trade partners to get product back on the shelves and really relaunch these great brands. We’ve also made substantial progress on the integration of Synthes, and we’re creating not only the world’s largest, but the most comprehensive, orthopedics platform in business in the industry. And very importantly, as you heard Louise talk about, we’ve continued building on our strong momentum in our pharmaceutical business, which is leading the industry on so many different fronts. We’ve made a lot of progress against the short term drivers, but we’ve also advanced our long term growth drivers as well, things like creating value through innovation, having a global reach with a local focus, excellence in execution in everything we’re doing, and leading with a purpose to really make a difference for patients, for customers, around the world. At the same time, we are focused hard on leveraging the power of our enterprise in a number of ways that are serving to increase the overall effectiveness and efficiency of Johnson & Johnson. Let me give you just a few examples. Number one, we’ve improved our quality programs, but we’ve also strengthened and streamlined our supply chain to ensure that we can reliably meet demand around the world. We’ve also bolstered our postmarket surveillance and safety teams. We’ve acted decisively to prioritize our product portfolios, focusing on areas where we really think we can apply our energies to make the greatest opportunities to lead the industry and ultimately make a real difference for patients. And we’ve worked hard to resolve certain complex legal matters. Meetings like this, these types of forums, we believe provide us with a great opportunity to update you on our progress, as well as our plans and our perspectives about how we think things are going to unfold in the future. Dominic and Louise - and you all know Louise, she always has that big binder - she’s going to take us through a lot of information today. Any really tough questions we’ll make sure she can find the answer somewhere in there. But I personally believe that while you’re going to hear a lot of different information, the most important takeaway from today is for you to better understand why all of us at Johnson & Johnson remain so optimistic about our future and our ability to positively impact the lives of patients and consumers, in spite of so many global challenges facing healthcare delivery around the world. So let me start the way I always do. Let’s talk about our credo. 2013 was the 70th anniversary of this document, so our management teams around the world did a credo challenge, and really spent time considering what it means today to our business, what it means to us as leaders. And we collectively confirmed that it is as essentially as ever. Now, as we’ve grown to more than 128,000 associates around the world, this brief but very powerful document really unites us with a common purpose. And I believe it remains as important and as relevant today as ever, and its principles are very deeply embedded in the way we conduct our business and the way we do everything. As you all know, the most important driver of success is ultimately the people who make these strategies come alive. And I’m really proud of our executive management team. When you look at this group, they have a wide range of diverse backgrounds and experiences, and it’s a nice combination of long, tenured, seasoned Johnson & Johnson executives and newer additions to the leadership team with strong and diverse industry backgrounds. And together, I believe we’re poised to lead and frankly to shape the evolving healthcare industry and market, and really bringing new ways of doing business, coming together with customers, governments, and payers. We’re proud of our strong foundation, but we’re also embracing changes that we think are demanded by a healthcare landscape that’s changing in so many different ways. We’re decisive, we’re disciplined and focused against executing on our near term priorities, but also staying focused on our longer term growth strategies. So with that as a bit of a foundation, let’s take a look at our performance overall for 2013. The advancements we’ve made by working with such a laser focus on our near term priorities has had a direct impact on us being able to deliver our results. And the enterprise grew 6.1% versus 2012. As you heard earlier, that’s 7.7% operationally on strong sales of $71.3 billion. And if you net things out for the Synthes acquisition operational sales growth was still a really solid 5.2%. With our continued focus on financial discipline, our adjusted earnings were $15.9 billion, up 10.7%. And adjusted EPS was $5.52, up 8.2% versus last year. We also generated significant free cash flow, at $13.8 billion. As the largest healthcare company in the world, our broad base of leadership is increasingly important in our ability to deliver strong results in a sustainable way over time. As you can see, our consumer segment accounted for 21% of our total sales by generating $14.7 billion, up 2.8% on an operational basis versus 2012 and nearly 4% operational growth excluding the impact of certain acquisitions and divestitures. 40% of our sales, or about $28.5 billion, come from our medical devices and diagnostics group, with operational sales growth of 6.1%, which now includes Synthes for a full year. If we exclude acquisitions and divestitures, underlying operational growth was approximately 1%. Our pharmaceuticals segment generated $28.1 billion, an outstanding 12% operational growth versus 2012, and that accounts for the remaining 39%. On the strength of this performance, we generated $19 billion in pretax operating profit, excluding special items, a 90 basis point improvement versus the previous year. Pharmaceutical pretax operating margin grew 370 basis points due to its strong sales performance. And we also saw a nice uptick in our consumer group. The decline, however, in MD&D was driven by lower diabetes pricing and of course the medical device tax. And our shareholders, they were rewarded with a return of almost 35%, which really outpaced about nearly every major index we benchmark ourselves against. If you look long term, we believe our shareholder have also done well, and we’ve outpaced each of these indices over the past 10 years. We’ve delivered 30 consecutive years of adjusted earnings increases and 51 consecutive years of dividend increases, making us only one of six companies in the S&P 100 to achieve that kind of a record. The depth of our leadership is reflected by the fact that approximately 70% of our sales come from the number one or number two market share position, and we’re seeing that our investments in research and development are helping us to continually deliver meaningful innovation to the customers, with about 25% of our sales coming from products that have been introduced or launched just within the last five years. Now, we believe these facts demonstrate that our business is strong, and I’d really like to congratulate the associates of Johnson & Johnson around the world for their commitment to delivering this kind of success. We’re very fortunate at Johnson & Johnson to serve more than a billion healthcare patients and consumers around the world each and every day. It’s the responsibility of everyone across our great enterprise, and we consider it a privilege, and actually a great source of pride. So let’s go through some of the highlights. Growth in the consumer segment was achieved in part as a result of our success in restoring a reliable supply of OTC products to the United States marketplace, and we’re starting to see them gain traction as well, once they’re back in the market. So I’d like to acknowledge Sandy Peterson for her leadership in this segment over the past year. Together with Lynn Pendergrass, who joined us in September as the worldwide chairperson for the consumer segment, they’re building a best-in-class global marketing organization to continue growing the image and share of these iconic brands. Now, part of that effort also includes focusing the portfolio to meet the evolving needs of customers in local markets around the world. To do this, we’ve identified a select set of specific consumer need states and have developed 12 major brands that we believe are going to drive the majority of our growth. And many of these major brands grew well in the fourth quarter, including Neutrogena, Listerine, [Baby], and particularly Tylenol and Motrin, which drove U.S. OTC growth of about 22%. And we’re going to continue backing these brands with strong scientifically based and endorsed claims to differentiate them in the marketplace. In line with these efforts, we’re going to tighten our focus. We’ve divested in certain areas such as North America women’s sanitary protection business. We acquired Elsker, a leading Chinese baby products company. And we also continue to expand globally the launch of things like Listerine Advanced Defense Gum Therapy in places like the U.K. and Ireland and our new Johnson’s Baby Triple Protection product line, which we’re taking out to global markets this year. As all of you know, in OTC, our priority for the past several years has been to deliver a reliable supply of products to the marketplace. And last year, very importantly, we met our objective of returning approximately 75% of our planned portfolio to the store shelves. U.S. OTC ended 2013 with the number one or number two product SKUs in both adult and pediatric pain categories. And we’re also investing in things like cross channel marketing across TV, print, social media, to really support their launch and do it in a benchmark way. Finally, as we work to bring our plants fully back online, we’ve executed all of the milestones to date in our FDA consent decree. This is very important. So with the significant progress that we’ve made in returning our U.S. over the counter products to the shelves, a tighter strategy on focusing our portfolio, our consumer business is well-positioned to continue to grow in 2014 and beyond. So, with MD&D, let’s talk first about the market dynamics. The early fourth quarter data we’ve seen frankly shows mixed performance. It generally indicates that rates of surgical lab procedures here in the U.S. basically remained flat over the last 12 months, and we’ve discussed that with you in prior meetings. However, there’s also some signs, some early signs, of improvements in areas like orthopedics. So overall, we believe that as economies recover, healthcare reform starts taking hold here in the U.S. and abroad, utilization rates are going to increase, and we remain very confident in the long term prospects for this market. Now, that said, we know that our growth long term is going to be outlined by our ability to continuously deliver innovations that ultimately make a meaningful difference for patients and for our customers around the world. As you know, Johnson & Johnson is the leading company in this segment, with 85% of our key platforms in the number one or number two position in the market. Integrating Synthes has been our number one priority, and we’ve made good progress on that, and I’ll discuss more of that in just a moment. Our emerging markets in this segment are also a really important driver of growth, and we’ve been successful in developing, making products specifically for these markets that are driving growth within our medical devices and diagnostics segment. And we’re also increasing our competitiveness in this dynamic global market, in order to better position our business for future growth by investing in innovations that will help us increase our leadership positions by optimizing our portfolio to ensure we’re focusing in areas where we feel we can really have the greatest impact. Now, DePuy Synthes is the world’s largest and most comprehensive orthopedics company within a $44 billion market that has got strong fundamentals. And it is primed now to offer new, value added solutions that will help transform healthcare delivery, let alone in orthopedics. Orthopedic operational growth for the full year of 2013 was approximately 2% worldwide, excluding the net income of the Synthes acquisition. But we finished the year strong, with solid fourth quarter operational growth of over 4%, representing our strongest quarter of the year. Now, in the quarter itself, worldwide operational growth of 8% in things like knees, 5% in hips, were the major driver of this performance. Our primary goal during the integration of Synthes has been to continue to grow our strong market position while minimizing customer disruption. And we clearly acknowledge we still have some more work to do, but I’ve been very encouraged, particularly as of late, to see some of the steps we’re doing in things like cross-selling initiatives that we had envisioned from the onset, as we see these things starting to take hold, as well as revenue and cost savings synergies that are going to make this business extremely competitive going forward. And the team is also taking a lot of important steps to integrate the internal systems and processes which of course these kind of things are foundational to make sure we set it up for the long term success that we know it deserves. We have a strong leadership position in the medical device market, anchored by $11 billion plus platforms, including things like vision care, trauma, sutures, endoscopy, electrophysiology. And we’ve got a lot of others that we believe have got the potential to get there. One of these is biosurgicals, which develops sophisticated products used to help control bleeding. This platform grew 8% operationally in 2013, and we’re especially excited about the EVARREST fibrin sealant patch, which has demonstrated a really unique ability to control bleeding in a variety of situations that’s far superior to the current standard of care. It’s now proved in both the United States as well as in Europe, and we’re making good progress on our ability to make sure we have the right production capacity in place, because we believe we’re going to have strong demand. But in the meantime, we’re taking very thoughtful and disciplined approaches to allocating our current limited supply. Our ability to readily develop and launch new products is ultimately what drives this business, and so in the last two years alone, we’ve invested approximately $3.5 billion in research and development to advance this portfolio even further. And it’s brought some strong, dynamic products to the market over that time span, including things like the ATTUNE knee system, which now we have over 23,000 implanted worldwide. It’s off to a very successful start. The ENSEAL G2 articulating tissue sealer is making it easier for surgeons worldwide to assess difficult to reach places and parts of the anatomy. It’s a great technology. And also, our THERMOCOOL SMARTTOUCH contact sensing catheter, which actually measures the contact force of a catheter’s tip inside the heart during an ablation procedure. It’s enhancing outcomes for patients in Europe, and we plan to launch it in the United States later this year. Its uptake has helped drive double digit operational sales growth at Biosense Webster, and I had the pleasure of visiting that team earlier this month and I can tell you the team is smart, committed, passionate to delivering even more innovations for healthcare that we think are also ultimately going to drive that business forward. The products that I have mentioned are just a few of the really exciting and dynamic innovations that demonstrate our ability to meet the needs of surgeons and healthcare systems, and I’d like to recognize our two worldwide chairs in this segment, Gary Pruden and Michel Orsinger, and their teams, are doing to grow this business. While we’ve launched a lot of great products, and invested a lot in research and development, we’re also being prudent about how we’re allocating resources with respect to our medical devices and diagnostics portfolio. And as we’re doing across the entire enterprise, we’re realigning our organization to focus on what we believe are the most promising opportunities. In line with our emphasis to increase the focus within our portfolios, we have a company-wide premise that we should be number one or number two in the categories where we compete, have a clear path forward to getting there, or the businesses must really complement one of our other existing businesses. And if we don’t have businesses that meet those requirements, we’re committed to considering strategic options for them. Now, if you remember, last January we made a decision to explore strategic options for the ortho clinical diagnostics business. As we explored strategic alternatives over the course of the year, we determined that divestiture would be ultimately the best option for this business, and also create the greatest value for Johnson & Johnson. On Thursday, we announced that we received a binding offer from the Carlyle Group to acquire it for about $4 billion, and we’re now in an acceptance period that will end on March 31. We expect that this transaction will close sometime during the middle of the year. Ortho clinical diagnostics plays a very important role in healthcare, and we’re confident that it’s well-positioned to continue serving the interests of patients, customers, and employees. And we’re also very committed to working with the Carlyle Group to make sure that this transition goes as seamlessly as possible during this period. Now, let’s move on to pharmaceuticals. You know, by any measure, the performance of this group has really been exceptional. We’re the fastest growing of the 10 pharmaceutical companies in the United States and Europe and Japan. We recorded 15 consecutive quarters of operational sales growth in this segment. We believe our success is driven by several important factors. First, as always, it starts with great science, which has consistently delivered meaningful advancements for patients over existing therapies. The 13 new products that we’ve launched since 2009, coupled with the core strength of our brands, including PREZISTA, REMICADE, and VELCADE, have greatly contributed to our 2013 operational sales growth in this segment. We’ve also continued to see great productivity in our pipeline, with the launch of three new major medicines this year

Dominic Caruso: Thank you, Alex, and good morning everyone. I’d like to provide some comments on our 2013 fourth quarter and full year results, and then provide some guidance for you to consider as you update your models for 2014. It’s really a great pleasure to report on our exceptional performance in 2013, which was driven by the many successes that Alex previously discussed. Our strategy and momentum positions us very well to continue our strong momentum and performance in the evolving healthcare marketplace. At the beginning of 2013, I provided you with an outlook of our financial performance for the year. We saw continued improvement in our results throughout the year, driven by stronger sales results and good expense management. Our operational sales growth of 7.7%, as Louise described earlier, exceeded our guidance of 6% to 7% for the year. I’m also pleased to report that we’ve improved our pretax operating margin, excluding special items, by 90 basis points, and that our net income margin, also excluding special items, expanded to 22.3%. During the fourth quarter, we recorded several special items that netted to approximately $40 million on an after tax basis, and which consisted of the following

Louise Mehrotra: Thanks, Dominic. We’ll now start the Q&A session. Please wait for the microphone, as we are webcasting the meeting. And as we have our CEO with us, I’d appreciate it if you could keep your questions to the strategic level.

Matthew Dodd - Citigroup : Alex, for you, and the nice thing about the slides this year and last year is there were some tables that were the same. Emerging markets was actually 23% last year. This year it was 22%. Some of that was obviously U.S. pharma. Consumer did really well. Can you give us an idea of what you’re seeing in emerging markets broadly, what you may have seen in the fourth quarter, and your expectation for ’14 maybe versus ’13 in emerging markets, particularly?

Alex Gorsky: I think overall the headline that I’d encourage you to think about is we think that there’s a big growth opportunity in emerging markets. And in spite of some quarterly ups and downs, in spite of a few shifts here and there in specific segments, or product performance, we see that these markets will likely continue to grow at about 3 to 4 times the growth rates that we’re seeing in developed markets over the next several years. And so specifically for Q4, there were things in Q4 2012 that you’d have to think about in ’13, but overall what we’re seeing, for example in BRIC markets, growth for the year is about 12%. And we saw performance slightly lower than that in Q4, again impacted by a number of factors. If we look at our current business, clearly MD&D is our leader in the BRIC markets, and has done very well. What you see is high teen growth, sometimes exceeding 20%, based upon the investments that we’ve made in research and development, manufacturing, and commercial presence in those markets. Our consumer growth has also done well in them, impacted somewhat recently by some of the ingredient issues that we faced, but here too we’ve got a lot of market appropriate products. We’ve invested significantly as well in manufacturing and commercial capabilities. And obviously our pharmaceutical group is a little bit different, because we have been very open about our strategic intent not to participate in the generic segment, which has an impact there. But we still believe there’s a lot of opportunity to address both unmet need as well as the business opportunity with some of our higher technology products. And by the way, if you look at some of the other investments that we’ve made in companies like [unintelligible] several years ago, recently with Elsker, which expanded our presence in the baby segment. We also did the MD&D investment in our biosurgicals business, which will help us expand that platform there in the coming years. We remain very confident in the opportunities for growth there in the future.

Louise Mehrotra : If I could just add something also onto that one? We had, as I discussed in my remarks, with Russia, with the tender, VELCADE, and we also had some tender business on REMICADE. So in the emerging markets, you have a lot more of tender business, and it can cause some fluctuations.

Mike Weinstein - JPMorgan : First question, Dominic, the constant currency, or actually operational, I don’t know if operational is actually constant currency. I think it’s [unintelligible].

Dominic Caruso : Yeah, that’s the way we refer to it.

Mike Weinstein - JPMorgan : Just to be clear, you don’t have divestitures in there too, right? You have a bunch of divested products and businesses that you’re not backing out?

Dominic Caruso : Right, when I talk about operational, I’m just talking about excluding any impact of currency only.

Mike Weinstein - JPMorgan : Okay. The 3.7% to 4.7% would imply a deceleration from 2013 and certainly the way the year ended up. Could you talk about why that would be the case? Obviously it’s tough to sustain 12% revenue growth, but you’ve got a lot of momentum in that business, so what are you assuming decelerates in 2013? Or are you assuming no improvement in MD&D as well? And then the second question, and this is both a Dominic and Alex question, but one incredibly underutilized asset at J&J is the balance sheet. We’ve been talking for years about the cash that’s trapped outside the U.S. It’s significant. It’s growing. All your cash flow is outside the U.S. after you pay your dividend. At what point do you change your thinking on this and actually start to repatriate?

Dominic Caruso : On the growth rate, I think it’s a story of a very high base in the pharmaceutical business after a tremendous year. And in fact, although the pharmaceutical business will continue to grow, it just won’t grow at the same rate that it grew at in 2013, given the high base that it’s already at after a pretty fantastic year. So that alone, I think, accounts for the majority of the difference and what you’re referring to as a deceleration in growth. We do expect MD&D and consumer to pick up in growth. I think the pharma comparisons are tough year over year. And I think we ended the year at good, strong growth. We did have some good opportunities in the year that, again, form a base for which then to grow off of, makes it just difficult. It’s early in the year. This is our view. We try to take everything into consideration. We provide you our estimates, but that’s our current expectation of course [unintelligible], throughout the year. If I can give just a few comments on cash, obviously cash, we generate, as you know, mostly outside the U.S., and it does grow, because of our healthy cash position. We obviously look to maintain the increase in our dividend, so we don’t view that as a hindrance to doing that. We’re still able to do that. And we view that as a great opportunity to invest in the long term growth market, and as you saw with the Synthes transaction, where we were able to use cash outside the U.S. for a significant acquisition. So we’ll always look to do those kinds of things with the cash first, continue our dividend and invest in growing the business. But at some point, and I’m not prepared to give you that point today, at some point we would consider whether repatriating the cash would be a prudent thing to do. At the current U.S. tax rate, and with the current penalty, quite frankly on the repatriation, it appears to us that that’s not a good way to utilize the cash, and it provides for a significant diminution in value to our shareholders by doing so.

Larry Biegelsen - Wells Fargo: Alex, you’ve discussed publicly that you’re reevaluating your cardiovascular medical device strategy. It’s an area where you have a strong presence in only one area. How do you view the attractiveness of those markets now, and how important is it for J&J to have a stronger presence in the cardiovascular device space? And my follow up is, the orthopedic commentary was encouraging, that you made earlier. How confident are you that that’s not a pull-forward, ahead of the implementation of the ACA? Any signs that you can point to that give you confidence that that’s sustainable?

Alex Gorsky : Let me start with the first one. Overall, we continue to think that the cardiovascular area is certainly an area of a lot of unmet medical need, and also represents an opportunity for us. I think the decision we made several years ago, of streamlining our current cardiovascular portfolio, was in fact the right one. And if you take a look at the dynamics in the stent market, even more broadly in CRM and some other areas, they’ve been pretty challenging lately, for a number of different reasons. And so I think making that decision helped us better focus on areas like EP and Biosense Webster, where I couldn’t be more proud of that team. I think we’ve got over 15 quarters of about 13%-plus growth. And at the same time, we made significant investments in new technology that continue to enable them to improve patient outcomes with new product launches. I think we’ve also done a very nice job, and I compliment Gary Pruden and Shlomi Nachman on the job they’ve done in the rest of the business, in streamlining what we’re doing in the endovascular space as well. So if you look at overall performance of our cardiovascular group through some very prudent, relatively minor investments, and frankly just better execution, that business we think is on much better footing now than it was before. We noted really over the last 24 months that we’re continuing to look at renal denervation. Of course you saw the recent information that was released by one of our competitors regarding their device. We have our own approach. We remain hopeful in this area. As we know, if we can truly achieve some of the drops in blood pressure that we’re seeing in some of the other trials, that could have a tremendous impact for patients. So we continue to pursue that. We’re looking at AAA, obviously. We continue to be interested there. And we’re watching the other spaces accordingly. I think the transcatheter aortic valves are still in the midst of their launch, working their way through not only the technology issue. Of course they only have two options on the market. As they work their way through reimbursement, we’ll watch that closely, as well as the others. So we remain interested, but we think being where we are right now is a good place to be. If I look at orthopedics for a moment, we were encouraged by the trends that we saw really later in the third and heading into the fourth quarter. As I mentioned during my talk, I think the data is still somewhat mixed overall, if you take a look at utilization. So let’s start with the hospital data. A lot of you share that. If you look at in patient procedures, if you look at surgical procedures, if you look at outpatient procedures, if you look at lab tests, they remained essentially flat through the end of the year. We saw physician visits up slightly, and I mean slightly, 1-2%, and of course we saw improvements in hips, knees, and trauma in the fourth quarter. I’m really proud of what our DePuy Synthes team did in the fourth quarter. If you look at our underlying hip business, we grew 5%. On a worldwide basis, we grew 8% in the U.S. If you look at knees, we grew 8% worldwide. We grew 9% in the U.S. If you look at trauma, we grew 7% worldwide, we grew 10% in the United States. And the 10% was somewhat accelerated because of what happened in the fourth quarter of last year. But if we look at more underlying fundamentals, what we’re seeing with accounts, what we’re seeing with customers in the field, we remain very hopeful. We think we’re going to have to watch the Affordable Care Act and its impact here in the United States closely. Just recently the Congressional Budget Office, as well as [unintelligible], if you look at their assumptions and projections about numbers of patients, I think they’ve been reduced substantially, based upon sign up rates. So we do expect there to be some assistance there, probably not at the rate that was earlier projected. And of course there’s also the fourth quarter dynamic in the orthopedics market of, you know, people utilizing all of their healthcare benefit as well. So we’re cautiously optimistic, I would say, regarding the fundamentals of some of these markets. Longer term, we still think they represent a very significant opportunity.

Unidentified Audience Member : One question you mentioned in your presentation, Alex, this performance based risk sharing arrangement that you’re pursuing within orthopedics, something that’s worked for you in the past [unintelligible] in RISPERDAL. If you could talk a little bit about that, and whether we’re going to see more of that in devices?

Alex Gorsky : As I mentioned, and actually as we’ve envisioned over the past several years, we have a strong belief in the evolving healthcare marketplace today that in many areas, that customers, certainly hospitals under increasing pressure, are going to be looking for, frankly, ways of creating new partnerships with customers and moving from just a volume based model to a much broader portfolio model. And as we look at that, and we think that we’re very well-positioned, and I want to be clear that our number one focus is still on bringing new, innovative products to market, gaining share, we think there’s a lot of opportunity. But we also think that the unique depth and breadth of our portfolio, especially in areas like orthopedics, where we touch so many of the different spaces, but even more broadly, if you just think about a knee or a hip procedure, and if you combine what we do in the surgical side, with our hemostats, with our energy instrumentation, along with what you might see in the prosthetic device and instruments itself, potentially longer term even with our pharmaceutical line, we think that we have a unique offering. And so on a selective basis, right now, we have been working with customers to contract with them in a different way. And so again, it’s still early, but we think in the right areas, this can be a substantial opportunity for us to grow our share as well as to work closely with hospitals in helping them better manage outcomes and costs.

Unidentified Audience Member : And one follow up, if I could, on spine. Not to pick on a place where you’re seeing some continued challenges, obviously very strong hips and knees, but the integration, the market, maybe share dynamics, can you give us a sense of maybe intermediate, long term strategy for getting that back to market, or better growth rates?

Alex Gorsky : That’s a good point. We continue to believe that the spine market long term is a very good opportunity. When you talk about it, I think the number two reason why someone goes to a physician, or makes a physician visit, is for back pain. We know that that market has undergone a lot of change over the past few years, and we certainly felt that. We do feel, if we look at the overall integration of DePuy Synthes, that one challenge for us was clearly in the spine. And we recognized that going into it, when you had to bring that organization, that’s where the greatest amount of overlap versus hips, knees, and trauma, sports medicine, and other areas. And we did see higher sales force turnover, frankly, than we would have liked to see. I think Michel and Gary Fischetti and his team have done a nice job of addressing many of those concerns. I think our performance in Q4, while still not where we want it to be, is showing some improving trends, in fact outside the United States we’re actually positive. And also, with some of the complementary nature of some of the underlying technology that we have in the other orthopedic segments, that scientifically, commercially, contractually, it will be an important piece of our business. And we’re confident that we’ll get that back to a growth rate that may not be reflective of the growth rate that you saw several years ago, that we saw several years ago in spine, and nonetheless is a healthy and sustainable one for the business.

Rick Weiss - Stifel Nicolaus : Maybe I’ll focus first, Alex, on consumer, if I could. You said that 75% of the products are back. Clearly you had a good quarter. A couple of things there. What’s it going to take to get all the way back, recapture that full revenue you lost? And maybe relative to product reformulation, like we saw a newspaper report on Sunday, article about taking certain products out, is this going to slow your progress as you reformulate?

Alex Gorsky : I’d like to note, and first of all, congratulate Sandy, Lynn, and our entire consumer team, for what I do think was strong performance throughout 2013, but certainly in Q4. And just a couple of things to note. One is we obviously have been really focused on making sure that we meet all our consent decree requirements. And we’ve learned a lot through that process. And it’s taken an integrated effort on the part of our supply chain, our information technology group, our business partners. And sitting here today, having met all of our consent decree requirements thus far, we continue to gain confidence now in our ability going forward to do just that. So we still have a substantial volume that we would have to make up to get back to the earlier volumes that we saw, but every time we introduce the product to the market, Extra Strength Tylenol, if you look at Children’s Tylenol, Children’s Motrin, pediatric, we’re seeing customers respond. We began not only focusing on the remediation, but really the relaunch program, on the McNeil team, particularly in the fourth quarter. I’m sure you saw some of that in the media and the advertising. We’ve seen a very nice response and uptake as a result of that. And so we continue to bring things back online, but obviously we’ve got to do that in a very thoughtful, disciplined way, to make sure we meet all of the requirements as well as launch them. The other factor is, though, we’re very pleased with the partnership that’s been taking place with our major trade partners. So all the major outlets have been enthusiastic about working with us to get these brands back on the shelves. Now, while I’m very proud of that, I’m also very proud of what we’re seeing in our core brands. And so if you look at the core strength of things like baby care, up 6% for the quarter, Listerine, up 6%, actually about 8.5% outside the U.S. If we look at OTC, you heard 21-22% growth in the United States, very strong growth. Overall, skin was up over 9%. And that’s really being driven by Jennifer Anniston and the campaign, the great science and technology and Neutrogena, Aveeno turned in strong growth. And so as you know, in the consumer group it takes great scientifically driven innovation, combined with strong innovation in advertising, great retail partnerships and programs, to really drive that together, but I think now we’re in a much better position with our core business as well as with our OTC business, to really have our consumer group deliver the kind of performance that we would expect longer term.

Rick Weiss - Stifel Nicolaus : If I could ask an MD&D bigger picture question, you’ve discussed this from several angles, but frankly, even though you’ve got some amazing franchises, we all know it, the portfolio seems relatively overweighted in mature products and mature markets. And at this point, you’re still growing, I would say it’s a lower end of the industry’s relatively depressed growth. Maybe you don’t see it that way. I’d be curious if you don’t agree with that. You’ve emphasized the need for meaningful innovation, you’ve talked about your decisive portfolio and investment choices. What’s your thought process about getting this portfolio back to industry growth? What’s your sense of urgency? When should we think about you getting back to that sort of low to mid single digit growth for this business?

Alex Gorsky : It’s a good question. We’ve been very open about our overall strategy for the organization of always having a goal of growing slightly faster than our markets at a minimum. And that remains our goal in MD&D. Now, if we project out that the underlying growth rate in MD&D is somewhere between 3% and 4%, we clearly want to do better than that. And if I look at performance over the course of 2013, I think there are reasons to believe and be more optimistic about what we’re seeing. Now, you always have to be thoughtful when you take a look at the numbers, but if we account for acquisitions and divestitures, and there was a significant swing also on the diabetes test strip, if we pull those things out, we’re seeing a growth rate of about 3.2%, which we think is pretty indicative of the over marketplace. And that’s in spite of a lot of churn that we’ve had in other areas of that business. And I think as we look forward, we talked are looking at orthopedics, what we’re doing there, I think we’re in a much better position there as we’ve ended 2013 and we’re setting ourselves up for the future. If you look at a few of the other areas in MD&D, where we know we can improve performance, we’re also making good progress. So, for example, if you look at the innovation in energy, the G2 articulating device that we have coming out, the [unintelligible] HARMONIC seven, we think is going to have us be much more competitive, and we’re introducing those to the market, literally as we speak. I think biosurgicals is another area that’s going to be a strong platform for growth going forward as well. So we do think this should be a business that’s growing in the areas that you mentioned, and that I mentioned earlier, and it could be a very strong supporter overall for Johnson & Johnson well into the future. Obviously, we are also looking at the portfolio. I want to congratulate the work the team did with ortho clinical diagnostics. First start by thanking our employees there through this process, for the great job that they’ve done, but also the work that the team did in working with Carlyle. And we continue to look at other areas of our portfolio as well to make sure we’re investing where we can make a big difference for patients, where we can have strong market positions and ultimately lead to future growth.

Bruce Nudell - Credit Suisse : Alex, two questions for you. Firstly, on the MD&D portfolio, diabetes has clearly had a structural change. What’s your thinking on that and the fact that those go, does that leave kind of a portfolio deficit where given diagnostics’ departure and potentially diabetes’ departure you’d like to have another growth engine there? And secondly, you mentioned in your comments that one of the things that J&J is focusing on on the pharma side is both commercial excellence and execution as well as regulatory expertise, and you have two great drugs, INVOKANA and XARELTO, and they don’t have big categories around them. And are those areas, metabolic and cardiovascular, where there are very interesting assets out there that you might be pursuing?

Alex Gorsky : Good questions both. You know, first of all, let me start with diabetes. We remain committed in the diabetes space. The fact that there’s over 350 million people around the world that have type II diabetes, and if we look at the projections going forward and the unmet medical need that exists in that space, it’s important that we continue to do work there. Now, over the course of 2013, given some of the changes that we saw and the over 70% reduction in some of the bidding here in the United States, we had to make necessary changes to our business model, which we did make during the course of the year. And those are always painful, but I would actually applaud the work that our teams have done in that area to quickly reorganize and focus their business. And in fact, we’re somewhat encouraged, even in Q4 of this year, we had growth outside the United States in our diabetes unit. And we also started, with the launch of INVOKANA this year, a very unique partnership between our Lifescan group as well as our Jansen Pharmaceutical group, and we jointly focused in endocrinology, and we also feel that that partnership and the broader offering that we were able to bring into that office led to the rapid uptake in endocrinology, where we actually passed Januvia, fairly early on, and we’ve continued to maintain that. So long term, obviously we’re going to continue to take a hard look. We’re committed to that business. We think that overall diabetes is an interesting space, but we also recognize that we’ll need to change the shape and how we function within that as we go forward. So that would be my position on diabetes. Regarding INVOKANA and XARELTO, look, we think that these are both great products. In fact, rather than products, they’re almost platforms within products. And that’s certainly true when you have a compound like XARELTO, and the great job that Paul and his team have done on expanding the indications, rapidly getting six indications, the data that they’ve built, the very large clinical trial database, combined with the commercial excellence that Joaquin and his team have provided. I think they’ve done a great job, and we think that there’s further opportunities for growth there as well. And certainly the same when we look at INVOKANA. We have combinations that we’ll continue to work on, and there’s still a lot of unmet need, and we’re very early in the launch process there. But we think that overall the area of cardiovascular, metabolic disease is an important one, and one where we want to play.

Derrick Sung - Sanford Bernstein : I was wondering if you could spend a few moments talking a bit about what you’re seeing in Europe, and kind of the utilization environment there broadly across your various businesses. You did, Dominic I think, call out pricing as a concern for next year. So maybe you can kind of expand on that and give us your outlook there?

Dominic Caruso : Sure, just some comments on Europe. We did see some stabilization in certain parts of Europe, where as you all know, you’re following, in southern Europe there was a significant decline in utilization. So that’s stabilized a bit, although we don’t see significant growth in utilization in those parts of Europe. And we do see, as reflected in my comments, a continued pressure on pricing, particularly in Europe and particularly in the regions that have had the lower utilization rates. Rather than a resurgence of growth, we see actually a continued decline due to pricing in those markets.

Alex Gorsky : One thing that I would add is, as we look at Europe, there’s a couple of ways to view it, I think one is clearly we saw an impact over the last few years with things like austerity measures, increased queuing in our medical devices area, and perhaps some more challenging tenders. but I’d also point out that if you look at the growth that we’ve seen in our pharmaceuticals segment in Europe over the past couple of years, it’s been exceptional. And I think what that demonstrates is that when you do bring pharmaceutical products to the market, that are very differentiated, that have strong science, strong labels, good clinical dossiers, and you match that with great account teams, great commercial presence, you can get uptake. And I think that’s really been driving our success in that environment. And look, we’ve got a lot of pockets. We have pockets in our consumer area that have done very well in Europe, we have other areas in our MD&D, like I mentioned the specific comments about diabetes, given some of the challenges how our business has done. Energy had done very well over the past couple of quarters there. So yes, it’s a challenging environment, but it’s also one where I think you can be successful ultimately, if you bring the right innovation the right way to the market.

Tony Butler - Barclays Capital : Really a question on the pretax margins. In pharma it’s just been exceptional for the year. Clearly a continuous driver of new product opportunity. And the question there is, are we at the goal line? Or is there still more to be squeezed out on the pretax side? And then second is really on consumer. With the increased cost of the relaunch, is there a substantial opportunity we can still see, even in ’14, for improving pretax on that side?

Dominic Behan : Good observation. It was exceptional growth in pharmaceutical margins. You know, I pointed out that our pretax operating margins this year will still expand, despite the negative headwind of the impact of the yen. So that should point out that underlying growth in the business and pretax margins, we still have that ability, and we still see it. We don’t view it as squeezing out, though, just to correct that a little bit, because the business, as it grows, these products can generate a marginal improvement in pretax operating margin because of the fact that they’re phenomenal products, and they’re mostly specialty products, so there isn’t a commensurate increase in the level of commercial investment. And plus, the commercial teams just do a fantastic job. So I do think there’s more room there. This particular year, though, as I pointed out, it’s challenged because of the impact of the yen.

David Lewis - Morgan Stanley : Alex, a strategic question, obviously Synthes, for ’14, you’re pointing out as being a major strategic initiative for MD&D. I was wondering if you could help us understand, what do you see happening in ’13, and what specifically is the focus in ’14, and how it differs from ’13.

Alex Gorsky : When you take on an acquisition and integration of an enterprise that size, over $4 billion in sales, many employees, it’s a complex undertaking. And we knew from the very beginning that ultimately, looking at the number of people that are in the orthopedic space, looking at how that space is evolving, we felt very strongly the size, the scale, that the innovation technology advantage we’d get from bringing that together is essential for success long term. But in year one, you have a lot of the nuts and bolts, frankly, of the integration, just bringing them together on the ordering systems, getting the sales forces together, the compensation systems common, human resource programs, standardizing all of our qualities, supply chain, compliance programs. All of those kinds of things were really the focus at the tail end of ’12. If you think about it, we didn’t close until the second half in 2013. I think we made a lot of progress in each one of those areas. Admittedly, there are going to be some bumps in the road when you do things like that, and the team went through that. But I think now they’re focusing much more externally. So what I would say is as we move through 2013, there’s still work that we need to do in bringing it together, but now the emphasis more is shifting into what does that ultimately mean for the customers. So how do we make sure that we work more broadly with the [AO] foundation to ensure physicians and surgeons are getting kind of the training and education that they desire. How can we work together even more closely in places like China, where we know that in the trauma marketplace there’s a significant opportunity. I mentioned, I think, getting over some of the real challenges that we had in spine, bringing those two together. And frankly, in fundamentally changing this platform offering, instead of just the knee, just the hip, just bringing a much broader portfolio approach where we see a lot of interest on the part of customers, not only here in the United States, but also globally, to fundamentally transform the model. So I think that would be the fundamental shift that we’re seeing.

David Lewis - Morgan Stanley : Very helpful. Maybe just two quick questions on cash. The first is, free cash in ’13 actually came in a little stronger than we expected for the year, so nice job there. But how should we think about free cash for ’14? Should it grow in line with earnings, faster than earnings? And the next question is, just as we think about the divestiture of the DX business, is the safest way to assume that money just stays on the balance sheet for strategic alternatives, or is there a possibility we could see a dividend or repurchase based on that cash proceeds?

Dominic Caruso: Thanks for the comments on free cash flow. You know, our teams do a great job of managing not only the P&L but also the cash genomes. If you look at our history, our free cash flow essentially equates to our earnings, within a band of somewhere between 95% to 105%. So if you’re modeling it within that range, that’s about what we should expect. Obviously, there’s payments, we have to pay litigation settlements, those sorts of things. That may swing it one way or another. But that seems to be the place that we’re able, through our efforts, and through the teams around the world, generate significant cash flows that are essentially the same as the earnings that we generate, which is a remarkable achievement. With respect to the OCD net proceeds, as I mentioned earlier, it’s just early. We’re going to evaluate how to best use those proceeds, but rest assured that as we think about how to best use those proceeds, we want to obviously offset the dilutive impact of not having the business in our go forward results. So there are multiple ways to do that. We’ll consider the best way possible.

Louise Mehrotra : Our final question will come from Kristen.

Kristen Stewart - Deutsche Bank : Just a follow up, I guess, real quickly, before a question for Alex. Just on the [unintelligible] OCD, can you just give us a sense in terms of what the dilution would be, just assuming cash stays on and you don’t offset it, how profitable that business is?

Dominic Caruso: The clinical diagnostic industry basically operates, and you guys can look it up, at a margin that’s below the level at which Johnson & Johnson operates in total. And our ortho clinical diagnostic business is consistent with those industry margins. So think about it this way, I would size it up, you know, the sales of the business are about 2.5% of our total sales. Profitability of the business is less than that, because obviously it operates on a lower margin than the rest of our business. And if you take a half-year impact from the divestiture closing midyear, it’s not a significant impact to the overall profitability of the enterprise at all. So that’s the way I would think about it.

Kristen Stewart - Deutsche Bank : And just big picture, strategically, a couple years back, Alex, your predecessor talked about potentially adding a fourth leg to J&J. And one of the slides you had today, you talked about the different areas within healthcare and you’re looking at other areas like payers and providers, and just other general healthcare entities growing much faster than the businesses that you’re currently in. So how do you just overall look at the positioning of J&J, in businesses that you’re in today, adding a fourth leg or even just prioritizing your investments within consumer MD&D and pharma, given the differential in growth?

Alex Gorsky : We want to continue to identify and pursue areas where we think, number one, there’s a lot of unmet medical need, and two, where we can work with technology and innovation to make a meaningful difference for patients and for our customers. And we think over the last few years, within each sector, if you take a look at some of the investments that we’ve made and identified in our pharmaceutical group, that we’ve done a very good job in accomplishing that. And that’s resulted in products like ibrutinib, some of the partnerships that we’ve had in other areas of our business, XARELTO and INVOKANA. And we would expect to continue that, and I think that our group has done a great job of identifying those kind of technologies very early, rapidly developing them, and bringing them to market in a great way. I think in MD&D, we continue to innovate, but obviously we made a very big investment in Synthes, where we think size and scale is going to be important. But we’re also focusing a lot on looking more broadly across our MD&D portfolio, on how we might work with customers in new and unique ways. And we’ll continue to look for both new technologies within the different sectors we have in MD&D, but also for adjacencies that we think, again, help us better serve patients, but also broaden our offerings in some cases. And in consumer, I think the team has done a great job, particularly over the past 12 months, of really better focusing the business. I mentioned that in my talk. And now, obviously, we’ll take a hard look, but there we think there are a lot of regional opportunities. We think there are other areas of the portfolio that also we can augment. But we’ve also demonstrated, I think, over the past couple of years, that we’ve done a nice job on selected divestitures as well, to better focus some of our efforts. So I wouldn’t say that there’s a fourth leg per se, but I think we’re always looking for big areas of unmet medical need, areas that may broaden our platforms, or that could provide a brand new platform going forward.

Louise Mehrotra : And some final remarks from Alex?

Alex Gorsky : Thank you very much, everyone. I’m not sure if it’s snowing yet outside, but I’m sure we’ll hear soon. I’d like to end, basically, where I started this morning, and thank all of you for making the effort to be here and participating in today’s meeting. As I said earlier in my talk, I think our strategic framework and our broad base of offerings, critical mass, and positions, really puts Johnson & Johnson in a good place to drive growth in today’s marketplace. And this year we’re going to work very hard on continuing to deliver new innovative products and solutions for consumers and patients around the world, and by implementing and focusing on those near term priorities I talked about, as well as the longer term growth drivers. We look forward to continuing to update you on our progress against them, just as we did last year. And I’d also like to ask you to please save the date for the medical device and diagnostics business review on May 22, which we’ll host in New Brunswick. Again, that’s May 22, in New Brunswick, for MD&D review. So let me close by saying thank you, safe travels, and we’ll look forward to seeing you next year. Bye for now.