Good morning, and welcome to Johnson & Johnson's third quarter 2015 earnings conference call. All participants will be in listen-only mode until the question and answer session of the conference. This call is being recorded. If anyone has any objections, you may disconnect at this time. If you experience technical difficulties during the conference, you may press star zero to reach the operator. I would now turn the conference call over to Johnson & Johnson. You may begin.
Good morning, and welcome. I'm Louise Mehrotra, Vice President of Investor Relations for Johnson & Johnson, and it is my pleasure this morning to review our business results for the third quarter of 2015. Joining me on the call today are Dominic Caruso, Executive Vice President and Chief Financial Officer, and Gary Pruden, Worldwide Chairman, Medical Devices. A few logistics before we get into the details. This review is being made available via a webcast accessible through the investor relations section of the Johnson & Johnson website at investor.jnj.com. I'll begin by briefly reviewing the third quarter for the corporation and our three business segments. Next, Gary will discuss our medical device business and the strategy for growth. Lastly, Dominic will provide some additional commentary on the results, review the income statement, and discuss guidance for 2015. We will open the call to your questions.
We expect the call to last approximately 90 minutes. Included with the press release that was issued earlier this morning is a schedule of sales for key products and/or businesses to facilitate updating your models. These schedules are available on the Johnson & Johnson website, as is the press release. Please note, we will be using a presentation to complement today's commentary. The presentation is also available on our website. Before we begin, let me remind you that some of the statements made during this review are or may be considered forward-looking statements. The 10-K for the fiscal year 2014 and the company's subsequent filings identify certain factors that could cause the company's actual results to differ materially from those projected in any forward-looking statements made today. The company does not undertake to update any forward-looking statements as a result of new information or future events or developments.
Our SEC filings, including the 10-K, are available through the company and on our website. During the review, non-GAAP financial measures are used to provide information pertinent to ongoing business performance. These non-GAAP financial measures should not be considered replacements for and should be read together with GAAP results. Tables reconciling these measures to the most comparable GAAP measures are available in the schedules accompanying the press release and on the investor relations section of the Johnson & Johnson website. Now I would like to review our results for the third quarter of 2015. Worldwide sales to customers were $17.1 billion for the third quarter of 2015, down 7.4% versus third quarter 2014. On an operational basis, sales were up 0.8% and currency had a negative impact of 8.2%. In the U.S., sales were down 0.6%.
In regions outside the U.S., our operational growth was 2.1%, while the effect of currency exchange rates negatively impacted our reported results by 15.8%. On an operational basis, both Europe and Western Hemisphere, excluding the U.S., grew 2.7%, while the Asia-Pacific Africa region grew by 1.2%. Growth in all regions was negatively impacted by hepatitis C competition. Excluding the net impact of acquisitions and divestitures and hepatitis C sales, underlying operational growth was 5.6% worldwide, 7.7% in the U.S., and 3.8% outside the U.S. Turning now to earnings. Net earnings were $3.4 billion and earnings per share were $1.20 versus $1.66 a year ago. As referenced in the table reconciling non-GAAP measures, 2015 third quarter net earnings were adjusted to exclude after-tax amortization expense of $437 million and a charge of $377 million for after-tax special items.
2014 third-quarter net earnings were adjusted to exclude a net gain of $144 million. Dominic will discuss special items in his remarks. Excluding amortization expense and special items for both periods, adjusted net earnings for the current quarter were $4.2 billion and adjusted diluted earnings per share were $1.49, representing decreases of 9.4% and 7.5% respectively as compared to the same period in 2014. Currency translation significantly impacted net earnings. On an operational basis, adjusted diluted earnings per share grew 1.2%. Turning now to business segment highlights. Please note percentages quoted represent operational sales change in comparison to the third quarter of 2014, unless otherwise stated, and therefore exclude the impact of currency translation. I'll begin with the consumer segment. Worldwide consumer segment sales of $3.3 billion increased 3.1%, with U.S. sales up 8.9% while outside the U.S. sales grew 0.4%.
Excluding the net impact of acquisitions and divestitures, underlying growth was 4% worldwide, 8.9% in the U.S., and 1.5% outside the U.S. Growth was driven by U.S. OTC and skin care, women's health outside the U.S., and oral care worldwide. OTC sales results were driven by strong U.S. growth of 22.4%, with analgesics in the U.S. up nearly 29% due to increased share, complemented by the reintroduction of Tylenol Arthritis, including initial launch inventory. In the U.S., adult analgesic market share was approximately 12.5%, up from approximately 11% a year ago, while U.S. pediatric share was 44.5%, up from 41% a year ago. Additional contributors to growth in the U.S. were seasonal inventory build for Zyrtec and an initial stocking for relaunched digestive health products. Results outside the U.S. were negatively impacted by the timing of the seasonal inventory build for upper respiratory products.
As we noted last quarter, the build occurred in the second quarter this year versus the third quarter last year. In U.S. skincare, market share increases and a seasonal inventory build drove strong growth for Aveeno and Neutrogena. New product launches and successful marketing campaigns drove the results for Listerine and oral care and women's health products outside the U.S. Moving now to our pharmaceutical segment. Worldwide sales of $7.7 billion decreased 0.3%, with U.S. sales down 4.5% and sales outside the U.S. up 5.5%. New competitors in hepatitis C significantly impacted sales results. Excluding sales of hepatitis C products, OLYSIO and INCIVO, as well as the impact of acquisitions and divestitures, underlying growth worldwide, U.S. and outside the U.S., was approximately 10.1%, 11.5% and 8.5% respectively.
Important contributors to growth were INVOKANA, INVOKAMET, IMBRUVICA, SIMPONI, STELARA, INVEGA SUSTENNA or XEPLION, PRISTIQ and PREZCOBIX, CONCERTA, XARELTO and ZYTIGA, partially offset by lower export sales of REMICADE. Strong momentum and market share increases drove results for INVOKANA, INVOKAMET. In the U.S., INVOKANA, INVOKAMET achieved 6.3% total prescription share or TRX within the defined market of type 2 diabetes, excluding insulin and metformin, up from 6% in the second quarter of 2015. TRX with endocrinologists was over 13% for the quarter and over 5.5% in the primary care. INVOKANA has greater than 80% preferred access across commercial and greater than 90% for Part D plans. Strong patient uptake with new indications, approvals and demonstrated efficacy drove results for IMBRUVICA in the U.S. IMBRUVICA is the leader in both new and total patient regimen share in second line CLL and MCL.
Outside the U.S., results were driven primarily by Europe, with strong patient uptake, particularly in Germany, France and the U.K. IMBRUVICA is now approved in 60 countries. STELARA and combined SIMPONI ARIA achieved strong growth across all the major regions due to robust market growth combined with increased penetration of SIMPONI ARIA. INVEGA SUSTENNA or XEPLION achieved strong results due primarily to increased market share, while CONCERTA growth was primarily due to a therapeutic equivalence reclassification of generics by the FDA last November. As expected, during the quarter, we saw generic entries for INVEGA tablets in the U.S. We have launched an authorized generic of INVEGA. Strong results for PREZISTA were driven by the launch earlier this year of PREZCOBIX. Continued share growth drove results for XARELTO sales, with TRX for the quarter in the U.S. anticoagulant market of 15.8%, up 1.5 points from a year ago.
XARELTO is broadly reimbursed, with over 90% of commercial and Medicare Part D patients covered at the lowest branded product copay. As an update, during the quarter, we received several paragraph four notifications from generic manufacturers advising that they filed abbreviated new drug applications with the FDA seeking approval to market a generic version of XARELTO in the U.S. before the expiration of the relevant patents listed in the Orange Book. A patent term extension has been filed which, if fully granted, would extend the patent to mid-2024. Furthermore, if we are granted pediatric exclusivity, this would provide an additional six months to the existing marketing exclusivity or patent term. We, together with Bayer, will vigorously defend the patents and have filed suit against the generic applicants.
Strong growth of the combined metastatic castrate-resistant prostate cancer market at over 12.5% drove the results for ZYTIGA in the U.S. ZYTIGA share was 27.1% of that market, down approximately one point on a sequential basis due to increased competition. Outside the U.S., ZYTIGA achieved strong growth in Asia and Latin America, which was partially offset by lower sales in Europe due to increased competition. REMICADE export sales were down over 40%, with two-thirds of that decline attributed to sales to our partners in Japan due to an inventory drawdown in preparation for a label expansion for a new indication. Additionally, the weakening of the euro and the loss of exclusivity in Europe has negatively impacted results. I'll now review the Medical Devices segment results. Worldwide Medical Devices segment sales of $6.1 billion increased 0.9%. U.S. sales increased 2% while sales outside the U.S. increased 0.1%.
Excluding the net impact of acquisitions and divestitures, underlying growth was 1.3% worldwide, with the U.S. up 2% and growth of 0.8% outside the U.S. Growth was driven by vision care, specialty surgery and cardiovascular care, partially offset by lower sales in orthopedics and price declines in the diabetes care. Vision care results were strong across the major regions, driven by the introduction of new products. Market growth, share gains in certain segments, and new product introductions drove the results for specialty surgery growth with worldwide biosurgery growth of over 9%, energy growth outside the U.S. of approximately 6%, and worldwide MENTOR growth of nearly 13%. Cardiovascular care growth was driven by 9% worldwide increase in our electrophysiology business due to strong sales of the THERMOCOOL SMARTTOUCH Catheter. Solid growth in the U.S. for orthopedics was offset by lower sales outside the U.S.
Sales outside the U.S. were negatively impacted by softer demand and a reduction in inventory levels, primarily in China. The introduction earlier this year of the TFNA nail drove U.S. trauma growth of approximately 5%. Additional contributors to the U.S. growth were strong double-digit sales of ORTHOVISC and MonoVisc, 3% growth in hips due to our primary stems platform, and 2% growth in knees due to the success of the ATTUNE platform. In the U.S., positive mix from new product introductions partially offset negative price in the major categories. That concludes the segment highlights for Johnson & Johnson's third quarter of 2015. It is now my pleasure to turn the call over to Gary Pruden. Gary?
Thanks, Louise. I'm pleased to be here today to share with you the terrific work that's taking place at our Johnson & Johnson Medical Device group and why we're excited for the future. As you recall, Sandi Peterson provided an update on our consumer-facing medical devices in the second quarter. My discussion today is focused on our surgery, orthopedics, and cardiovascular businesses. I'll provide our perspective on the market in which we're operating, our unique advantages, our performance through the third quarter, and most important, our strategy to win. Before we begin, I thought it would be helpful to provide some framing around the business and the quarter performance overall. Our medical device business, excluding the consumer-facing medical device business and OCD, has grown 1.8% on a year-to-date operational basis.
When you adjust for the women's health and Cordis business, in addition to several non-recurring impacts on our business, the underlying year-to-date operational growth was 2.8%. Our stated goal is to lead in the categories in which we compete. Today, across our portfolio, we have strong platforms such as endocutters and biosurgery that are outperforming market growth. We have substantial platforms which we see growing slowly, such as wound closure, where we have roughly an 80% share, and we have identified areas that require further attention and infusion of innovation. We believe we have sound strategies to achieve our leadership goals by driving growth through enhanced innovation and excellence in execution designed to get us to or above market growth in the next 12-24 months.
In medical devices, we've been on the leading edge of industry consolidation, and our conviction has grown even stronger that our breadth, depth, and scale can be leveraged to make a difference to those we serve. Throughout my remarks this morning, I will share examples of how the medical device businesses of Johnson & Johnson are stronger together, and how together we will accelerate growth and innovation. We are competing in an attractive global market growing at roughly 4%, where we hold leadership positions in surgery, orthopaedics, and cardiovascular electrophysiology. Demographics favor continued market growth as populations age, the incidence of chronic diseases grow, and more people gain access to care globally. As both customers and providers seek to improve efficiency, effectiveness, and manage escalating costs, consolidation has accelerated both within our global customer base and the industry.
As one Medical Device group, we enjoy unique market advantages today, starting with a broad portfolio of medical offerings, surgery, orthopaedics, and cardiovascular. We have the financial and industry strength of Johnson & Johnson behind us that enables us to invest in growth platforms and bring comprehensive solutions to bear on global healthcare issues. In emerging markets, we have a substantial presence, which delivered roughly 20% of our revenue through the third quarter of this year. Our annualized sales in China alone continue to expand and currently exceed $1 billion year to date. We have a strong leadership position in categories such as trauma, minimally invasive surgery, and sutures that help facilitate a tip-of-the-sword strategy to establish leadership scale in emerging markets, where we can expand our key growth platforms.
Finally, we compete from a position of strength, the number one or two market positions in virtually every category in which we do business. As one Johnson & Johnson Medical Device group aligned to a common strategy, we will accelerate the benefits of these advantages going forward. Our sales year to date were driven by the strong performances of our electrophysiology, endocutter, biosurgery, and international energy businesses, complemented by our solid results in joint reconstruction and sports medicine businesses. Partially offsetting this growth were lower sales of spine and women's health products. Our 2015 results continue to be impacted by the relatively soft global market conditions. We are seeing the market in the U.S. improve, EMEA growth remains challenged, and the emerging markets have slowed this year. We expect these soft market conditions and pricing challenges across the board to continue.
While we have strong category leaders across surgery, cardiovascular, and orthopaedics, we also have some opportunities to address platform challenges and reallocate resources to high growth opportunities in some of our platforms like trauma. In trauma, we've seen mixed results in our performance. This has been an important area of focus since acquisition. However, we've seen a lower level of innovation, though, due to a number of factors, including the significant remediation efforts to bring Synthes up to Johnson & Johnson quality standards and the overall integration efforts during the last few years. Going forward, we are shifting more of our focus and resources to deliver new innovative products and target faster-growing categories within the market, such as elective foot and ankle. The recent success of our new femoral nail system, TFN-ADVANCED, demonstrates receptivity in this category to new and meaningful innovation.
We also continue to strengthen the trauma franchise capabilities in high growth markets such as the U.S. and China. Additionally, in trauma, as across the entire portfolio, we recognize the value of strategic partnerships in helping us to achieve our aspirations. Through a new five-year cooperation agreement between DePuy Synthes and the AO Foundation, we will continue to develop innovative products and solutions, train more surgeons to improve standards of care, and treat more patients globally. With respect to the broader portfolio management, earlier this month, we completed the divestiture of the Cordis business. Through portfolio discipline, we will continue to exit categories that do not fit our strategy and evaluate our portfolio to identify those growth categories for heavier R&D investment, external partnerships, and L&A. In summary, we are sharpening our focus and investment on priority platforms that we believe will drive the majority of our growth.
As I noted earlier, roughly 20% of our growth came from emerging markets, more than 50% of our revenue year to date has come from outside the U.S. In line with what you are hearing broadly about the economic slowdown of emerging markets, we see that too, we are maintaining nice growth across our business in these markets. Consistent with that, over the next five years, we continue to expect emerging markets to drive disproportional growth opportunities as access to quality healthcare continues to expand. The World Health Organization estimates that nearly a third of the world's global disease burden could be addressed through surgery, yet nearly 5 billion people continue to lack access to safe, timely, and affordable surgical care. Our goal is to reach more patients and restore more lives.
We aim to achieve this through meaningful innovation and efforts to expand access to care, including continued physician training. We are confident that the results will be improved standards of care for patients around the world and sales growth above industry rates while maintaining industry-leading competitive margins. We have a clear strategy to achieve this. Accelerate growth in priority platforms through innovation and launch excellence. Sustain growth in our core platforms. Leverage our breadth and scale through novel commercial models. Invest in areas of significant unmet needs. This is a strategy we believe will deliver more value for customers and patients, and for our company and shareholders. Our strategy starts with our 3 industry categories of surgery, orthopedics, and cardiovascular. Across the portfolio, we have identified six priority growth platforms in which we disproportionately invest to accelerate growth.
These are the areas where the medical need continues to be significant and our capabilities are strong. In surgery, our priority platforms are endocutters and energy. Not only are we getting good response from our customers on these platforms, which you are seeing in the numbers, we are winning top awards for the design of innovative solutions that benefit the user, the environment, and the business. You can see that we flagged robotics as one of our key growth platforms here in surgery, I'll provide a little more on that later. In orthopedics, we are prioritizing our knees and trauma platforms. Knee replacement is the single largest elective procedure in orthopedics. Over the next six years, the worldwide knee market is expected to grow at 3.8% CAGR to around $9 billion. We believe we are well-placed for growth with products and instruments from our ATTUNE platform.
In cardiovascular, electrophysiology continues to deliver strong growth and is a priority platform for us through our Biosense Webster business. Additionally, across these broad categories, we are targeting four core platforms in which we will sustain growth and continue to invest in innovation. You can see here that in surgery, the foundation platforms in this space are biosurgery and wound closure. In orthopedics, our hip business is a key platform. Finally, sterilization and disinfection, a core capability that addresses the still significant unmet need for preventing infection, which drives excessive costs and extends healing time for patients. Let me be clear. This focus strategy is not to say that we will not invest in other platforms where we compete. There remain important areas for our future.
We expect the combination of our priority and sustained growth platforms to deliver a significant portion of our growth over the next five years. These platforms will be a major contributor to our ability to grow above market in the coming years. We are focusing on the nine key geographies where we believe we can drive the majority of our growth. These markets are being targeted based on strong healthcare utilization outlook, large unmet need within medical devices and a strong Johnson & Johnson presence footprint within these markets. Last year, at our medical device investor business review, we discussed 30 significant filings that were planned by the end of 2016. We are well on the way to achieving that goal, which provides a consistent cadence of product introductions, all contributing to growth.
Those new product innovations, combined with our aggressive reallocation of resources I just discussed, complemented by our novel commercial models, positions us well to grow faster than the market. We have identified five disease states, five areas of unmet needs where we think we can make the greatest difference through innovation, internally or externally sourced. They include surgical oncology, obesity, select cardiovascular disease, osteoarthritis, and osteoporosis. We are exploring what it would take a combination of products and end-to-end solutions to make the critical difference for physicians and patients in addressing these needs. We will take advantage of our strong balance sheet to invest in innovation that can make a difference in these areas, as well as our priority technology platforms. We are taking a comprehensive approach to innovation, and we are looking at this across a number of fronts, including our go-to-market strategy.
We are building novel commercial models that are adapting to market conditions and developing new strategic partnerships with our customers around the world. I will expand on that area shortly. Our strategies are enhanced by the opportunity to leverage our scale and breadth. That begins with cross-selling opportunities, like the inclusion of DERMABOND PRINEO, our newest wound closure device designed for joint procedures, now in the bag of our joint reconstruction sales consultants, speeding time to closure in knee and hip replacement procedures. We are also implementing cross-portfolio procedural development, like the new OsteoView device, which leverages the HARMONIC technology from Ethicon to provide a soft tissue dissector exclusively designed for spine procedures and to be sold by the DePuy Spine business.
It extends further to our enterprise customer group, which works on key relationships with major hospital systems who look to leverage unique Johnson & Johnson capabilities in their medical device agreements. Some great examples are a new relationship established with one of Germany's largest private hospital networks, where we have a sole source contract for implants. Here in the U.S., we signed a five-year contract with the globally ranked academic medical center at Johns Hopkins. We're also executing an exclusive partnership with a large multinational hospital system to share risk and create value. These are just some of the most recent examples on how our clinical strength and our organizational flexibility and scope provide an excellent roadmap for how we're engaging in a new way with customers today.
Johnson & Johnson's substantial global footprint provides a foothold in key emerging markets and enables us to expand access to training to more surgeons and care for more patients. We are using that advantage to drive innovations that address unmet medical needs. Working with our partners in the pharmaceutical business, we recently announced the China Lung Cancer Center project, which will work to bring our medicines, technologies, and resources to bear to address one of that country's leading cause of death, and ultimately advance the scientific knowledge and practice of lung surgery around the world. Earlier this year, we first shared with you the news about our collaboration with Google Life Sciences in surgical robotics. We continue to make progress on our goal of bringing to market a transformative surgical robotics platform.
Our shared vision is to give surgeons advanced analytics and surgical access intraoperatively with an improved and flexible workflow dynamic in the OR, and ultimately, a reduced cost to serve. Through our Ethicon franchise, we are contributing surgical know-how and developing advanced tools and instruments for superior, minimally invasive surgical technology. I'm pleased to share that we're in the development phase of the platform now and are working with respected global experts in the field of robotics to advance the effort. Additional information regarding our progress will be communicated in just the next few weeks. The global robotics market is roughly $2 billion, and we expect procedures to grow at a double-digit growth rate.
That said, today's robotics options are limited and requiring substantial financial and infrastructure investment, and we believe that through technology advancements and agile application, our path in surgically assisted robotics is one that will best deliver what surgeons need. Our solution not only aims to give surgeons a better procedural experience by improving comfort and patient proximity, but delivers a superior surgical experience through greater access and precision with the ability to make more informed decisions through the entire procedure. We can see a future in which the surgeon is no longer isolated in the OR, but through our system, will be able to connect to critical data, imaging, and diagnostic information. Information that will help the surgeon make the best, most accurate decisions as and when they are needed. The system is being developed with both the healthcare provider and the economic buyer in mind.
As one Johnson & Johnson Medical Device Group, we are well positioned in our largest businesses to build on leadership positions as these categories grow in response to changing demographics, evolving unmet medical needs, and expanding access to care. Across our portfolio, we are focused on the categories where we will grow and lead. We have exciting pipelines and a renewed focus on launch excellence that will deliver a steady cadence of meaningful and differentiated innovation. At the same time, we seek to advocate for patients by advancing the standard of care through strategic partnerships, expanded educational access, and pushing the boundaries of medical device product innovation. We are deploying the comprehensive resources of Johnson & Johnson across the group, which gives us unique leverage, and we're getting a positive response from customers.
It is these strategic customer wins, combined with our more than 30 significant product launches, that positions us to grow faster than our market and deliver value for the company and our shareholders. We look forward to telling you more about how our strategy is gaining traction at the Medical Device Business Review next May. I'll turn it back to Dominic.
Thanks, Gary. Good morning, everyone. Let me just say that I really enjoy working alongside Gary on the Management Committee. He has clear strategies for accelerating growth through innovation and leveraging the breadth and scale of medical devices through novel commercial models. We are confident that we will see steady progress as the business, under Gary's leadership, implements very sound strategies for growth. Just this morning, we announced the $10 billion share repurchase program. We are very well positioned to drive continued growth and shareholder value with our exceptional financial strength, including our strong balance sheet and cash flow. We have a proven track record of returning capital to shareholders through our regular quarterly dividend, complemented by share repurchases.
We continue to invest in internal growth drivers and strengthen our robust pipeline. We continue to be active in accessing external opportunities to deploy our financial strength to further drive long-term value creating growth. We anticipate commencing the share repurchase program in the near term and intend to finance it through the issuance of debt. The repurchase program has no time limit and may be suspended or discontinued at any time. Moving on to the review of the quarter. Since Gary has just covered our Medical Device business, I would like to highlight several additional developments from this quarter in our Pharmaceutical, Consumer, and the Consumer Medical Device businesses. Our Pharmaceutical business continues to deliver strong underlying growth.
As we discussed at our Pharmaceutical Analyst Day earlier this year, our future cadence of new product filings is very robust. This quarter, we filed for marketing authorization in Europe for daratumumab, a treatment for patients with relapsed refractory multiple myeloma, which received accelerated assessment from the CHMP. Daratumumab was also granted priority review in the U.S. We have also submitted a supplemental new drug application to the U.S. FDA for IMBRUVICA, for treatment of naive chronic lymphocytic leukemia and a marketing authorization in Europe for once every three-month formulation of paliperidone palmitate. In our consumer business, we are back to a consistent cadence of new products as we continue to reintroduce products back to the shelves, as well as innovate across our beloved brands that you all know and use every day. In particular, the relaunch of Tylenol Arthritis is doing very well.
In our vision care business, we have anniversary pricing adjustments that have impacted growth rates and have also introduced new products such as 1-DAY ACUVUE MOIST MULTIFOCAL, 1-DAY ACUVUE DEFINE with LACREON, and ACUVUE OASYS for 1 week overnight. In the fourth quarter, we are launching ACUVUE OASYS 1-DAY with HydraLuxe, an important advancement in comfort for contact lens wearers. I'll take the next few minutes to review our financial performance in the third quarter, and will also then provide guidance for you to consider in refining your models for the balance of the year. We continue to execute well on our portfolio management strategy, consistent with the plans we laid out for the year. We're pleased with the solid underlying sales results and continued solid earnings per share performance thus far in 2015. We are well positioned for continued growth in today's dynamic healthcare environment.
Turning to the next slide, you can see our condensed consolidated statement of earnings for the third quarter of 2015. As we expected, direct comparisons to our third quarter of 2014 are challenging due to the exceptional uptake of OLYSIO that we benefited from last year, as well as currency headwinds. Our sales results for the third quarter of 2015 on an operational basis, excluding the impact of acquisitions and divestitures and excluding the impact of Hep C products, were robust, up 5.6% for the quarter. This is in line with the annual guidance we set for 2015 and stronger than 2014 on a comparable basis. Please now direct your attention to the box sections of schedule where we have provided earnings adjusted to exclude special items and intangible asset amortization expense.
Adjusted net earnings were $4.2 billion in the quarter, which are down 9.4% compared to the third quarter of 2014, and adjusted earnings per share of $1.49 versus $1.61 a year ago are down 7.5%, having been significantly impacted by currency movements as you may have expected. I am pleased to say that the adjusted EPS results exceeded the mean of the analyst estimates as published by First Call. Excluding the net impact of translation currency, our operational earnings per share was $1.63, or up 1.2%. In the quarter, we incurred after-tax special charges of $377 million, which included litigation expenses associated with previously disclosed matters as outlined in our 10-Q filing. As well as intangible amortization expense of some $437 million on an after-tax basis, which in this quarter also included the write-down of an intangible asset related to a small acquisition we made several years ago.
Now, let's take a few moments to talk about the other items on the statement of earnings. This quarter's results reflect both the gain from our divestiture of the Splenda brand to Heartland Food Products Group, which we closed at the end of the third quarter, and additional investments we made in the business. As we said before, we would use any gains from divestitures in 2015 to offset the lower earnings impact of not having the OLYSIO sales uptake we had in 2014, to provide some offset to currency headwinds, while also allowing continued investments for future growth. Cost of goods sold was 130 basis points higher than the same period last year, impacted by both lower net sale prices as well as changes in product mix. Selling, marketing, and administrative expenses were 29.7% of sales.
As a reminder, this line in the prior year period included the additional year of the branded prescription drug fee, which we treated as a special item last year. Adjusting for that, this line item was 28.4% of sales last year. This year's amount is 130 basis points higher as compared to the adjusted third quarter of 2014. As we've previously noted, we're continuing to invest to drive growth in our key brands. Prior year percent of sales was artificially lower as well, since very little spending occurred in relation to OLYSIO sales. Our investment in research and development as a percent of sales was 12.6% in the quarter, and 160 basis points higher than the prior year as we continue to make important investments in our pipeline for future growth. Interest expense, net of interest income, was a little lower, reflecting higher earnings on our investments.
Other income and expense was a net charge of $420 million in the quarter, compared to a net gain of $1.3 billion in the same period last year. Of course, this line item includes several special items in both years. Excluding those special items, other income and expense was a net gain of approximately $400 million compared to a net gain of approximately $40 million in the prior year period. This year's third quarter reflects the gain on the previously announced divestiture of Splenda. Excluding special items and intangible amortization expense, the effective tax rate for the nine-month period was 21.6%, compared to 22.1% in the same nine-month period last year.
As I noted during our call in July, the effective tax rate for this quarter and for the nine months this year does not yet reflect the benefit of the R&D tax credit, as that legislation has not yet been passed, although we expect that it will be. The effective tax rate is lower in 2015 as compared to 2014, primarily as a result of the mix of foreign earnings to lower tax jurisdictions this year as compared to last year. Now I will provide some guidance for you to consider as you refine your models for 2015. Before I discuss sales and earnings, I will first give some guidance on items we know are difficult for you to forecast, beginning with cash and interest income and expense.
At the end of the quarter, we had approximately $17 billion of net cash, which consists of approximately $37 billion of cash and marketable securities and approximately $20 billion of debt. This is a higher level of cash than we typically hold. We are actively looking for the right opportunities to use that capital to create greater value for our shareholders. As we have discussed before, we have a well-known and disciplined capital allocation strategy that starts with paying dividends, followed by value-creating M&A. Then we consider other ways to return value to shareholders, such as through a share repurchase program. To that end, as you know, this morning, we announced a $10 billion share repurchase program. We believe the company's shares are an attractive investment opportunity. Repurchasing our shares is an important part of our capital allocation strategy.
Although we are continuing to evaluate external growth opportunities in line with this strategy, for purposes of your models, assuming no major acquisitions or other major uses of cash other than the share repurchase program we just announced, we suggest you consider modeling net interest expense of between $450 million and $500 million. This is a slight tightening of the range from prior guidance. Regarding other income and expense, as a reminder, this is the account where we record royalty income as well as gains and losses arising from such items as litigation, investments by our development corporation, as well as divestitures, asset sales, and write-offs. We would be comfortable with your models for 2015 reflecting net other income and expense, excluding any special items, as a net gain ranging from approximately $2.3 billion-$2.4 billion. This is slightly higher than our previous guidance.
As a reminder, this now includes the gains from the divestitures of the U.S. rights to the NUCYNTA pain medicine earlier this year, the SPLENDA brand this quarter, and the Cordis business, which we closed just after the quarter and will be recorded in the fourth quarter. As I mentioned in previous quarters, a portion of other income and expense will flow through to increase operational earnings, as we expect to use some of these gains in other income to compensate for the decreased income from OLYSIO in 2015 as compared to 2014, as well as to help us mitigate some of the impact of strong foreign currency headwinds this year. We also will continue to invest in our core business and opportunities for future growth. Now a word on taxes.
Our guidance for 2015 anticipates that the R&D tax credit will be renewed by Congress, although that has not yet occurred. We would therefore be comfortable with your models reflecting an effective tax rate for 2015, excluding special items, of approximately 21%-22%. This is consistent with our previous guidance. If the R&D tax credit is not approved, it would negatively impact the tax rate by approximately half a percentage point. Turning to guidance on sales and earnings. As we've done for several years, our guidance will be based first on a constant currency basis, reflecting our results from operations. This is the way we manage our business. We believe this provides a good understanding of the underlying performance of our business.
We will also provide an estimate of our sales and adjusted EPS results for 2015 with the impact that current foreign exchange rates could have on the translation of those results. We would be comfortable with your models reflecting an operational sales increase on a constant currency basis of between 1% and 2% for the year. This would result in sales for 2015 on a constant currency basis of approximately $75 billion-$76 billion. This is consistent with our previous guidance and now reflects the impact of the divestiture of the Cordis business, offset by stronger performance in other businesses.
Additionally, by way of comparison to how we described our sales results in 2014, our operational sales growth for 2015, excluding the impact of all acquisitions and divestitures, as well as the impact of hepatitis C products, would be approximately 6%, a higher level of growth than the comparable 5% for 2014. As of last week, the euro was lower by approximately 16% as compared to 2014 average levels, and the dollar strengthened versus virtually all major currencies. Though we are not predicting the impact of currency movements, to give you an idea of the potential impact on sales if currency exchange rates were to remain where they were as of last week for the balance of this year, our sales growth rate would decrease by nearly 7%, reflecting the weakening of the euro and other major currencies against the U.S. dollar.
Thus, under this scenario, we would expect reported sales to reflect a change in the range between -5% and -6%, for a total expected level of reported sales of between approximately $70 billion-$71 billion. Now turning to earnings. A significant factor impacting our earnings guidance for 2015 is the impact of currency movements on transactions, which although hedged, is still somewhat negative incrementally versus the prior year. We expect transaction currency impacts to be negative to our gross profit by approximately 50 basis points in 2015 as compared to 2014. We would be comfortable with adjusted EPS guidance in a range of $6.75-$6.80 per share on a constant currency basis, reflecting an operational or constant currency growth rate of between roughly 5.5%-6.5%.
The midpoint is higher than our previous guidance, as we've increased the lower end of the range, reflecting some operational improvements in the business and our confidence at this point in the year. Again, 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 2015 were to remain where they were as of last week, then our reported adjusted EPS would be negatively impacted by approximately $0.60 per share, which is consistent with the estimate we provided in our previous guidance. Therefore, our reported adjusted EPS would range from $6.15-$6.20 per share. At this stage in the year, we are comfortable raising the lower end and tightening the range.
In summary, as you update your models for the guidance that I just provided, I would like to make a few key points. Although operational sales growth is expected to range between 1% and 2%, we are pleased to note that when excluding the impact of acquisitions and divestitures and Hep C product competition, our operational sales growth at the midpoint of our guidance is a solid 6% for the full year 2015, as compared to 5% for 2014. With regard to earnings on a constant currency basis, our guidance on operational EPS growth is strong in the range between 5.5% and 6.5%, which is higher than our previous guidance. As we execute on our growth platforms, we are continuing to make investments in our business, and we are prioritizing our portfolios.
We remain focused on building our priority pipelines across the enterprise to position our company for sustained future growth and expanded leadership in markets around the world. Also, I'd like to thank the employees of Johnson & Johnson for what they do every day to make a difference to patients and consumers, and for their continued significant contributions to growing our business. Now I'd like to turn things back to Louise for the Q&A portion of the meeting. Louise?
Thank you, Dominic. Manny, could you please provide the instructions for the Q&A session?
Thank you. Ladies and gentlemen, if you would like to ask a question at this time, please press star then one on your telephone keypad. If you would like to withdraw your question, you may press star and then two. With that, your first question comes from Larry Biegelsen of Wells Fargo. Please go ahead.
Good morning, Larry.
Hi, Larry.
Good morning, everyone. Thanks for taking the question. I guess I'll start with the buyback. Maybe Dominic, you could talk about the timing. In the past you've done these pretty quickly. It doesn't sound like, based on your comments, it's a signal that the M&A targets out there aren't as attractive as you may have thought. Is that fair? Just from an EPS standpoint, by our math, it's about $0.20. Then I have one follow-up.
Sure. Larry, let me try to address each of those questions. As far as the timeframe, it's an open-ended share repurchase program, as we said. There's no real particular timeframe. Just by way of reference, the most recent share repurchase program that we implemented, which was $5 billion in 2014, took about nine months to complete. We continuously try to buy our stock at the appropriate prices throughout any trading period. Just as a reminder, we're also simultaneously continuing to buy any stock that's issued in connection with our employee stock programs, and that's about another $3 billion of cash utilized for that purpose. With respect to any read-through on M&A activity, this in no way has any negative impact on our outlook for M&A and our pursuit of value-creating acquisitions to drive shareholder value.
We have the financial strength and flexibility to do both, and we're very pleased to be able to continue to do that. As far as the EPS impact, again, as you know, this is always a tricky calculation because of the weighted average share calculation. If it was fully implemented, then a full-year impact of a fully implemented $10 billion share buyback would be about two to three percentage points of incremental EPS growth. Now, of course, we won't see very much of that in 2015 because we're just beginning, and we'll see some of that show up in the 2016 earnings, and we'll give you a better sense of that in January. Certainly, by 2017, when it's fully implemented, we would see that total percentage positive impact that I just mentioned.
That's very helpful. I feel compelled to ask one about the rhetoric coming out of Washington, Dominic, on pharmaceutical pricing and price controls, which have gotten a lot of media attention recently. Where do you see that ultimately going? What's J&J's perspective? Just lastly, in the early 1990s, I think a lot of pharmaceutical companies, when Bill Clinton was trying to reform healthcare, pledged not to raise drug prices by more than inflation. Is that something that J&J would reconsider? Thanks.
Sure, Larry. Let's see. Well, you're right. There's been a lot of rhetoric about pharmaceutical drug pricing. Despite significant media attention on drug pricing, there really isn't a consensus on policy solutions that would lower prices without negatively impacting innovation. That's the key point. I think every time we talk about drug pricing, we unfortunately miss the balance of the other side of the coin, which is, of course, the innovation that comes from the pharmaceutical industry and the improvement in the health and well-being lives of many people around the world. The pharmaceutical industry has and continues to be a constructive partner in any of these policy debates. We look for solutions to the issue along with policymakers.
Just as a reminder, as part of the Affordable Care Act, the industry agreed to increase rebates in Medicaid and many other additional fees that I know you're all very familiar with. As the U.S. healthcare system evolves, I think we'll have more of a focus on outcomes and value. We're working with both public and private payers to develop innovative outcome-based contracts. We think the real answer to this dilemma is to monitor and provide outcome-based metrics and not simply focus only on price. As far as a pledge, Larry, I think we're very responsible in our drug pricing. We tend to support the price for our drugs with strong economic data. Rather than pledge to a particular number, I think it's important that we continue to develop robust data that provides a solid foundation for the value that our products provide to healthcare systems.
We'll continue to do that.
Thank you. Thanks for taking the question.
Next question, please.
Thank you. The next question is from David Lewis of Morgan Stanley. Please go ahead.
Morning, David.
Good morning. Thanks for taking the question. Gary, I thought I would turn the question back to devices here for a second and two areas I wanted to focus in on. The first is on your innovation sectors, Gary. You talked about four or five of those areas are within or adjunctive to your dominant franchises in ortho and surgical. You have sort of this commentary on select cardio areas. I guess my question is, Gary, first, why even focus on cardio, an area where you have less dominant breadth? Is it just because there's innovation there and you're going to be selective? I had a quick follow-up.
Thank you, David, and good morning. Yeah, it's a great question. Listen, we have, I think, been pretty consistent, and you and I have had this conversation before, that we see in cardiovascular, there are interesting areas where there's a lot of growth opportunities and also unmet needs. I think we've talked about them before and said areas like CHF, heart failure, structural heart are fast-growing categories where there is a lot of unmet need and where we think we can add to our breadth.
That we have with the EP business currently. As always, we will be opportunistic and looking at opportunities both internally and externally to add to our portfolio. We think cardiovascular is a large category. Agree, we don't have the same scale as we do in surgery and orthopedics, but we will look for opportunities to add to that scale, with the appropriate types of investments that will create shareholder value in spaces where we think there's a lot of growth and opportunity. We continue to look at that space. We have highlighted, as we've done today, remains an area where we've made some investments, right? Because we do investments in small companies and technologies through our Johnson & Johnson Development Corp. We'll continue to evaluate the M&A field as well.
Okay. Gary Pruden, the other interesting commentary this morning obviously was on robotics, and I know it's very early days here. I wonder if you could just give us some high-level strategic thoughts and I guess two areas of focus. One would be, should we expect very significant capital systems to be sold from J&J to this partnership? Should we see more less expensive capital systems, than perhaps are out there today? A related question is, how do you think about cost effectiveness? How do you think about the cost effectiveness of any disposables that you sell versus robotics in a relative to existing robotic disposables? Thanks very much.
Thank you, David Lewis. Really good questions. Let me take the last one first. I think you saw in my presentation, cost to serve we see as an opportunity, right? If you look at the robotics installed base as it is today, it's very much focused on the developed markets versus the emerging markets, and that's because cost to serve is disproportionately out of balance.
We think that there are opportunities to have a much smaller footprint in terms of a technology, a lower cost to serve in terms of disposables, as well as capital that we think can play across a broader range of surgical procedures in a cost-effective way that improves the capability of the surgeon, provides real-time data and analytics at their fingertips, greater OR flexibility, and as mentioned, has an overall cost effectiveness, which allows it to penetrate more procedures than what you see today.
Thank you. Next question, please.
Your next question is from Kristen Stewart of Deutsche Bank. Please go ahead.
Hi, thanks for taking the call. I was just wondering if, Dominic, you could go into a little bit further detail on some of the businesses that are contributing to basically give you confidence to increase the underlying guidance for sales.
Sure, Kristen. The pharmaceutical business continues to do very well. The growth, as you saw in the quarter, we exclude the impacts of OLYSIO was over 10%, so it's very solid growth. The consumer business is launching new products and getting those products back on the shelf and the cadence of new product introductions as well as the uptake, gives us encouragement that we're seeing very good results there. Some of Gary's businesses, although some are challenged, as he pointed out, some continue to do very well, electrophysiology and others. I think we're confident that despite losing a quarter of the sales from the Cordis business, the rest of the businesses are performing well enough to pick up that difference, and we're comfortable maintaining our sales guidance for the year.
Okay. How should we just think about looking ahead in terms of Cordis being out? Is there enough momentum to offset any dilution there, or does the stock repurchase kind of help offset some of that as we look ahead? Not giving guidance for 2016, but should we think of the share repurchase similar to what you did for the Ortho Clinical Diagnostics?
There's two things going on here, I think. One is, of course, the share repurchase will add incremental EPS growth that helps offset some dilution. I think the real difference is we're not going to have the kind of headwind comparison that we had 2015 versus 2014 as we get into 2016, and we feel that the momentum is strong going into 2016. I wouldn't characterize the share repurchase as solely related to offset the dilution of Cordis. I think it'll be incremental to our EPS growth.
Okay.
Thank you. Next question, please.
Thank you. Your next question is from Mike Weinstein of JPMorgan. Please go ahead.
Morning, Mike.
Good morning. Thank you, guys. Dominic, with most of the cash, almost all of the cash outside the U.S. and the incremental $10 million of U.S. debt for the share repurchase, are you assuming that you'll be able to use at least a portion of that OUS cash for any meaningful M&A in the near term?
Mike, thanks for the question. We, as you know, always look for tax-efficient utilization of the OUS cash. As you know, we did that in the Synthes transaction a couple of years ago. We'll do our best to structure any M&A activity in a way that can optimize the effective use of the OUS cash in a tax-efficient manner. We continuously work on that, our team is very good at developing strategies to do that, more to come on that at a later time.
Understood. Is the $10 billion number the right number because it does
Mike, I don't think $10 billion is necessarily related to stressing any credit rating. I think, as we've said many times, we have a disciplined capital allocation strategy, share repurchases just happen to be third in line after M&A, dividends being first. I think we're comfortable that doing $10 billion now while we're still actively pursuing M&A activity is the right level to do now. We'll reassess that as that program begins to wind down. I wouldn't necessarily think that this is a limit to what we can do at any time.
Just one question for Gary, then I'll drop. Gary, one thing that stood out to me just this quarter, the pluses and minuses. On the minus side, the U.S. performance within the orthopaedics business, the spine business ex currency was down 12%, trauma was down 6%. Can you shed any light on that?
Yeah, Mike, as mentioned, we had some one-time items that were occurring outside the U.S. in our orthopaedics business. One, as Louise had mentioned in our front in China, where we had a distributor inventory issue with some slowing of the markets there. We had to make some corrections to distributor inventories, which predominantly hit the trauma business, but all of them. Also in Brazil, we saw some registration issues happen as part of the integration, and that also had an impact in slowing the business as well. Those two predominant items had a disproportional impact in the quarter. We don't see those as ongoing issues. We're still excited about the opportunities for the business, specifically trauma in emerging markets we see as an opportunity, and we will continue to focus our efforts there. Yes, we were disappointed in that.
We do see them as one-time items, and we are working through that as we speak. We still see a lot of opportunity for the business outside the United States.
Perfect. Thank you, Gary.
Thank you. Next question, please.
Thank you. Your next question is from Vamil Divan of Credit Suisse. Please go ahead.
Morning, Vamil.
Great. Hi. Good morning, guys. Thanks so much for taking my question. Just a couple, if I could, on the pharma side. One you mentioned on your diabetes with INVOKANA, some of the market share information. I was just curious, obviously the positive data from Lilly on their SGLT2 in terms of their outcomes data. Have you seen any initial impact, or do you expect to see much of an impact reading through the INVOKANA, given that you guys are obviously the market leader there in that class? Just second on the long-acting injectables. Again, you shared some insights. Just curious if you can share some thoughts with the new competition, a couple of new players now in that space, how you think that might impact your growth looking forward. Thanks.
Sure. Well, let me take the question on INVOKANA first. We do think that the positive benefits seen by the Lilly compound is most likely a class effect for SGLT2. It's too early to comment on any effect that we've seen. We're also studying our compound regarding cardiovascular impacts. That data is just a couple of years away. We do think there's a positive effect to the overall class as a result of the cardiovascular data that Lilly shared. With respect to long-acting injectables, Louise, any comments on market dynamics there? I haven't seen much already.
We're still seeing strong growth in that market, and we've also just introduced TRINZA, which is the three-month formulation. We think we're in a very good competitive position there.
Okay.
Thank you. Next question, please.
Thank you. Your next question is from Glenn Novarro of RBC Capital Markets. Please go ahead.
Morning, Glenn.
Hi. Good morning, guys. Gary, two questions for you. First, if I look at the device business in terms of what you've done over the last few years, you've been divesting assets, cardio assets, the diagnostics business. As you go forward, as you look forward, are there still businesses within your device portfolio that you think need to be divested because they're underperforming? Or do you see yourselves more as a net buyer of assets going forward? That's question one. Then question two, Gary, you highlighted you're going to be launching 30 new device products over the next year or so. When I look at the portfolio of products that you'll be launching, a lot of these I see as kind of singles, maybe doubles. So I was wondering if you can look at that portfolio first today. Are there any products that actually could be bigger?
What would be the products that you think actually have the upside to get you back to market growth? Thanks.
Thanks, Glenn. Good questions. First in terms of divestitures. As you know, Alex and Dom have talked about it, which is we have a company-wide premise that we should be number 1 or number 2 in the categories where we're committed and have a clear technology path to getting to either a number 1 or number 2 position. If we don't, we're going to consider our options. We have a very formalized process that we go through with the management committee and looking at our opportunities, and we take on divestitures opportunities carefully, as we've done in both the OCD and the Cordis situation. We will continue to do that portfolio analysis on an ongoing basis, I can't really say what's going to happen, certainly, we will continue to look at our portfolio in terms of opportunities.
We will also, though, continue to look at, Glenn, opportunities to acquire new businesses that we think are accretive, that will add to our business growth and create shareholder value. I think in a disciplined focus approach where we divest, we will also look at opportunities to acquire. I think certainly accelerating our pace of tuck-in deals would be a good opportunity for medical device we see, considering our scale in the market, especially in surgery and orthopedics, is large. We anticipate accelerating that pace over the next 12-18 months. In terms of the second question, which was around opportunities as you look at our portfolio, you're right, we have a lot of, you call it singles and doubles. I would say we have a couple triples in there, especially in the EP space, that we think that will be some really game changers.
The big one that I would highlight for you, which would be very different than anything else, will be robotics. The category, as mentioned in my talk, is $2 billion, growing at double-digit. We see a disruptive opportunity happening in the next couple of years here for us to take a substantial share of the market going forward with a very different technology that's integrated and delivers value for our customers. Putting a lot of focus and efforts there, which we think will be important. We're also looking at, are there opportunities for us from a L&A and M&A perspective to bring in exciting technology into our platform to accelerate growth as well. Glenn, a couple of areas that I would say where I think we've got some really interesting things.
I would say in the next MD&D Day coming up in May, you'll see a little bit more of the pipeline where, and some of the areas that I am very excited about, but probably too early to disclose right now. We'll give you a little bit more detail at that point in time.
Okay, thank you.
Thank you. Next question, please.
Thank you. Your next question is from Danielle Antalffy of Leerink Partners. Please go ahead.
Morning, Danielle.
Hey. Good morning, guys. Thanks so much for taking the question. Just to touch on the M&A topic for a second. Gary, you did touch on it a little bit, mentioned tuck-in acquisitions, but if we take a step back, two questions for you guys here. Number 1, given the $10 billion share buyback announced today and the fact that's priority number 3, at least how you lay it out, does that signal that your appetite for a large acquisition is maybe off the table and will be focused more on the smaller tuck-in type deals or within pharma partnerships or in licensing deals? Number 2, if you look across your businesses, where are the holes that you'd like to fill as you look at the markets that are higher growth that you don't currently play in?
Yeah, Danielle, it's Dominic here. Thanks for the question. I wouldn't interpret the $10 billion share buyback as impacting our appetite for scale of any size at M&A at all. Our appetite for M&A of any scale has entirely to do with whether or not the acquisition is going to create value for shareholders. As you know, we're very disciplined about that. It is true that over our history, we have done many acquisitions, and the largest ones are few and far between, but that has to do with what Gary mentioned. With a business of our scale, we can bring in lots of tuck-ins or licenses, for example, in the pharma business, where we can get the most value for our shareholders in the most capital-efficient manner. It doesn't preclude us from then also looking for large-scale acquisitions.
As far as where we would look, as you know, in pharma, we're focused on five therapeutic areas. I think we'll remain focused there. In consumer, as you know, we have our core platforms of skin care, oral care, OTC in particular, as well as emerging market. For medical devices, Gary, why don't I ask you to just comment on the areas of focus out there. Absolutely. I think if you look at one of the slides in our Strategy to Win, our innovation focus areas, we're really focused on five key unmet needs. One is in, we see in surgical oncology, which the space is really evolving as we speak, where we see more targeted interventions that using a combination of approaches in terms of technologies may provide more minimally invasive outcomes for patients in the long term.
Second is really in the area of obesity, that is still a fast-growing segment where we see a lot of opportunity, especially as you start to think about more minimally invasive surgical procedures that produce outcomes similar or close to the surgical interventions today. I mentioned the select cardiovascular disease areas that we highlighted previously, obviously osteoarthritis and osteoporosis, which offer many opportunities if you think about in terms of joints, trauma, and spine, where we see interesting opportunities to get tuck-in deals that would help accelerate our growth. Those are some areas that we're very focused in on right now. When you say spaces that we're not in today, if you look at it, we are the largest, most comprehensive medical device business with a footprint in surgery, orthopedics, and cardiovascular.
We'd obviously like to expand our cardiovascular footprint, we'll do that in a strategic way where we can create some value. There are a lot of spaces that are nice adjacencies, as I've outlined, that we think we can create some value through tuck-in deals or larger acquisition as well.
Okay, thanks so much.
Next question, please.
Thank you. Your next question is from Jami Rubin of Goldman Sachs. Please go ahead.
Morning, Jami.
Thank you. Good morning. Dominic, I'm kind of surprised that you're putting a buyback as a third priority ahead of M&A. If you look at your PE multiple today, it's about 14-15 times, well below your pharma peers as well as your MD&D peers. You have a massively under-leveraged balance sheet, one of the few triple A-rated balance sheets out there. Investors clearly have been frustrated by the operating performance and the stock performance. I'm just curious to know, if you're so excited about the growth outlook of the business, what could be a better investment than you buying back your stock, but not $10 billion? I guess what I'm talking about is something much more substantial that would really make an impact on your growth rate, like a leveraged buyback up to $50 billion or even higher.
If you could talk about that a bit. Also just back to sort of the M&A discussion, I think there's a lot of focus on getting your MD&D business back to growth. Can you kind of talk about your thoughts on most of the med device growth assets out there are trading at multiples well ahead of yours, and how you think about generating value by potentially acquiring some of those? Thanks very much.
Sure. Well, Jami, as you know, we've been very consistent with our capital allocation strategy, and that's based on extensive research over many years. As you know, share buybacks have some incremental benefit, but the data, as you know, is mixed on the overall outcome. Just because we did a $10 billion share buyback doesn't mean that we won't do another one and another one and another one. I wouldn't necessarily limit it to just one that was announced today. Of course, the big difference between M&A and share buybacks is the one thing that share buybacks don't do, of course, is they don't provide any incremental capability to the company, any incremental ability to innovate and be competitive in healthcare, and that we place as a priority over reducing the share count. It doesn't mean that we can't do both.
I think we have the financial flexibility to do both. I think you'll see us do both. As far as being under-levered, I think these go hand in hand. We want to maintain financial flexibility to do the kinds of transactions that we think are going to be value creating to shareholders when those opportunities arise. We always maintain financial flexibility just as a simple way of the way we conduct our business. As far as getting back to growth in MD&D through M&A, then I'll obviously have Gary comment as well, when you talk about assets that seem to be highly valued, I think what's very important to realize is that none of the assets that you may be referring to as highly valued have the scale and breadth of the kind of MD&D business that we have here at Johnson & Johnson.
Our ability to leverage our scale and breadth, our scientific know-how, our engineering know-how, the overall presence in the hospital setting with contracting and the like, is probably unparalleled. Very few companies, despite their current valuations, have that built into their valuation. We think in our hands, we can possibly create more value than the business on a standalone basis. Gary, anything else you want to add to that?
No, listen, I think, Jami, that's the challenge we're taking on in medical device, which is as many companies with really large portfolio, we have a mix of platform performance versus the market, right? We've got strong performance leaders in segments in surgery, cardio, and ortho. We also have some opportunities where we need to accelerate our growth in platforms like spine, trauma, energy, and infection prevention. I think we understand how to drive that growth in those areas. In energy and infection prevention, we have a pipeline of new innovations which we think will accelerate our growth. In spine and trauma, we need to accelerate that pace of innovation through internal innovation and externally sourced innovation as well.
I think we will look at opportunities both organic and inorganic to accelerate our growth rate to drive that performance, because I think that will be critical and important to the long-term growth of the business. As Dominic mentions, with the scale of the business at $22 billion, accelerating our growth rate by one or two points is a very large acquisition. Which any of those acquisitions of that nature, we'd want to do that very carefully and ensure that we're creating shareholder value.
Dominic, just if I can push back for a second. Clearly, the track record in buybacks, just given where stock prices have been over the last 10 years, have been mixed. The track record with M&A has also been mixed, such as the Synthes deal, which Gary talked about during his remarks. I'm just curious to know how you think about that. Thanks very much.
Okay. Well, you're right. Not every M&A deal works out exactly the way you had predicted it would. I think we were very clear that we thought enhancing scale in orthopedics was important, and we did so at a time that, quite frankly, was ahead of what you now see the competitive set doing. I think we're very pleased having done that acquisition. We think of acquisitions as creating value over the long term. Despite some market slowdown, we're still very confident in the growth of our overall orthopedics business, along with the trauma business that we acquired from Synthes, just having a broader scale to create value. M&A can be tricky. We work very hard to do so and to do the deals in a disciplined way and to gain value from these transactions over the long term.
Thanks very much.
You're welcome.
Next question, please.
Thank you. Your next question is from Damien Conover of Morningstar. Please go ahead.
Morning, Damien.
Hey, good morning. Thanks for taking the question. Just two drug-related questions. Just one question on Xarelto. Still some pretty strong growth there, but it seems like a little bit of a deceleration. Wasn't sure if some new indications were really needed to re-accelerate that growth. I know there's a couple coming up in heart failure and stroke over the next couple of years. The second question was just on REMICADE. Looked like some declines there internationally, partly due to Japan, but also I was wondering if you could give any insights on what you're seeing in the European area with biosimilars. Thank you.
Sure. Let me just say a few words on Xarelto. You may be referring to a little bit of a slowdown sequentially with Xarelto. I think that dynamic has to do with the donut hole that's part of the Affordable Care Act, in terms of Part D reimbursement. As it turns out, when people with Part D coverage reach the donut hole amount, they have more out-of-pocket costs to incur. We believe that's had a bit of an impact in the third quarter compared to the second quarter, and that wouldn't be necessarily just for our product. It would be seen across other products as well. Louise, anything else to add to that?
In addition, over half of our sales are in Medicare Part D, and as you enter the donut hole, the manufacturers have to actually pick up a portion of the pricing. It's about 50% of it. You're seeing that impact. Regarding Remicade in Europe, we're going to leave that for Merck to cover.
I do think that although we won't comment on Merck's territory, we do have Remicade in Canada. We've seen very little biosimilar impact there. We still are retaining about 90% of the business, and again, as we've said before, these are biosimilars. They're not generics, and there's a lot that goes into a physician's decision to switch a patient. As we've said many times before also, about 70% of the patients on Remicade seem to be well controlled with their disease.
Thank you. Next question, please.
Thank you. Your next question is from Jayson Bedford of Raymond James. Please go ahead.
Morning, Jayson.
Good morning. Thanks for squeezing me in. Just wanted to ask you about emerging markets. I thought your comments were a little bit more tempered than your prior comments. I'm wondering first, if you could give us growth in emerging markets in the quarter.
Sure. Go ahead. The emerging markets grew about 4% in the third quarter. On a year-to-date basis, they grew about 5%. I think because there's some fluctuations between some of the tender business, et cetera, in the emerging markets, particularly Brazil, Russia, you're probably better to use the year-to-date numbers. It's about 5% year to date operationally.
Okay. I realize you mentioned the lower inventory in China on the ortho side. Are you seeing the softness in emerging markets more in devices or consumer?
I think there's very different dynamics in the emerging markets for consumers. For example, the OTC businesses, just as an example, in Russia, we're doing extremely well in emerging markets, in that emerging markets with our consumer business. Whereas in China, as you know, we've had some issues there, we've seen some slower growth in the China emerging markets. In medical devices, as Gary pointed out, that's typically a robust market for us in medical devices. It's our largest of the three businesses in emerging markets and in China in particular, is medical devices. Just particularly this quarter, we had the inventory contraction that we saw from our distributors as the market has slowed down in China. We think that's sort of a one-time adjustment that we've just experienced this quarter.
Thank you.
Gary, you'd like to add something?
To add a piece to, I look by split the business from our surgical business to the orthopaedics business. I look at China as a surrogate marker. Surgical business, you still see good double-digit growth rates coming out of the business. The realignment of the distribution issues in orthopaedics certainly offset that. Same in Brazil. We still see strong, high single-digit, double-digit growth coming out of the surgery business, but not so much in the orthopaedics business due to the registration issue. As in my comments in medical device, it is slowed. Without question, we've seen that. Again, access to care growth is still growing. Raising the standard in the market in terms of the medical unmet needs is still an important opportunity, and we still see good growth coming there, albeit tempered from what it was maybe over the last 18 months.
Thank you. Next question, please.
Thank you. Your next question is from Jeff Holford of Jefferies. Please go ahead.
Morning, Jeff.
Morning. Thanks very much. I've got two questions. The first one is around INVOKANA, where IMS volumes seem to have really flattened off since the FDA notice on ketoacidosis in May. Can you just talk about the product's recent performance in the U.S., and what is driving this, and when you'd hope to see an improvement or address any of those concerns that might be out there? The second question is really just going back to some of the M&A discussion that's been on the call. I think in the past, Dominic, you said a few times that large-scale M&A in pharma or biopharma is in the opposite direction from what you've always thought about. Is that still the case going forward?
We can probably take from that where you talk about the ability to still do larger deals, that's most likely to be in the end.
Jayson, you broke up. Jeff, you broke up, but I think I understand where you were going. Let me just take the M&A question first, and then Louise, you could actually provide some color on INVOKANA. Jeff, I don't think you should read into the fact that we're adverse to doing large M&A in any of the businesses. It just has to be value-creating, as I've said many times. When I say it's in the opposite direction of our pharma strategy, as you know, our pharma strategy, which has been very successful, has not been driven by large M&A in comparison to what you've seen in the industry.
We're very clear that growing the business through searching for the best compound, the best innovation, regardless of where it comes from, and then incorporating that into our development engine and using the scientific expertise that we have in-house is what's been the success story of pharma. That doesn't mean it can't also happen with a large M&A deal, but it's been consistently very capital efficient and very successful in the way we've been doing it for the last couple of years. In terms of INVOKANA for ketoacidosis, you're right. There was an FDA notice, and it wasn't solely related to INVOKANA. In our clinical trials for INVOKANA, ketoacidosis rate was very low. Louise, any other comments on that?
Jeff, I'd like to point out that INVOKANA did grow 91% in the quarter in the U.S., so I think that's pretty good. The markets consistently are growing about 7%. I just looked at the trends, and it's very consistent first, second, and third quarter. As far as TRXs, we're at 6.3, up from six in the second quarter. Primary care is at 5.6, up from 5.3, and the endo at 13.1 is about the same as it was in the second quarter. I think it's doing very well.
Thanks.
Sorry, just as a follow-up, what I'm really referring to, if you look at the IMS data over the last two quarters or six months, that there is a clear sort of flattening off. Are you getting any feedback as to why that may be? I'm not talking about the year-on-year growth, which is obviously very strong because the product's had a very strong ramp, but very much just the very recent performance and what you're seeing there.
Well, I just gave you sequential TRXs. I think that's the most recent that we would have. I'm also looking at the market growth for that, is at 7%. I think we're doing fine. As Dominic said, it's a very low incident. It's 0.01 or 0.1 in our phase III trials. It's very low.
That's great. Thank you.
Next question?
Thank you. Your next question is from Bob Hopkins of Bank of America. Please go ahead.
Oh, thanks. Good morning. Can you hear me okay?
Yes.
Hi, Bob. Good morning.
Good morning. Gary, since you have me on the call, I just have two quick questions for you. The first is a follow-up on the robotics side. I was just wondering if you can give us an indication of what announcement we're going to hear over the next couple of weeks, and then if you could also just give us a sense as to kind of where you are with this collaboration with Google. You said it's in the development stage. Could you just give us some rough parameters of how you're thinking about commercialization? Is this one to two years, two to three to five? Just some rough sense there would be helpful. Thanks.
Thanks, Bob. In terms of robotics, listen, I will leave the announcement to the new company. They have some announcements that will be coming out in the next few weeks, I'd like to leave the leader there to do it. As mentioned, this is a partnership between ourselves and my partner, Andy Conrad at Google Life Sciences. The new company will make that announcement. In terms of the development stage, yes, we're in the phase where we are integrating our technology with the Google technology. In terms of from a systems engineering perspective and integrating informatics into the design of our robot. We're looking, I would say you're on the earlier side of your range. I would say it's the next couple of years.
We'd obviously like to accelerate that, we want to make sure that we stay true to our value proposition, which is we think what's available today is really the model that's more like the mainframe computer 50 years ago. We intend to go to the iPad version, that's what we want to launch with a more integrated informatics, diagnostics that are available for the surgeon around the world at a lower cost to serve. We think that it's better to do it right. There will be a lot of follow-on competitors that come in the next couple of years that I think will be more big box players. That is clearly not our strategy. We think this is an opportunity to be disruptive in a very unique partnership, to create value for our customers, patients, and also for the Johnson & Johnson shareholders.
Last and final question, then we'll have some final remarks by Dominic.
Thank you. Your final question is from Tony Butler of Guggenheim Partners. Please go ahead.
Yes, thanks very much. I just wanted to, Gary Pruden, echo one of Bob Hopkins' questions, that is simply around robotics. I'm very respectful of the reduced cost to serve, the real question becomes in the end game, outside of the intellectual capital the two companies put together and come up with a fix. The question really becomes, is there enough capacity for capital expense from the customers in the future? As you alluded to earlier, most of the big boxes are really in developed markets. If you think about this globally, which I'm sure you are, the question becomes, is there sufficient capital at institutions today, especially in China, et cetera, that can actually deploy a robotics technology in the future? My last question really is, Dominic Caruso, it's back to M&A again, sorry. You alluded to pharma, and the partnerships you've created have been great.
I think I would actually have assumed that the speed at which those partnerships would occur would actually escalate, in part because of your capital that you currently have and because the landscape is changing, certainly especially true in oncology. Any commentary would be great. Thanks very much.
Robotics.
Thank you for the question. Listen, I think that question is an age-old question that goes on, which is, will there be enough capital to support innovation? I think at the end of the day, the answer is always yes. The other thing that I will point out is we don't believe the capital play here for our innovation is going to be $2 million per hospital. We're going to provide a lot more flexibility in terms of that, and it also, quite frankly, depends on our go-to-market model in terms of how we bring that to market. I think you might find some unique ways in order to do that. We haven't quite decided on that at this point. As mentioned, we have decided in terms of our value proposition, which will be a lower cost to serve, a smaller footprint.
We do believe that if you produce innovation that delivers meaningful outcomes and improvement for patients, that there will be enough capital out there globally to support that.
Tony, with respect to M&A and pharma and your comment about the speed at which we can do partnerships, and maybe you thought we'd accelerate them. We're always actively involved in this space, not only in oncology, but in all the therapeutic areas that we operate in. As you know, we already have a pretty robust pipeline where we're going to be filing 10 new NMEs between now and 2015. Some of those, of course, come from the various partnerships and licenses that we've done. You'll continue to see us do that. I think accelerating those is something we always love to do, we want to do the right deal with the right partner at the right value, and getting the deal done right is probably more important.
Okay. Thanks, Dominic. Thanks, Gary.
Sure. You're welcome, Tony. Well, thanks, everyone, for tuning in today. Thanks, Louise, and thanks, Gary, for giving us an update on our medical device business and the strategies to accelerate growth. I'd just like to reiterate we're very pleased that we're able to announce a $10 billion share buyback program while we continue to actively look to put our financial strength to use to further accelerate our growth. Thanks again for tuning in today, and have a very nice day. Bye-bye.
Thank you. Ladies and gentlemen, this concludes today's Johnson & Johnson's third quarter 2015 earnings conference call. You may now disconnect, and have a wonderful day. Okay. We're all clear, everyone.