Good morning and welcome to the Johnson & Johnson First Quarter 2013 Earnings Conference Call. All participants will be able to listen-only until the question and answer session of the conference. This call is being recorded. (Operator Instructions) I would now like to turn the conference over to Johnson & Johnson. You may begin.
Good morning and welcome. I’m Louise Mehrotra, Vice President of Investor Relations for Johnson & Johnson, and it is my pleasure this morning to review our business results for the first quarter of 2013. Joining me on the call today is 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 webcast accessible through the Investor Relations’ section of the Johnson & Johnson website. I’ll begin by briefly reviewing highlights of the first quarter for the corporation and highlights for our three business segments. Following my remarks, Dominic will provide some additional commentary on the financial results and guidance for 2013. We will then open the call to your questions. We expect the call to last approximately 1 hour.
Included with the press release that was issued earlier this morning is the schedule of sales for key products and/or businesses to facilitate updating your model. These schedules are available on the Johnson & Johnson website as is the press release.
Before I get into the results, let me remind you that some of the statements made during this review may be considered forward-looking statements. The 10-K for the fiscal year 2012 identifies certain factors that could cause the company’s actual results to differ materially from those projected in any forward-looking statements made today. The company does not undertake to update any forward-looking statements as a result of new information or future events or developments. The 10-K is available through the company or online.
During the review, non-GAAP financial measures are used to provide information pertinent to ongoing business performance. These non-GAAP financial measures should not be considered replacements for GAAP results. Tables reconciling these measures to the most comparable GAAP measures are available in the press release and on the Investor Relations’ section of the Johnson & Johnson website at investor.jnj.com.
Now I would like to review our results for the first quarter of 2013. If you would refer to your copy of the press release, let's begin with the schedule titled, supplementary sales data by geographic area. Worldwide sales to customers were $17.5 billion for the first quarter of 2013, up 8.5% as compared to the first quarter of 2012. On an operational basis sales were up 9.8% and currency had a negative impact of 1.3%. The acquisition of Synthes was completed in the second quarter of 2012. In the current quarter the acquisition, net of the impact of the divestiture of the legacy DePuy trauma business, contributed 5.7% to the worldwide operational sales growth.
In the U.S., sales were up 11.2%. In regions outside the U.S. our operational growth was 8.7% while the effect of currency exchange rates negatively impacted our reported results by 2.4 points. The Asia Pacific/Africa region grew 11.8% operationally while the western hemisphere excluding the U.S. grew by 9.1% operationally. Europe grew 6.2% on an operational basis. The success of new product launches and Synthes sales made strong contributions to the results in all regions.
If you’ll now turn to the consolidated statements of earnings. Net earnings were $3.5 billion compared to $3.9 billion in the same period in 2012. Earnings per share were $1.22 versus $1.41 a year ago. Please direct your attention to the box section with the schedule where we have provided earnings adjusted to exclude special items.
As referenced in the accompanying table of non-GAAP measures 2013 first quarter net earnings were adjusted to exclude special items primarily related to an increase in the litigation accrual as well as integration and transaction costs related to the acquisition of Synthes, Inc. First quarter 2012 net earnings included a gain related to an after-tax special item of $106 million as outlined in the reconciliation of non-GAAP financial measures. Excluding these special items for both periods, net earnings for the current quarter were $4.1 billion and diluted earnings per share were $1.44, representing increases of 8.0% and 5.1%, respectively, as compared to the same period in 2012.
I would now like to make some additional comments relative to the component leading to earnings before we move on to the segment highlights. For the first quarter of 2013, cost of goods sold at 31.7% was up 130 basis points from the same period last year, primarily due to an inventory step up charge related to the Synthes acquisition. Excluding the inventory step up charge which has been treated as a special item, cost of goods sold increased 50 basis points versus the same period last year.
Incremental amortization expense related to Synthes of approximately $140 million negatively impacted cost of goods sold by 80 basis points. Also impacting cost of goods sold were the ongoing remediation work in our OTC business and the medical devices excise tax. Positive mix and cost reduction efforts partially offset these items.
First quarter selling, marketing and administrative expenses at 29.8% of sales were down 130 basis points due to tightening up expenditures as well as cost containment initiatives across many of our businesses.
Our investment in research and development as a percent of sales was 10.2%, consistent with our 2012 results.
Interest expense net of interest income of $104 million was down $26 million versus the first quarter of 2012 due to a lower average debt level. Other expense net of other income was $515 million in the first quarter of 2013 compared to $611 million of other income net of other expense in the same period last year. excluding special items, other income net of other expense of $83 million was $411 million less than 2012 due primarily to lower gains from divestitures. Excluding special items, the effective tax rate of 19% in the first quarter of 2013 compared to 22.8% in the same period last year. Dominic will provide commentary on taxes in his remarks.
Turning now to business segment highlights, please refer to the supplementary sales schedule highlighting key products or businesses for the first quarter of 2013. I’ll begin with the consumer segment.
Worldwide Consumer segments sales for the first quarter of 2013 of $3.7 billion increased 2.2% as compared to the same period last year. On an operational basis, sales increased 3.3% while the impact of currency was negative 1.1%. U.S sales were up 2.4%, while international sales grew 3.8% on an operational basis.
Excluding the impact of divestitures net of acquisitions, operational growth was approximately 4.3%. Baby care products increased on an operational basis by 7% when compared to the first quarter of 2012 primarily due to wipes, hair care, cleansers and powders.
Sales in the oral care business increased 5.1% operationally. Results were driven by strong sales of LISTERINE due to the continued success of new product launches partially offset by the impact of the divestiture of the manual toothbrushes in the U.S.
For the first quarter of 2013, sales for OTC pharmaceuticals and nutritionals increased 7.6% on an operational basis compared to the same period in 2012, with U.S sales up 14.4% and sales outside the U.S up 3.9% on an operational basis. The strong sales results in the U.S were driven by analgesics and upper respiratory products due to progress in returning to a reliable supply of products to the marketplace and a strong flu season.
Strong growth of analgesics drove results outside the U.S. Our skin care business was flat on an operational basis in the first quarter of 2013. Strong results for NEUTROGENA were offset by the impact of divestiture, the initial stocking related to new product launches last year and competitive pressure. Women's health grew 0.8% on an operational basis due to strong growth in liners offset by lower sales of KY products.
Wound Care/Other sales decreased 10% on an operational basis with the sales decline in the U.S. of 13.3% and outside the U.S. operational sales were down 6.1% due to competitive pressures and the impact of divestiture. That completes our review of the consumer segment and I will now review highlights for our pharmaceutical segment.
Worldwide net sales for the first quarter of $6.8 billion increased 10.4% versus the same period last year. On an operational basis, sales increased 11.4% with the negative currency impact of 1 point. Sales in the U.S. increased 14.7% while sales outside the U.S. increased on an operational basis by 8.1%. U.S. results included a positive adjustment to previous estimates for managed Medicaid rebates under the Affordable Care Act related to new data received from the states. Excluding this item, both U.S. sales and worldwide sales were up approximately 8% operationally. The most significant impacts from the adjustment were in immunology, neuroscience and PROCRIT.
Now reviewing sales for major therapeutic areas. Immunology products grew 16.8% operationally with sales in the U.S. up 12.8%. Excluding the adjustment, U.S. immunology growth was approximately 6.5% with REMICADE excluding export sales, up approximately 4%. SIMPONI up approximately 22%, and STELARA up approximately 57%. Results were driven by strong market growth across the major products, complemented by increased market share for STELARA. With the strength of our portfolio, we continue to be the U.S. market leader in immunology.
REMICADE exports sales declined 7.7% due primarily to a change in inventory levels. Immunology sales outside the U.S. increased by 30.1% operationally due to strong results for both SIMPONI and STELARA. SIMPONI's strong growth was due to the increased shipments to our distribution partner and very strong growth in Japan. STELARA made significant contributions due primarily to market share gains complemented by strong market growth in the major regions. Sales of infectious disease products increased 8.6% on an operational basis. INCIVO, a treatment for hepatitis C, grew 24.9% on an operational basis due to the success of the continued rollout primarily in Latin America.
Please note for your models, 2012 sales by quarter for both INCIVO and XARELTO have been included in the sales by major product schedule. Continued momentum in market share growth of PREZISTA made notable contributions to the results as to the combined sales of COMPLERA and EDURANT. Neuroscience product sales increased 7.7% on an operational basis with U.S. growth at 10.7%. Excluding the managed Medicaid adjustment which is primarily related to TOPAMAX and CONCERTA, U.S. sales declined approximately 2% impacted by generic competition primarily for CONCERTA and DURAGESIC.
The long-acting injectable antipsychotics, RISPERDAL CONSTA and INVEGA SUSTENNA or Xeplion achieved operational growth of nearly 20% due to an increase in combined market share. INVEGA achieved double-digit operational growth of 11.1% due to strong operational growth outside the U.S. primarily driven by increased market share in Japan.
Sales of oncology products increased 35% on an operational basis due to the very strong results for ZYTIGA. ZYTIGA is now approved to treat both chemo-refractory and chemo naïve metastatic castration resistant prostate cancer. In the quarter, ZYTIGA achieved operational sales growth of over 70%, with U.S. sales growing 61% due to a very strong market growth of over 20% and increased market share in the combined metastatic castrate resistant prostate cancer market. ZYTIGA has captured 28% of that market and is up 1.5 points sequentially. Operational sales outside the U.S. grew 83.4% versus first quarter 2012 and on a sequential basis were up over 20%. ZYTIGA is approved in more than 75 countries. VELCADE is a treatment for multiple myeloma. Sales increased 2.5% on an operational basis.
As I mentioned last quarter, the timing of tender business negatively impacted the growth rate in the first quarter of 2013. Excluding the timing of the tender business, operational growth was over 20%. Strong performance in patient share in the frontline setting and the launch of the subcutaneous version continues to drive sales growth.
Other oncology increased primarily due to Doxil/Caelyx. Regarding Doxil in the U.S, Johnson is releasing additional Doxil produced by an alternate manufacturing approach under the regulatory discretion of the U.S FDA. The longer term solution for Doxil/Caelyx production involving transitioning manufacturing to additional suppliers continues to meet expected milestones.
Other pharmaceutical products declined 1.7% on an operational basis with lower sales for Eprex and Pariet related primarily to generic competition. PROCRIT results were impacted by the managed Medicaid adjustment. Excluding this item, PROCRIT sales declined approximately 14% due primarily to a market decline. Positively impacting results, Xarelto sales grew over 60% on a sequential basis, capturing 38% of the new to brand scripts in cardiology.
Total prescription share in the broader anticoagulant market grew 1.6 points on a sequential basis to 5.6%. as an update on the status of the acute coronary syndrome indication for XARELTO, the FDA issued a second complete response letter. Johnson is continuing to work with the FDA to address their questions.
That completes a review of the pharmaceutical segment. I’ll now review the medical devices and diagnostic segment results. Worldwide Medical Devices and Diagnostics segment sales of $7.1 billion grew 11.9% operationally as compared to the same period in 2012. Currency had a negative impact of 1.7%, resulting in a total sales increase of 10.2%. Sales excluding the net impact of Synthes were down 2.4% on an operational sales, with U.S sales down 5.2% and sales outside the U.S down 0.2% on an operational basis.
Divestitures and exit from certain businesses drove approximately half the worldwide operational decline in the quarter. Market dynamics, including lower distributor inventories, pricing pressures, as well as the impact of less selling days, particularly in our orthopedics business, negatively impacted operational growth by approximately 2 points. I will provide more commentary on these factors in the franchise reviews.
Now turning to the MD&D business, starting with cardiovascular care. Cardiovascular care sales were up 8.5% operationally, with U.S. up 12.5% and sales outside the U.S. up 6.2% operationally. Excluding the impact of drug eluting stents, worldwide sales were up nearly 11% on an operational basis due to strong results for Biosense Webster's and endovascular products.
Biosense Webster, our electrophysiology business achieved worldwide operational sales growth of nearly 12% in the quarter, driven by market share growth. The expansion of the install base of the CARTO 3 system and the success of catheter launches made strong contributions to the results. Strong double digit growth for endovascular products were driven by the re-launch of the S.M.A.R.T. vascular stent system and the EXOSEAL Vascular Closure Device.
The diabetes care business operational sales declined 9.8% in the first quarter of 2013, with U.S business down 19.6% due to the impact of the initial stocking related to new product launches last year, lower price and competitive pressures, including private label. The business outside the U.S. grew 0.9% operationally, with strong sales in emerging markets largely offset by lower sales in many of the developed markets.
The diagnostics business declined 4.9% on an operational basis. Excluding the impact of the divestiture of RhoGAM and the varicose business, operational sales grew approximately 2%, with U.S. growth of approximately 8% and growth outside the U.S. down approximately 3% operationally. Results in the U.S were driven by strong growth in clinical labs and donor screening.
Infection prevention declined 10.5% on an operational basis, with sales in the U.S. down 26.7%. Last year in the U.S., a customer program to upgrade systems to STERRAD solutions ended in the first quarter, impacting the timing of capital purchases for the balance of the year in 2012. Excluding capital sales, U.S. results declined approximately 3.5% in the quarter due primarily to timing of purchases for consumables.
Outside the U.S., operational growth of 4.1% was driven by both consumables and capital items sales. Orthopedic sales were up 60.7% on an operational basis when compared to the same period in 2012. Excluding the net impact of Synthes and the divestiture of certain neurosurgical instruments, operational sales were flat with the U.S. flat and outside the U.S. down approximately 1% operationally. Worldwide sales were impacted by approximately 1.5 less selling days in the quarter.
Operationally, hips were 2% worldwide driven by 5% growth in the U.S. due to strong results in primary stem platform sales, partially offset by continued pricing pressure. Hips outside the U.S. were flat on an operational basis with strong results in emerging markets offset by slower sales in the developed markets. Knees worldwide declined 1% on an operational basis, with U.S. up 1% driven by fixed bearing and revision platforms offset by lower sales of rotating platforms. Sales outside the U.S. were down 2% with lower sales of low contact stress or LCS and mobile bearing technology.
Including the Synthes business in both periods, and excluding the divested DePuy trauma business in both periods, trauma grew approximately 2% on an operational basis with similar results both in and outside the U.S. The fourth quarter supply disruption in the U.S. was substantially remedied late in the first quarter. Including the Synthes business in both periods, worldwide spine was down 7% on an operational basis with the U.S. down approximately 10% impacted by the continued softness as well as the restructuring of the commercial sales organization. Outside the U.S. sales were down approximately 3% operationally.
Specialty surgery operational growth was 1% in the first quarter of 2013. U.S. sales were down 2.4% and sales outside the U.S. were up 4.7% on an operational basis. Strong sales of energy products outside the U.S. and solid results for bio-surgical products were substantially offset by lower sales of mental products due to market and pricing pressure. Surgical care worldwide sales were down 5.4% on an operational basis with the U.S. 10.5% and sales outside the U.S. down 2.4% operationally. Negatively impacting growth were divestitures and business exits as well as other factors such as reduction in inventory levels.
Excluding these items, the underlying business was down approximately 1.5 points. Competitive and pricing dynamics impacted sales in the quarter. Rounding up the review of the medical devices and diagnostics segment, our vision care business achieved operational sales growth of 1.6% in the first quarter compared to the same period last year with the similar results both in and outside the U.S. Growth was driven by daily lenses and astigmatism lenses, partially offset by lower sales of reusable lenses. That completes highlights for the medical devices and diagnostics segment and concludes the segment highlights for Johnson & Johnson's first quarter of 2013.
It is now my pleasure to turn the call over to Dominic Caruso. Dominic?
Thank you, Louise, and good morning everyone. I would like to start by saying that our thoughts and prayers are with the families and victims of the tragic event in Boston yesterday. Now turning to the business of this call. I would like to provide some additional comments about our first quarter results, highlight some of our recent business and pipeline developments, and then provide guidance for you to consider in refining your models for 2013.
I am pleased that we are off to a good start in 2013 with solid results in the first quarter. We continued delivering on our three near term priorities, building on the momentum in our pharmaceuticals business, integrating Synthes and returning a reliable supply of OTC products for the marketplace. I would like to make a few comments on the state of the healthcare market.
While we believe that overall healthcare utilization trends continues to show signs of stabilization, the modest positive increases we saw in the fourth quarter do not appear to have persisted. And at this point we are not anticipating a meaningful market acceleration this year. Adapting to these changes in the healthcare environment is important and our leaders continue to apply financial discipline for operations while investing in key growth opportunities.
Our growth strategies of creating value for innovation, global reach with a local focus, excellence in execution and leading with a purpose, are begin executed well across our businesses as you will see in the review of our highlights for the first quarter. The breadth of our business which provides balance and consistency to our overall performance, as well as the extraordinary achievements and dedication of our people in all of our locations around the world, positions us well to sustain and drive growth in this increasingly dynamic global healthcare market.
Let’s review some highlights for the Q1 results. We had a solid start to the year and are pleased to report earnings per share of %1.44 excluding special items. This result was driven by operational sales growth from the first quarter of 9.8% versus the prior year, which was led by the success of many of our recently launched pharmaceutical products as well as the addition of Synthes to our orthopedics business.
As we announced in February, our first quarter earnings were impacted by the Venezuelan government’s decision to devalue its currency, for which we incurred a charge of approximately $100 million net income and which resulted in a $0.04 negative impact to earnings per share. This charge is related to the re-measurement of our local balance sheet at the date of the devaluation. We did not treat this charge as a special item and I’m pleased that this negative impact to earnings was more than offset by strong operating performance in the first quarter.
As you know, the federal R&D tax credit was renewed by congress in January under the American Taxpayer Relief Act for both 2012 and 2013 and during the first quarter, we recorded the full year impact of the 2012 effect. We recorded special items in the first quarter of approximately $600 million on an after tax basis that consisted of charges primarily for litigation expense accruals related to various legal matters and as expected, continued costs associated with the global integration of Synthes.
Along with the charge for in process research and development, these special items negatively impacted our first quarter results by $0.23 per share. Excluding these special items, our adjusted earnings per share of $1.44 for the quarter exceeded the mean of the analyst estimates of $1.40 as published by First Call.
Let’s look at sales performance by segment. In pharmaceuticals we reported operational sales growth in the quarter of approximately 11.4% fueled by the continued strong performance of long established brands, including REMICADE, PREZISTA, STELARA and INVEGA SUSTENNA and more recently launched products such as ZYTIGA and XARELTO which are continuing to grow share even with new competitors entering their markets, largely due to the strength of the clinical profiles of these medicines themselves and the strong commercialization capabilities in our pharmaceuticals business.
In MD&D, sales increased 11.9% operationally versus the prior year. this included the impact of Synthes net of the divestiture of the legacy DePuy trauma business, which contributed 14% growth. In addition to Synthes, Biosense Webster's electrophysiology devices and Cordis' endovascular products in our Cardiovascular Care business, coupled with Vision Care's ACUVUE TRUEYE and 1-Day ACUVUE MOIST disposable contact lenses also contributed to our growth.
Strategic divestitures and exits from certain businesses have impacted the growth in our MD&D segment this quarter, as did key market dynamics such as the initial implementation of the Medicare competitive bidding legislation in diabetes, significant decreases in the women’s health market and reductions in U.S distributor inventory levels, as well as less selling days, particularly in orthopedics as Louise mentioned.
In our consumer business, of particular note this quarter is the growth in our over the counter medicines businesses, as we continued to make progress in returning a reliable supply of high quality products to consumers. In the quarter we saw operational sales increase of 3.3% driven by the positive contribution of TYLENOL and MOTRIN analgesics, upper respiratory over-the-counter medications, baby care products, LISTERINE mouthwash and our NEUTROGENA skin care products. Divestitures impacted the growth in this segment by 1%.
I’d like to provide an update on exciting developments in our pipeline of new products and I’ll start with developments in our pharmaceuticals business. We were extremely pleased to have received FDA approval for INVOKANA, the first in a new class of SGLT2 inhibitors for type 2 diabetes to be available in the United States. It’s also the first pharmaceutical product for Johnson & Johnson in this category and will be a core component of our comprehensive platform for the management of diabetes. As such, our diabetes care business will partner with our pharmaceuticals business to directly sell INVOKANA to healthcare professionals treating patients with diabetes.
We’re also expecting a decision from the European Medicines Agency on our application for INVOKANA later this year, and in order to expand its use, in March we submitted a marketing authorization application to European Medicines Agency seeking approval for a fixed dose therapy that combines INVOKANA and immediate release metformin. You will recall that we filed an application for this combination with the FDA in December.
In the quarter, simeprevir or TMC435, was filed for the treatment of chronic hepatitis C in both Japan and the U.S., and an EU filing is expected in the second quarter. In addition, the FDA granted Breakthrough Therapy Designations for the investigational oral agent ibrutinib as a monotherapy for three B-cell malignancies. We continue to anticipate filing for the mantle cell lymphoma indication by the end of the year. This designation is intended to expedite the development and review time for potential new medicines that treat serious or life threatening diseases or conditions based on preliminary clinical evidence.
Turning to our MD&D businesses, Ethicon Endo-Surgery earned 510(k) clearances from the U.S. FDA for two products in the ENSEAL G2 line, the cordless tissue sealer, a first of its kind product that includes a power generator and the ENSEAL G2 articulating tissue sealer device which makes it easier for surgeons to seal some vessels and control bleeding. Supporting our strategy to further our position in the endovascular market, Cordis completed its acquisition of Flexible Stenting Solutions, a leading developer of innovative flexible peripheral, arterial, venous, and biliary stents.
And recently, our diabetes care business submitted a premarket approval application for the FDA for the Animas Vibe insulin pump and continuous glucose monitoring system. This next generation insulin pump incorporates Animas' color screen and waterproof technology and a Dexcom G4 Platinum sensor, which enables people with diabetes to make more informed decisions to help control their disease.
In our consumer business, during the quarter Johnson & Johnson China Investment completed the acquisition of Shanghai Elsker Mother & Baby Co., Ltd, a well-regarded baby care company in China, known for its position in the naturals segment. This is in line with our growth strategy of driving global growth with products intended for use in specific local markets. Our ability to continue to advance our pipeline for new products in all three of our segments, supports our confidence in the continued growth of our business.
Now let me provide some guidance for you to consider as you refine your models for 2013. Let me begin with a discussion of cash and interest income and expense. At the end of the quarter we had approximately $6 billion of net cash. This consists of approximately $22 billion of cash and marketable securities and $16 billion of debt. For purposes of your models, assuming no major acquisitions, I suggest you considering modeling net interest expense between $450 million and $500 million consistent with our previous guidance.
Turing to other income and expense. As a reminder, this is the account where we record royalty income as well as gains and losses arising from such items such as litigation, investments by our development corporation, and other divestiture asset sales and write-offs. This account also includes the impact of the Venezuelan government's decision to devalue its currency. This account is difficult to forecast, but we would be comfortable with your models for 2013 reflecting other income and expense as a net gain, excluding special items, ranging from approximately $750 million to $850 million, which is consistent with our previous guidance.
And now a word on taxes. The first quarter reflects the full year impact of the 2012 R&D tax credit and for the first quarter of 2013 the company's effective tax rate excluding special items was 19%. We suggest that you model our effective tax rate for the full year of 2013 at approximately 20% consistent with our previous guidance. As always, we will continue to pursue opportunities in this area to improve upon this rate during the remainder of the year. Now turning to sales and earnings.
We would be comfortable with your models reflecting an operational sales increase on a constant currency basis of between approximately 5.7% and 6.7% for the year, which is higher than our previous guidance. This would results in estimated sales for 2013 on a constant currency basis of approximately $71.1 billion to $71.7 billion. While we’re not predicting the impact of currency movements, to give you an idea of the potential impact of currency exchange rates for the remainder of 2013 or to stay where they were as of last week, as an example with the Euro at approximately $1.31, then our sales growth rate would be negatively impacted by approximately 1% for the year. thus under this scenario, we would expect reported sales growth to be between approximately 4.7% and 5.7% for the year for an expected level of reported sales of approximately between $70.4 billion and $71.1 billion which is lower than our prior guidance due exclusively to the weakening of several currency exchange rates versus the U.S dollar.
Turning to earnings, as a reminder our guidance reflects the following major assumptions. The implementation of the Medical Device Excise Tax. This has an incremental negative impact to earnings per share of approximately $0.05 and is recorded in cost of goods sold throughout the year. We will have a full year impact of amortization related to Synthes of approximately $550 million on a pretax basis or an incremental half year negative impact to earnings per share of approximately $0.06. Our estimated 2013 earnings include total amortization expense for the enterprise of approximately $1.4 billion on a pretax basis.
Considering these factors that I just noted as well as the early strength we saw in our operating results for the first quarter, we suggest you consider full year of 2013 EPS estimates, excluding the impact of special items of between $5.33 and $5.43 per share on an operational basis or a growth rate of between 4.5% and 6.5% on a constant currency basis which is higher than our previous guidance. We are not predicting the impact of currency movements, but to give you an idea of the potential impact on earnings per share if currency exchange rates for all of 2013 were to remain where they were at the end of last week, then our reported EPS, excluding special items, would be positively impacted by approximately $0.02 per share or $0.03 lower than the $0.05 positive impact we had previously estimated in our guidance due to exchange rate fluctuations.
We therefore suggest that you model our reported earnings per share, excluding special items in a range between $5.35 and $5.45 per share or a growth rate of between 5% and 7%, resulting in our reported EPS guidance being consistent with our previous reported EPS guidance, reflecting some stronger operational earnings offset by the negative impact of weaker currency exchange rates. Overall as you update your models for the guidance I just provided, you should see that pretax operating profits are expected to improve at a slightly better rate than we had previously contemplated when we provided guidance back in January.
Now Louise back to you for the question-and-answer session.
Thank you, Dominic. Stephanie, can you please give instructions for the Q&A session?
(Operator instructions). And your first question is from the line of Matthew Dodds with Citigroup.
Matthew Dodds – Citigroup
A couple of quick questions. First on the managed Medicaid, how far back does that accrual go and why in Q1? Because you didn’t highlight it in the fourth quarter call.
Sure, Matt. Good question. The Affordable Care Act was instituted in 2010, in March of 2010 and it’s only recently in the first quarter that we received sufficient information from the various states to true up the estimates we had made leading from the time that legislation was passed till now. So hopefully that answers your question.
Matthew Dodds – Citigroup
It does. And then one more quick one for you, Dominic. On foreign exchange, it’s now up to a negative 100 basis points on the topline, but it’s positive $0.02 in the bottom. Usually does it work that way with you? How come it’s a positive on the earnings this time?
Well, the major swing currencies, Matt that are negatively impacting sales are primarily currencies where although there may be significant sales growth, there is lesser earnings impact. So for example the Yen has dramatically weakened. However, the amount of money we earn in that currency is different than the level of sales in that currency or as the euro, which is where most of the profitability of the company reside ex-U.S., has not been impacted as greatly as some of the currencies like Yen. So there is a different weighting factor of the currency's impact on sales as there is on earnings.
Your next question is from Larry Biegelsen with Wells Fargo.
Larry Biegelsen - Wells Fargo
Dominic, could you just help us with the outlook on the diabetes blood glucose monitoring business. You know the Medicare cuts start I think in July 2013, so I assume the U.S. growth will probably get worse before it gets better. Maybe if you can just help us with some metrics to understand how to forecast that business, given what's going on there. And maybe a little bit about your strategy to address these issues and then I had one follow-up.
Sure, Larry. Great questions. I know you have all been following the recent legislation, it provides a pretty dramatic reduction in pricing for diabetes test strips. Of course that legislation pertains to the Medicare portion of the business. I think roughly the Medicare portion of the business for us is in the 20% to 25% range. So it's not obviously the entire business. And then in terms of the strategy going forward, of course you know we just -- I just described earlier that we were pleased to have filed an application for a new blood glucose monitoring system, the continuous glucose monitoring system with the Dexcom technology. So I think it's important that we continue to innovate where we have the ability to provide patients and healthcare professionals with the tools to better manage their diabetes care.
I think that will always be an important part of what we continue to do, although we will have to manage through the pricing impacts that pertain to the Medicare portion of our business and that I just noted.
Larry Biegelsen - Wells Fargo
And then one more for you. You know more and more of your peers are excluding amortization from non-GAAP earnings. You mentioned I think $1.4 billion and that by our math that potentially reduces your stock price by about $6. Do you think that impacts your valuation? Is that something that you may be willing to revisit in the future excluding it from your non-GAAP earnings? Thanks.
Right. Larry, so we are certainly aware of that. I think that if it was just as easy, if it was that easy for me to just change our earnings by excluding the amortization and our stock would go up $6, I guess we would do that in a heartbeat. But we think our company is very well followed, understood, and we try to be as transparent as possible with our earnings guidance. And hopefully the data we give you provides you all enough data to model the company appropriately.
Your next question is from Mike Weinstein, JPMorgan.
Mike Weinstein - JPMorgan
I guess the one piece in the guidance that surprised me, Dominic, was what Matt was touching on which is the FX swing. So you had 130 basis points swing on the top line versus your initial guidance in the fourth quarter, but that’s only $0.03 impact to your EPS guidance for the year. That’s purely just because of the differentials and profits or is that related more to either your transfer pricing or some hedges you may have there that we are just not aware of?
Well, it's primarily related to the reasons I mentioned. You know currencies like the Yen have dramatically decreased but a currency like the euro, for example, is only off two or three pennies from our previous guidance and most of our ex-U.S. earnings are quite frankly in the euro zone. So the impact to earnings is not as pronounced as the overall basket of currency would indicate.
Mike Weinstein - JPMorgan
I wanted to focus on some of your commentary around utilization and your medical device end markets. Obviously, I understood you were trying to signal that you don’t see a pick up in some of your device end markets. And you also made comments about your kind of the competitive positioning in a couple of them. So maybe you could spend a minute more maybe on both. And I want to focus on two areas, one is general surgery and the second is orthopedic. So can you just give us more of a sense of both how you are feeling about those end markets and competitively, particularly on the general surgery side where you may be seeing some impact.
Mike, with respect to utilization, we were trying to follow what's happening in the market place and obviously we have the good vantage point from where we stand with the broad-based business that we have, but we did not see any meaningful continuation of the upswing that we saw, although it was modest in the fourth quarter. We didn’t see that persist into the first quarter and we also know that certain hospitals are already predicting lower levels of procedure volume than they had previously indicated. We just saw something this morning from HCA for example that talked about the level of procedure volume that they see which is quite frankly lower than the level they had predicted when they announced their guidance for 2013. So overall I think that the market is probably seeing some seasonality quite frankly. So if I comment on orthopedics first, we did in fact see an uptick in the orthopedics market overall and we did particularly well in the fourth quarter. We did not see that persist in the first quarter of 2013, although there is some noise there of course because then you have less selling days as Louise pointed out.
So if you neutralize for that, it’s about equal in terms of the overall impact to our business first quarter versus fourth quarter. So no great acceleration, but no deceleration per se in orthopedics, just really the selling days impact is what is dramatically impacting that business. For surgery, there’s a number of factors that we mentioned. For example lowering levels of inventory by distributors, some pricing impact and we did see some competitive inroads in general surgery and obviously our response to that is to continue to improve with the offering of products that we have like the ENSEAL product that I just described were recently produced. So I’d say more competitive pressures in surgery, less so in orthopedics if you were distinguishing those two particular markets.
Your next question is from Kristen Stewart, Deutsche Bank
Kristen Stewart – Deutsche Bank
Just going back to the guidance and I guess increasing the constant currency sales guidance, I just want to be clear on what gives you I guess the comfort that you can raise it at this stage of the year especially given or you just described as being generally weak I guess within the medical device business and it sounds like your expectations for utilization in that category or more moderate relative to what you saw entering the year.
Sure, Kristen. So that’s a good observation obviously, but as you know we have a broad based business. So even though we may see some weakness in the MD&D market, we’re very pleased with the launch of the products in the pharmaceutical market. We did have the adjustment that Louise described that was obviously positive for the quarter and positive for the year and our consumer business is also a very good start as well and we expect that to pick up as products continue to come into the marketplace from the products that were previously off the market. So overall the breadth of our business allows us to feel comfortable and although some areas of the business we may experience some market weaknesses, other areas of the business are more than picking up. So that gives us good confidence to lean forward in terms of how our business is doing for the balance of 2013.
Kristen Stewart – Deutsche Bank
And then any update on the diagnostics business just in terms of your thinking on that franchise, whether it’s a spin-off of selling it?
No. No update just yet. We’re still going through the process and it’s probably too early to comment.
Your next question is from Rajeev Jashnani with UBS.
Rajeev Jashnani - UBS
My question first on the consumer business, it looks like OTC had a nice rebound. I was wondering if you could talk about where you’re at with bringing those products back to the market. I think you’d previously talked about having the key products back by the end of the year. is this on track? Are you perhaps doing a little bit better there? And then as a colorary to that, the margins in the consumer business are obviously quite depressed right now and maybe talk about the path to improving margins in that business over the longer term.
Sure, Rajeev. Well, we are very pleased with the rebound in the consumer business. As you saw, the OTC business in the U.S was up 14%. I think that has to do with two things, the expected rollout of our products back in the marketplace, but also a pretty healthy, I can say that in quotes, “healthy” cold and flu season from our perspective. So I think we did benefit from that. I think we are basically on track as we thought we would be to return about 75% of the products that were previously off the market to back on to the market. So our plan is unfolding as we have predicted it would and it looks like we are going to see a buildup throughout the remainder of the year. You know both the intermittent supply differences between the products, so it's not as if 75% of the entire volume is back in the business but 75% of the brands will be on the shelves by the end of the year, we feel pretty confident about that.
In terms of managing margins, in that business I think our team of leaders and consumer have done a very good job of managing in a very tough time and they will continue to do that, I am sure, going forward. And as the OTC products return to the marketplace, continue to build back share, that’s obviously a very profitable piece of the business so we would expect that they would improve their margins accordingly. I would caution, though, in terms of making sure that you understand that when these products come back to the market, we are going to do whatever we can to gain share and invest appropriately behind them. So we think that investment now will more than pay off in the future. So we would expect the return of profitability would be tempered in the consumer business as we do the right things to bring the products back to the market.
Rajeev Jashnani - UBS
Thank you. I just have one follow-up, if you don’t mind, on INVOKANA. Perhaps you could talk about the resources you are putting behind that launch and I know we will talk about this in a month or so at the pharma meetings, but where do you see this class in the broader spectrum of diabetes care. Thank you very much.
Sure. Let me defer the comment on the broader class of diabetes care until May 23rd when we have our experts there. Obviously I hope you will be there as well others, to hear from our leaders who have much more knowledge about that market. But we are obviously very pleased with having this approval of the first in its class, and the indication as you know is broad and the adverse event profile is very manageable. So we think this is an important addition to the armamentarium of care for diabetes patients. So I will let Joakim and others in our business to talk about the impact that they see overall in the marketplace.
I would say that overall the pharma business is doing well, really well. So we are very pleased with that. And the launches have gone incredibly well despite the fact that we have seen some competition as you all know. I mean you all have written very vividly about the new products come in the market in various classes like in XARELTO's class and in ZYTIGA's class. So you get the products pretty well. So I say that because we have really focused our efforts on clinically differentiating our products and I say that about INVOKANA as well. And I think our scientific teams led by Paul Stoffels and Bill Hait have done a great job of selecting the right clinical profile for the market place.
And then coupled with the commercial excellence that’s led by Joakim and his team, that’s a great combination. So we feel very good about our progress in the pharmaceutical marketplace.
Do you have one more question?
Rajeev Jashnani - UBS
I did, and I apologize I am dragging on. But, Dominic, you take the [pharma] you said it's quite well, consumer, there is some opportunity for margin perhaps longer term. How do you feel about the long-term margin trajectory of the company, and that’s it from me. Thank you.
Yeah. Well, Rajeev, you know, we have good healthy margins today. We are managing through what I mentioned at our call in January when I was with you all. That as of now, we have $1 billion of cost of U.S. healthcare legislation embedded in our business and we are able to manage through that. So I give our business leaders around the world a lot of credit for being able to manage in the various dynamics of the marketplace including slower growth markets and including areas of the business where cost pressures are continuing. So I think we have done a good job at doing that and I expect we will continue to do a good job of doing that, and we will always keep a focus on investing appropriately for the future.
So each time we give guidance, hopefully you will get a clear picture of how we are doing that while also investing in the future, but I’ll say it’s not easy but I give a lot of credit to the teams of people and leaders around the world who are experts at being able to manage well in challenging times.
Your next question is from Derrick Sung with Sanford C. Bernstein.
Derrick Sung - Sanford C. Bernstein
I wanted to go back to procedure volumes, in particular get some color from you on what you’re seeing in Europe. On the MD&D side, how much of the selling days impacted your European years? Maybe if you can comment specifically on orthopedics, how much of the slowdown there was selling days versus procedure volume.
I’ll ask Louise to help me with that, but of course in Europe you have the dynamics of the Easter holiday season as well as that was in the first quarter of this year compared to the second quarter of last year. Louise, maybe you can give some more specifics on the particular question that Derrick is asking.
Sure. The U.S it was about one day and in Europe it was probably about two days and you know that’s rather a rough calculation, but it impacted growth about 1.5% in terms of sales, about 1% in the U.S and about I think 2.5% outside the U.S.
Derrick Sung - Sanford C. Bernstein
Okay, but generally speaking your sense is that, are you seeing any change say from Q4 in terms of austerity measures procedure volumes, things of that nature, anything that you’d call out?
In terms of the austerity measures, it’s very similar to what we saw in the fourth quarter, but we are still feeling it as everybody else is feeling it, but we are the first company that’s out. So we need to wait for the others to report.
Derrick Sung - Sanford C. Bernstein
Okay. While you’re going through your numbers, would you mind giving us the price mix write down for hips, knees and spine in the U.S?
Sure. So in the U.S, in the first quarter, price was down about 4% and that’s fairly similar to what it was in the fourth quarter, a little bit more unfavorable. And in terms of mix, it was actually 1% favorable. So you came out to about a 3% unfavorable for the hips. In terms of knees, it’s about 2% unfavorable, 1.5%, 2% unfavorable and totally offset by favorable mix. So you actually come to about 0.5 a point favorable on the knee.
Derrick Sung - Sanford C. Bernstein
And what about spine?
In terms of spine, we are about 3% negative in price and again this is only U.S and we are positive in terms of mix by about 4%. So netting about 1% positive.
Derrick Sung - Sanford C. Bernstein
Maybe just one more quickly for Dominic. I noticed that in your special items you increased accrual due to pending litigation on product liability. I was just wondering if you could comment there on, remind us on the total amount of accruals that you’re taking and maybe also if you can comment on how these pending product litigations might impact your thinking around use of cash as you move forward. Just help us get comfortable with that.
Your next question is from the line of Tony Butler with Barclays Capital.
Tony Butler - Barclays Capital
I’d like to focus for a minute if we could within the pharmaceutical division and particularly again with ZYTIGA. There was a patient assistance program in Q4. I assume that had concluded and actually led to fairly substantial sales in Q1 and I’m curious if we can break that apart, that is to say does that affect continuing to Q2? The second part of the question is around international demand which was up 22% sequentially and again very, very strong demand. Was that due to the countries which I realize Louise I think you mentioned 70 odd, 79 particular countries which were approved but still extremely strong growth and I recognize that there was a pre-chemo approval earlier in the year. Was that the principal driver? And the last question again on the same product really is, is there any attempt to give some consideration of strategy around the patent extension of the product. Thanks very much.
I will take the first one on the patient assistance. So we have a patient assistance program in place and it continues to be in place. It's part of what we do for all of our products. What you saw in the fourth quarter was a replenishment to the wholesalers of certain of the ZYTIGA products. So it has nothing to do with whether or not we have implemented a patient assistance program, we always have patient assistance programs in place for people that need the products.
Right. With respect to the balance of the questions on ZYTIGA, I am going to not comment currently on the status of patent extension strategies, except to say that obviously our teams are working on that. In terms of the overall impact of ZYTIGA's worldwide sales, other than what Louise mentioned on patient assistance which is not really a major impact. The major impacts you did see were the chemo naïve indication, and you are absolutely right, Tony, a number of new markets outside the U.S., specifically in Europe, came online during the quarter and will continue to come online for the balance of the year. So those two factors, pre-chemo and additional country approvals are the major drivers of the uptake in ZYTIGA sales.
Your next question is from the line of Rick Wise with Stifel.
Rick Wise - Stifel Nicolaus
Couple of things. Dominic, back to the U.S. weakness question. Did you actually expect a stronger O-U.S. performance ex all the noise and did the weakness that you clearly saw and are talking about, did it accelerate or pickup throughout the quarter or was it just consistently below fourth quarter trends?
So just to clarify your question, the weakness that you are referring to in the U.S. is in the medical device business, not in pharma, not in consumer.
Rick Wise - Stifel Nicolaus
And you are right, there was a lot of noise in the quarter and we tried to parse through that. After parsing through all the noise including selling days etcetera, Louise's data indicated -- Louise's comments indicated that overall the medical device business is probably flat or modestly increased in the first quarter. But the major driver of that is in fact the utilization trends that we did not see accelerate in the first quarter across primarily the surgery businesses including outpatient surgeries etcetera, and some competitive pressures that I have mentioned earlier. So I can't comment specifically month-by-month in the quarter but I would say that overall the trends that you saw a modest uptick in the fourth quarter did not persist into the first quarter. So whether that's seasonality and how people use their high deductible insurance plans or not, we will have to wait and see as others report, but that maybe a contributing factor and we expected to see some of that in the first quarter.
Rick Wise - Stifel Nicolaus
And I think you also mentioned Dominic that possible inventory levels were down, I would say again, because I saw we would be through most of that process. Is it much more to go there or is that actually something encouraging for later quarters?
Yeah, I think that in this particular quarter from the best information we have is related to system implementations and other factors and the particular distributors that we deal with and not something that we would expect to continue happening for the remaining quarters of the year.
Rick Wise - Stifel Nicolaus
Great. And one last one. At the January analyst day, obviously by talking about exploring strategic alternatives for diagnostics, it seems like Alex both by that statement and just his tone, was signaling a bit more active stance towards portfolio review. You are always buying and selling and reviewing, but should be expect a little more active stance now with Alex on board and given the ongoing challenges. Thank you.
So, Rick, well, I think as Alex mentioned in his commentary that we always obviously look at our portfolio in a strategic way. I think with changes in the marketplace that we see happening in healthcare, I think it's even more important for us to be very discerning and very deliberate about the places we will play in where we can make a big difference and areas where we may not be able to make a difference or where in fact, investment may not be worth it or the property maybe better in someone else's hands. So I don’t know that it's precisely related to just Alex being on board, although that’s always been a strategic focus of Alex even before he became CEO, but I think it’s also how we adapt and how our management teams adapt to an ever changing marketplace. So I think we’ll continue to be deliberate in that regard and obviously we’ll update you along the way.
Your next question is from Jami Rubin with Goldman Sachs.
Jami Rubin - Goldman Sachs
Dominic, can you just elaborate a little bit further on the managed Medicaid true-up? I’m confused about that that came on the left field. You had talked about how that impacted immunology and neurology products. Is that a onetime impact or do these growth rates reflect the organic growth rates that we should anticipate going forward? How do we think about that with respect to the numbers going forward for future quarters? And the other question relates to sequestration. You have a number of products that are reimbursed through Medicare part B including REMICADE and as you know there as a 2% reduction to Medicare part B which impacts part B’s ASP plus 6. So obviously Q1 didn’t reflect this, but are you seeing anything out there that could have some impact on your Medicare part B business? Thanks very much.
Sure, Jami. Thanks for the question. Well, with respect to the adjustment for the managed Medicare rebates and I’ll let Louise provide some additional color here, it’s pretty obvious that that level of adjustment is not really reflective of the current run rate of the product. So as Louise in her comments described the fact that excluding that adjustment, the pharmaceutical business in the U.S and worldwide, the underlying growth rate was 8%. So it’s not the 14% or 11% that you saw in the numbers because that would be less than transparent if we told you that. But the underlying rate of 8% is something we’re quite proud of to be honest. So nonetheless even despite that adjustment, the business is doing very well with a very healthy growth rate of 8%.
This adjustment as I mentioned earlier relates to a catch up of Medicaid rebates for managed Medicaid in the States under the new legislation and various states across the United States that provided this information most recently to all pharmaceutical players and us in particular we took a look at all that data now that we have it in hand, although it’s not all in hand. So there may be some additional adjustments going forward and we’ll be transparent again if that should happen. Having said that, the level of rebates in the States that we have previously predicted are now predicted to be lower. That’s why we included this adjustment in our sales because we have previously reflected too high on rebate for example.
So going forward, although the adjustment may not be that significant, the overall level of rebates are expected to be quite lower than we previously thought. And with respect to Medicaid part B and REMICADE, we’re obviously aware of the sequestration impact and you’re right, REMICADE is a significant product that reimbursement of the Medicare Part B and beginning in April we instituted a program with our REMICADE infusion customers on their contract to receive a discount on the continued use of REMICADE to help them deal with and help them offset the impact of this reimbursement that they’ll see.
And just for some context, REMICADE is about a third of Medicare and PROCRIT also impacts about 60% Medicare.
Your next question is from Danielle Antalffy with Leerink Swann.
Danielle Antalffy - Leerink Swann
Just wanted to see if you could talk a little bit about Synthes integration and how that’s going, particularly on any potential sales force turnover side and if there is any change to when we could see accretion on the EDS side of things from Synthes. And to follow up on Rick’s question about potentially more activity on the M&A and or divestiture front, on the context of the med-tech market that we was in today, so specifically in MD&D business, where do you see potential opportunities, understanding that you just made this big acquisition with Synthes, but maybe even something smaller or another big acquisition. Where do you see opportunities in med-tech for growth over the next five plus years? Thanks.
Well Danielle, the integration of Synthes is going well. I would say that the challenge as we expected was going to be in the area of integrating the spine sales forces. You may recall that we converted our current legacy DePuy spine business from a distributor based system to a direct selling basis, which is what Synthes had in mind, was doing. And we had always expected that would be the way to go in the marketplace. So we have completed that transition. And I would say there are some disruptions that we have seen as a result, not totally unexpected but in fact some disruptions. But we think that’s a short-term issue because we think that’s a long-term benefit of having a direct sales force plus the combination of the two portfolios. It's something that will allow us to compete very effectively in spine space.
In terms of accretion, the focus of the business integration now is really on sales synergies and we are starting to see some sales synergies. It's too early to give you a specific number on that. The focus is primarily on sales synergies as opposed to the cost synergies, and we expect that that will improve as the integration continues to progress throughout this year and into next. And with respect to M&A and divestiture activities, we are very active always in M&A and divestiture activity as you know. And with our broad base in healthcare and our broad purview of the medical device sector, we look at all areas of medical device to see where we can make a difference.
And what enters into calculus, Daniel, as you heard me say before, is not only where we would like to play but where we think the asset is not only better in our hands but has a current valuation that’s attractive to us and is not, for example, overvalued. So we will always look at that. I can't give you any specifics, but with a broad-based medical device business that we have, there is lots of areas for us to look at to improve on if in fact that acquisition would create shareholder value. That’s our number one criteria when looking at the acquisition potential.
Danielle Antalffy - Leerink Swann
Okay. Perfect. One quick follow-up on spine if I could. Any changes underlying the endorsement trends there?
I haven’t seen anything in particular in the data, Louise, have you seen anything?
Not that I am aware of. With respect to everyone's time, we will take one more question and then we will have Dominic sum up with some final remarks.
Your final question is through the line of Matt Miksic with Piper Jaffray.
Matt Miksic - Piper Jaffray
Thanks so much for squeezing us in. I just had a follow-up and I am sorry to bead this dead horse here on the utilization side. But, Dominic, just to clarify, the comments that you are making about the trends, the general surgery trends. In the past, sometimes these have been kind of coming out of your suture business and the scope and visibility you have into surgery and in the past sometimes it's been a trailing indicator. I am wondering, just to be clear, are the metrics that you are able to provide color up through March or is part of it through December, just a clarification and then I have one follow up.
Sure. Let me have Louise answer that. She has that data right in front of her.
Yes. So we have good data up till the fourth quarter. And as you know we are one of the first ones out in the first quarter, but we do a lot of market research. We have a very good team that extracts data from other companies reports, quite frankly, analyst reports. So that’s kind of an amalgamation of it. It's not precise, it's where we think it's directional at this point in time and of course we will know a lot more once we get the data from the other company. There is some noise in our suture numbers in the quarter and if I take out that noise in the suture numbers, it's flat on a worldwide basis and is actually positive about 2% on U.S. basis excluding the noise that we had in our own numbers at that point. Okay.
Matt Miksic - Piper Jaffray
And that would have compared to the prior quarter?
Similar results. Similar.
Matt Miksic - Piper Jaffray
Okay. So similar [sideways] if you will, from a group standpoint?
Matt Miksic - Piper Jaffray
And then the other follow-up I had was on -- I appreciate all the color on price and mix, you had given some particular color on spine over the last few quarters. And I guess knees and spine have started to kind of trend positive on a price mix basis. Having [listed] last several years that’s sort of an anomaly a little bit for us I think. And I just wanted to get a sense, if you have any color as to what's improving there? What's enabling you to sort of either moderate the pricing pressure or get back on the -- effectively drive mix?
I think mix comes from innovation of new products and that’s where the positive mix impact is coming from.
That’s right, Louise. I mean we can't ever lose track of the fact that innovation is the name of the game in all these markets. So as we continue to innovate, hopefully we’ll get a positive mix equation out of it and that’s what our leaders and folks in the labs and our engineers et cetera are totally focused on and they do a pretty good job of it. So we’ll just continue to look for that as hopeful in terms of mix being positive because overall price regardless of mix is going to be pretty hard to come by as you all know. So I think our focus has always been, needs to continue to be on innovating in these markets.
Thanks everyone for tuning in today. As I said earlier, we’re off to a very good start in Q1 and we remain optimistic for the remainder of the year. we see further opportunities to drive growth in this dynamic global marketplace as our new products, our robust pipelines and even our core businesses continue to address the critical unmet healthcare needs of patients and customers. I would like to again thank the people of Johnson & Johnson for their dedication and commitment and I look forward to updating you all on our progress throughout the year, including at our upcoming pharmaceutical business review on May 23. So thanks for your time this morning and have a great day.
Thank you. This does conclude today's conference call. You may now disconnect.
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