Good morning, and welcome to Johnson and Johnson's Third Quarter 2015 Earnings Conference Call. This call is being recorded. If anyone has any objections, you may disconnect at this I would now like to turn the conference call over to Johnson and Johnson. You may begin.
Good morning, and welcome. I'm Louise Marotta, Vice President of Investor Relations for Johnson and Johnson, and it is my pleasure this morning to review our business results for the Q3 of 2015. Joining me on the call today are Dominic Caruso, Vice President, Finance and Chief Financial Officer and Gary Prudent, Worldwide Chairman, Medical Devices. A few logistics before we get into the details. This review is being made available via webcast accessible through the Investor Relations section of the Johnson and Johnson website at investor.
Jnj.com. I'll begin by reviewing the Q3 for the Corporation and our 3 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 then open the call to your questions.
We expect the call to last approximately 90 minutes. Included with the press release that was issued earlier this morning is a schedule of sales for key products and or businesses to facilitate updating your models. These schedules are available on the Johnson and Johnson website, as is the press release. Please note, we will use 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 ks 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 ks, 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 and Johnson website. Now I would like to review our results for the Q3 of 2015. Worldwide sales to customers were $17,100,000,000 for the Q3 of 2015, down 7.4% versus Q3 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 point 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 $3,400,000,000 and earnings per share were $1.20 versus $1.66 a year ago. As referenced in the table reconciling non GAAP measures, 20 15 Q3 net earnings were adjusted to exclude after tax amortization expense of $437,000,000 and a charge of $377,000,000 for after tax special items. 2014 third quarter net earnings were adjusted exclude a net gain of $144,000,000 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 $4,200,000,000 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 Q3 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 $3,300,000,000 increased 3.1%, with U. S. Sales up 8.9%, while outside 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 pediatric share was 44.5%, up from 41% a year ago. Additional contributors to growth in the U. S. Were seasonal inventory build for Zootech 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 Q2 this year versus the Q3 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 in oral care and women's health products outside the U. S. Moving now to our Pharmaceuticals segment. Worldwide sales of $7,700,000,000 decreased 0.3% with U.
S. Sales down 4.5 percent and sales outside the U. S. Up 5.5%. New competitors in hepatitis C significantly impacted sales results.
Excluding sales of hepatitis C products, ALICIO and INSEVO, 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, IMVOCOMAT IMBRUVICA, SYMPAY, STELARA, INVEGA SUSTENNA OR ZEPLION, PRESISTA and PRESCUBIX, CONCERTA, XERALTO and ZYTIGA, partially offset by lower export sales of REMICADE. Strong momentum in market share increases drove results for INVOKANA and VOCAMET. In the U. S, INVOKANA invokimat 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 Q2 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 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 SYMPONIESYMPONI ARIA achieved strong growth across all the major regions due to robust market growth combined increased penetration of SYMPAIARIA. INVEGA SUSTENNA or ZEPLION 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 PROCYSTA were driven by the launch earlier this year of preskevix. Continued share growth drove results for XERALTA sales with TRx for the quarter in the U.
S. Anticoagulant market 15.8%, up 1.5 points from a year ago. XARALTA is broadly reimbursed with over 90% of commercial and Medicare Part D patients covered at the lowest branded product co pay. As an update, during the quarter, we received several paragraph 4 notifications from generic manufacturers advising that they filed abbreviated new drug applications with the FDA seeking approval to market a generic version of XARALTO in the expiration of the relevant patents listed in the orange book. The composition of matter patent owned by our partner Bayer is expected to expire in December 2020.
However, a patent term extension has been filed, which if fully granted would extend the patent to mid-twenty 24. Further, if we are granted pediatric exclusivity, this would provide an additional 6 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 1 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 2 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 $6,100,000,000 increased 0.9%. U. S. Sales increased 2%, while sales outside 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 percent worldwide increase in our electrophysiology business due to strong sales of the Thermocool Smart Touch 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 TFMA nail drove U.
S. Trauma growth of approximately 5%. Additional contributors to the U. S. Growth were strong double digit sales of Orthovisk and MONOVISC, 3% growth in hips due to our primary stem 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 and Johnson's Q3 of 2015. It is now my pleasure to turn the call over to Gary Prudent. Gary?
Thanks, Louise. I'm pleased to be here today to share with you the terrific work that's taking place at our Johnson and Johnson Medical Device Group and why we're excited for the future. As you recall, Sanofi Q2. So 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 Q3 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 and execution designed to get us to or above market growth in the next 12 to 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 and 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, orthopedics 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, orthopedics and cardiovascular. And we have the financial and industry strength of Johnson and Johnson behind us that enables us to invest in growth platforms and bring comprehensive which delivered roughly 20% of our revenue through the Q3 of this year.
Our annualized sales in China alone continue to expand and currently exceed $1,000,000,000 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 then expand our key growth platforms. And finally, we compete from a position of strength. The number 1 or 2 market positions in virtually every category in which we do business. As 1 Johnson and 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 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 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 orthopedics, we also have some opportunities to address platform challenges and reallocate resources, 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 and 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 5 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 and D investment, external partnerships and L and 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 and the more than 50% of our revenue year to date has come from outside the U. S.
In line with what you're hearing broadly about the economic slowdown of emerging markets, we see that too, but we are maintaining nice growth across our business in these markets. Consistent with that, over the next 5 years, we continue to expect emerging markets to drive disproportional growth opportunities as access to quality health care continues to expand. The World Health Organization estimates that nearly onethree of the world's global disease burden could be addressed through surgery, yet nearly 5,000,000,000 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 and 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 6 priority growth platforms in which In surgery, our priority platforms are platforms, which you are seeing in the numbers, but 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, and 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 selective procedure in Orthopedics. Over the next 6 years, worldwide knee market is expected to grow at 3.8% CAGR to around $9,000,000,000 We believe we are well placed for growth with products and instruments from our Attune platform. And 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 4 core platforms in which we'll 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 and finally, sterilization and disinfection, a core capability that addresses the still significant unmet need for preventing infection would drive successive costs and extends healing time for patients. Let me be clear. This focused 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 5 years. These platforms will be a major a major contributor to our ability to grow above market in the coming years. We are focusing on the 9 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 strong Johnson and 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 5 disease states, 5 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're 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. And we'll 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're taking a comprehensive approach to innovation, and we are looking at this across a number of fronts, including our go to market strategy. We're building novel commercial models that are adapting to market conditions and developing new strategic partnerships with our customers around the world. I'll 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 DuraBond Prinio, our newest wound closure device designed for joint procedures, now in the bag of our joint reconstruction sales consultants, 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 and Johnson capabilities in their medical device agreements. Some great examples are a new relationship established with 1 of Germany's largest private hospital networks where we have a sole source contract for implants. Here in the U.
S, we signed a 5 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 and 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 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 interoperably 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 evasive 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 next few weeks. The global robotics market is roughly $2,000,000,000 and we expect procedures to grow at a double digit growth rate. That said, today's robotics options are limited and requiring substantial financial 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 we'll 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 health care provider and the economic buyer in mind. As one Johnson and 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 and 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. Now I'll turn it back to Dominic.
Thanks, Gary, and 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 $10,000,000,000 share repurchase program.
We are very well positioned to drive continued growth in 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. At the same time, we continue to invest in internal growth drivers and strengthen our robust pipeline, and 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. Repurchase of stock through the program will be made at our discretion from time to time and 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. And 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. Baratumumab was also granted priority review in the U.
S. We are also 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 market authorization in Europe for once every 3 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 and have also introduced new products such as 1 Day Acuvue Moist Multifocal, 1 Day Acuvue Define, Leclrion and Acuvue Oasis for 1 week overnight. And in the Q4, we are launching Acuvue Oasis 1 day Hydralux, an important advancement in comfort for contact lens wearers. I'll take the next few minutes to review our financial performance in the Q3 and we'll 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 20 15. 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 Q3 of 2015. As we expected, direct comparisons to our Q3 of 2014 are challenging due to the exceptional uptake of ALICIO that we benefited from last year as well as currency headwinds. Our sales results for the Q3 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 than 2014 on a comparable basis. Please now direct your attention to the box section of the schedule where we have provided earnings adjusted to exclude special items and intangible asset amortization expense. Adjusted net earnings were $4,200,000,000 in the quarter, which are down 9.4% compared to Q3 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. And 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 $377,000,000 which included litigation expenses associated with previously disclosed matters as outlined in our 10 Q filing, as well as intangible amortization expense of some $437,000,000 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 Q3 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 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 percent 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. So this year's amount is 130 basis points higher as compared to the adjusted Q3 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 Alisio 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 $420,000,000 in the quarter compared to a net gain of 1 point the same period last year. Of course, this line item includes several special items of both years.
Excluding those special items, other income and expense was a net gain of approximately $400,000,000 compared to a net gain of approximately $40,000,000 in the prior year period. This year's Q3 reflects the gain on the previously announced divestiture of Splendid. Excluding special items and intangible amortization expense, the effective tax rate for the 9 month period was 21.6% compared to 22.1% in the same 9 month period last year. As I noted during our call in July, the effective tax rate for this quarter and for the 9 months this year does not yet reflect the benefit of the R and 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 $17,000,000,000 of net cash, which consists of approximately $37,000,000,000 of cash and marketable securities and approximately $20,000,000,000 of debt. This is a higher level of cash than we typically hold, and we are actively looking for the right opportunities to use that capital to create greater value for followed by value creating M followed by value creating M and A, and 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 $10,000,000,000 share repurchase program, and we believe the company's shares are an attractive investment opportunity, and 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 $450,000,000 $500,000,000 This is a slight tightening of the range from prior guidance. 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 $2,300,000,000 to $2,400,000,000 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 4th 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 Allisio in 20 15 as compared to 2014, as well as to help us mitigate some of the impact of strong foreign currency headwinds this year. But we also will continue to invest in our core business and opportunities for future growth. And now a word on Our guidance for 2015 anticipates that the R and 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% to 22%, and this is consistent with our previous guidance.
If the R and D tax credit is not approved, it would negatively impact the tax rate by approximately 0.5 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 and we believe this provides a good understanding of the underlying performance of our business. We will also provide an estimate of our sales and 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% 2% for the year. This would result in sales for 2015 on a constant currency basis of approximately $75,000,000,000 to $76,000,000,000 This is consistent with our previous guidance and now reflects the impact of the divestiture of the Cordis offset by stronger performance in other businesses. Additionally, by way of comparison to how we described our sales results in 20 14, 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. And 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 the change in the range between negative 5% and negative 6% for a total expected level of reported sales of between approximately $70,000,000,000 $71,000,000,000 And 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 the range of $6.75 to $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, that 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 to $6.20 per share. At this stage in the year, we are comfortable raising the lower end and tightening the range.
So 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% 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 point 5%, which is higher than our previous guidance. And 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 and 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. And now I'd like to turn things back to Louise for the Q and A portion of the meeting. Louise?
Thank you, Dominic. Manny, could you please provide the instructions for the Q and A session?
Thank
So I guess I'll start with the buybacks. Maybe Dominic, you could talk about the timing. In the past, you've done these pretty quickly. And it doesn't sound like based on your comments that it's a signal that the M and A targets out there aren't as attractive as you may have thought. Is that fair?
And just from an EPS standpoint, by our math, it's about $0.20 And then I have one follow-up.
Sure, Larry. Let me try to address each of those questions. So as far as the time frame, it's an open ended share repurchase program, as we said. So there's no real particular time frame. But just by way of reference, the most recent share repurchase program that we implemented, which was $5,000,000,000 in 20 14, took about 9 months to So we continuously try to buy our stock at the appropriate prices throughout any trading period.
And 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 $3,000,000,000 of cash utilized for that purpose. With respect to any read through on M and A activity, this in no way has any negative impact on our outlook for M and A and our pursuit of value creating acquisitions to drive shareholder value. So 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. But if it was fully implemented, then a full year impact of a fully implemented $10,000,000,000 share buyback would be about 2 to 3 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 20 16 earnings. We'll give you a better sense of that in January. But certainly by 2017, when it's fully implemented, we would see that total percentage positive impact that I just mentioned.
And then I feel compelled to ask one about the rhetoric coming out of Washington dominate on pharmaceutical pricing and price controls, which have gotten a lot of media attention recently. So where do you see that ultimately going? What's J and J's perspective? And just lastly, in the early 1990s, I think a lot of pharmaceutical companies, with Hillary Clinton was trying to reform healthcare, pledged not to raise drug prices by more than inflation. Is that something that J and J would reconsider?
Thanks.
Sure, Larry. Let's see. Well, you're right. There's been a lot of rhetoric about pharmaceutical drug pricing. And 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, and 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. And as the U.
S. Health care system evolves, I think we'll have more of a focus on outcomes and value, and 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. Pledge, Larry, I think we are very responsible in our drug pricing and we tend to support the price for our drugs with strong economic data. So 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 health care systems.
So we'll continue to do that.
Thank you. Thank you for taking the questions.
Next question, please.
Thank you. The next question is from David Lewis of Morgan Stanley. Please go ahead.
Good 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 2 areas I wanted to focus in on. The first is on your innovation sectors, Gary, you talked about 4 or 5 of those areas are within or adjunctive to your dominant franchises in ortho and surgical.
Then you have sort of this commentary on select cardio areas.
So 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? And then I had a quick follow-up.
Thank you, David, and good morning. Yes, it's a great question. Listen, we have, I think it's been pretty consistent and you and I've 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. So 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. So we continue to look at that space. We have highlighted as we've done today, it remains an area where we've made some investments, right, because we do investments in small companies and technologies through our Johnson and Johnson Development Corp. And we'll continue to evaluate the M and A field as well.
Okay. And then Gary, the other interesting commentary this morning obviously was on robotics. And I know it's very early days here, but I wonder if you could just give us some high level strategic thoughts. And I guess 2 areas of focus. 1 would be, should we expect very significant capital systems to be sold from J and J to this partnership?
Or should we see more less expensive capital systems than perhaps are out there today? And a related question is, how do you think about the cost effectiveness of any disposables that you sell versus robotics relative to existing robotic disposables? Thanks very much.
Thank you, David. And listen, really good questions. Let me take the last one first. I mean, 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. And 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
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 well, the pharmaceutical business continues to do very well. The growth, as you saw in the quarter, we exclude the impacts of percent, 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, very good results there. And some of Gary's businesses, although some are challenged as he pointed out, some continue to do very well, electrophysiology and other.
So 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 momentum
to momentum to offset any dilution there or does the stock repurchase kind of help offset some of that as we look ahead? They're not giving guidance for 2016, but should we think of the share repurchase similar to what you did for the ortho clinical diagnostic?
Well, there's 2 things going on here, I think. One is, of course, the share repurchase will add incremental EPS growth that helps offset some dilution. But 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. So I wouldn't characterize the share repurchase as solely related to offset the dilution of Cordis, I think it will be incremental to our EPS growth.
Okay. Thank you. Next question, please.
Your next question is from Mike Weinstein of JPMorgan.
Dominic, with most of the cash, almost all
of the cash outside the U. S. And the incremental $10,000,000 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 and A in the near term?
Mike, thanks for the question. We, as you know, always look for tax efficient utilization of the OUS As you know, we did that in the Synthes transaction a couple of years ago. So we'll do our best to structure any M and A activity in a way that can optimize the effective use of the OUS cash in a tax efficient manner. So we continuously work on that and our team is very good at developing strategies to do that and but more to come on that at a later time.
Understood. And is the $10,000,000,000 number the right number because it doesn't stress your credit your ratings with the agencies?
Mike, I don't think $10,000,000,000 is necessarily related to stressing any credit rating. I think it as we've said many, many times, we have a disciplined capital allocation strategy and share repurchases just happen to be 3rd in line after M and A and dividends being first. So I think we're comfortable that doing $10,000,000,000 now while we're still actively pursuing M and A activity is the right level to do now. Then we'll reassess that as that program begins to wind down. So I wouldn't necessarily think that this is a limit to what we can do at any time.
Okay. And then just one question for Gary, then I'll drop. So Gary, one thing that stood out to me just this quarter, the pluses and minuses on the minus side, the OUS performance within the orthopedic business, the spine business ex currency was down 12%, trauma was down 6%. Can you shed any light on that?
Yes, Mike. As mentioned, we had some one time items that were occurring outside the U. S. In our orthopedics business. 1, 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 make some corrections to distributor inventories, which predominantly hit the trauma business, but all of them.
And then 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. So those 2 predominant items had a disproportional impact in the quarter. We don't see those as ongoing issues. We are 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. So yes, we were disappointed in that.
We do see them as one time items, and we are working through that as we speak. But 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.
Hi, good morning guys. Thanks so much for taking my questions. So just a couple if I could on the pharma side. So 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 SGLT-two in terms of their outcomes data.
Have you seen any initial impact? Or do you expect to see much of an impact reaching through the genvacana given that you guys are obviously the market leader there in that class? And then just second 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 benefit 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. And we're also studying our compound regarding cardiovascular impacts.
But that data is just a couple of years away. But 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 Have you seen 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 3 month formulation. So we think we're in a very, very good competitive position there.
Thank you. Your next question is from Glenn Novarro of RBC Capital Markets. Please go ahead.
Good morning, Glenn. 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 year, 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 under performing?
Or do you see yourselves as a net buyer of assets going forward? That's question 1. And then question 2, 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 double. And 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 do you think actually have the upside to get you back to market growth? Thanks.
Thanks, Gwen. Good questions. So, first, in terms of divestitures, as you know and Alex 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, through either a number 1 or number 2 position. And if we don't, we're going to consider our options. So we have a very formalized process that we go through with the management committee and looking at our opportunities, and we take on 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. So I can't really say what's going to happen, but 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. So 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.
And we anticipate accelerating that pace over the next 12 to 18 months. Now in terms of the second question, which was around opportunities as you look at our portfolio, you're right, we have a lot of, I'll call it you call it singles and doubles. I would say we have a couple of triples in there, especially in the EP space that we think 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 $2,000,000,000 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. So putting a lot of focus and efforts there, which we think will be important. And we're also looking at are there opportunities for us from a L and A and M and A perspective to bringing in the exciting really interesting things. Also, I would say in the really interesting things. Also, I would say in the next MD and D Day coming up in May, you'll see a little bit more of the pipeline where at some of the areas that I am very excited about, but probably too early to disclose right now.
And we'll give you a little bit more detail at that point in time.
Okay. Thank you.
Next question, please.
Thank you. Your next question is from Danielle Antalffy of Leerink Partners. Please go ahead.
Good morning, Danielle. Hey, good morning, guys. Thanks so much for taking the question. Just to touch on the M and 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 $10,000,000,000 share buyback announced today and the fact that that's sort of priority number 3, at least how you play it out. Does that signal that your appetite for a large acquisition is maybe off the table and you will be focused more on the smaller tuck in type deals or within pharma partnerships or in licensing deals? And then 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? Yes, that's
I wouldn't I wouldn't interpret the $10,000,000,000 share buyback as impacting our appetite for scale of any size at M and A at all. Our appetite for M and A of any scale has entirely to do with whether or not the acquisition is going to create value for shareholders. And as you know, we're very disciplined about that. It is true that over our history, we have done many, 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.
But it doesn't preclude us from that also looking for large scale acquisitions. As far as where we would look, as you know, in pharma, we're focused on 5 therapeutic areas. So 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? And 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 5 key unmet needs. So 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. 2nd is really in the area of obesity and that is still a fast growing segment. 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.
And then 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. So 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, but we'll do that in a strategic way where we can create some value. So there are very a lot of spaces that are nice adjacencies as I've outlined that we think we can create some value through tuck in deals more, larger acquisition as well.
Okay. Thanks so much. Next question please.
Thank you. Your next question is from Jamie Rubin of Goldman Sachs. Please go ahead.
Good morning, Jamie. Thank you. Good morning. Dominic, I'm kind of surprised that you're putting a buyback as a 3rd priority ahead of M and A. I mean, if you look at your PE multiple today, it's about 14x, 15x, well below your pharma peers as well as your medtech peers.
You have a massively under leveraged balance sheet, one of the few AAA rated balance sheets out there. Investors clearly have been frustrated by the operating performance and the stock performance. And 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 buying back your stock, but not $10,000,000,000 but I guess what I'm talking about is something much more substantial that would really make an impact on your growth rate like a leverage buyback up to $50,000,000,000 or even higher. So if you could talk about that a bit. And also just back to sort of the M and A discussion, I think there's a lot of focus on getting your MD and D business back to growth.
Can you kind of talk about your 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, Jamie, 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. And just because we did a $10,000,000,000 share buyback doesn't mean that we won't do another one and another one and another one. So I wouldn't necessarily limit it to just one that was announced today.
Of course, the big difference between M and 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. And 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. So 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 and D through M and A and 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 are that you may be referring to as highly valued have the scale and breadth of the kind of MD and D business that we have here at Johnson and Johnson. So 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 and very few companies despite their current valuations have that built into their valuations.
So 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, Jamie, that's the challenge we're taking on in Medical Device, right, which is if you 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, but we also have some opportunities where we would need to accelerate our growth, right, 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 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. So 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 Amit mentioned with the scale of the business at $22,000,000,000 right, accelerating our growth rate by 1 or 2 points is a large very large acquisition, which any of those acquisitions of that nature, we 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 Synthia's deal, which Gary talked about during his remarks. So, the Cynthia's deal, which Gary talked about during his remarks. So I'm just curious to know how you think about that, but thanks very
much. Okay. Well, you're right, not every M and 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. So I think we're very pleased having done that acquisition.
We think of acquisitions as creating value over the long term. And 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 and A can be tricky. We work very hard to do so and to do the deals in a disciplined way and 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 Damian Conover of Morningstar. Please go ahead.
Good morning, Damian.
Hey, good morning. Thanks for taking the question. Just 2 drug related questions. Just one question on XARTO. Still some pretty strong growth there, but it seems like a little bit of a deceleration.
I wasn't sure if some new indications are really needed to reaccelerate that growth. I know there's a couple coming up in heart failure and stroke over the next couple of years. And then the second question was just on REMICADE. It 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 doughnut hole that's part of the Affordable Care Act in terms of Part D reimbursement. So as it turns out, when people with Part D coverage reach the donut hole amount, they have more out of pocket cost to incur.
We believe that's had a bit of an impact in the 3rd quarter compared to the 2nd 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?
Yes. And in addition, so over half of our sales are in Medicare Part D. And as you enter the donut hole,
I I do think that although we won't comment on Merck's territory, we did we do have REMICADE in Canada, and we've seen very little biosimilar impact there. I mean, 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. And 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. Good
Good morning,
Jason. 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.
So I'm wondering first if you could give us growth in emerging markets in the quarter.
Superclients. The emerging markets grew about 4% in the 3rd quarter. And on a year to date basis, they grew about 5%. Because there's some fluctuations between some of the tender business, etcetera, 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. And I realize you mentioned the lower inventory in China on the ortho side. But are you seeing the softness in emerging markets more in devices or consumer?
Well, I think there's very different dynamics in the emerging markets for consumer. So 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, so we've seen some slower growth in the Chinese in 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 3 businesses in Emerging Markets and in China, in particular, is Medical Devices.
And just particularly this quarter, we had the inventory contraction that we saw from our distributors as the market has slowed down in China. So we think that's sort of a one time adjustment that we've just experienced this quarter. Thank you.
Gary, would
you like to add? Yes.
I think the other piece to I look I split the business from our surgical business to orthopedics 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 distributed issues in orthopedics 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 ortho business due to the registration issues.
So as in my comments in medical device, it has slowed without question. We've seen that. But 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.
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? What is driving this and when you'd hope to see an improvement or address any of those concerns that might be out there?
And then the second question is really just going back some of the M and A discussion that's been on the call. I think in the past, Dominic, you said a few times that large scale M and A in pharma or biopharma is in the opposite direction from what you've always thought about. Is that still the case going forward? So we can probably take from that that where you talk about the ability to still do larger deals, that's most likely to be in the
Yes. Jason, you broke up, but I Jeff, you broke up, but I think I understand where you were going. I mean, let me just take the M and A question first and then, Louise, you could actually provide some color on Invokana. So Jeff, I don't think you should read into the fact that we're adverse to doing large M and A in any of the businesses. It just has to be value creating, as I've said many, 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 and A, in comparison to what you've seen in the industry. And so 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, that doesn't mean it can't also happen with a large M and A deal, but it's been consistently very, very capital efficient and very successful in the way we've been doing it for the last couple of years. In terms of INVOKONTA for ketoacidosis, you're right, there was an FDA notice and it wasn't solely related to INVOKONA. In our clinical trials for Invokana, ketoacidosis rate was very, very low. But Louise, any other comments on that?
So 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 point 3%, up from 6% in the 2nd quarter. Primary care is at 5 point point 3, up from 6 in the 2nd 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 2nd quarter.
So 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 2 quarters or 6 months, that there is a clear sort of flattening off. I mean, 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, very strong because the products had a very strong ramp, but very much just a very recent performance and what you're seeing there?
We'll give you sequential TRxs, so I think that's the most recent that we would have. And I'm also looking at the market growth for that is at 7%. So I think we're doing fine. And as Dominic said, it's a very low incident. It's 0.01 or 0.1 in our Phase III trials.
It was very low. Thank you.
Next question? Thank you.
Your next question is from Bob Hopkins of Bank of America. Please go ahead.
Thanks and good morning. Can you hear me okay?
Yes. Hi, Bob. Good morning.
Good morning. So, Gary, since we have you on the call, I just have 2 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've said it's in the development stage.
Could you just give us some rough parameters of how you're thinking about commercialization? I mean, is this 1 to 2 years, 2 to 3, 3 to 5, just some rough sense there would be helpful? Thanks.
Thanks, Bob. So in terms of robotics, listen, I will leave the announcement to the new co, the company. They have some announcements that will be coming out in the next few weeks. So I'd like to lead her there to do it. As mentioned, this is a partnership between ourselves and my partner Andy Conrad at Google Life Sciences.
So the new company will make that announcement. In terms of the development stage, yes, we're in the phase where we are integrating, right, our technology with the Google technology, right, in terms of from a systems engineering perspective, integrating informatics into the design of our robot. So we're looking, I would say, you're on the earlier side of your range, right? I would say it's the next couple of years. We'd obviously like to accelerate that, but 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, and that's what we want to launch. With a more integrated informatics diagnostics, right, that are available for the surgeon around the world at a lower cost to serve. So 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.
And 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 and Johnson shareholders.
Last and final question and then we'll 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, echo one of Bob's questions and that is simply around robotics. I am very respectful of the reduced cost to serve, but the real question becomes in the end game outside of the intellectual capital the 2 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.
But if you think about this globally, which I'm sure you are, then the question becomes, is there sufficient capital at institutions today, especially in China, etcetera, that can actually deploy a robotics technology in the future. And my last question really is, Dominic, is back to M and A again, sorry. But I actually you alluded to pharma and the partnerships you've created have been great. I think I would actually have assumed that the speed to 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.
So,
thank you for the question. And 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 $1,000,000 per hospital. So 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, right, in terms of how we bring that to market. So I think you might find some unique ways in order to do that. We haven't quite decided on that at this point. But as mentioned, we have decided in terms of our value proposition, which will be a lower cost to serve, a smaller footprint. And we do believe that if you produce innovation, right, that delivers meaningful outcomes and improvement for patients, there will be enough capital out there globally to support that.
Tony, with respect to M and 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. And as you know, we already have 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. So you'll continue to see us do that.
I think accelerating those is something we always love to do, but 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.
Thanks, Scott. 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 $10,000,000,000 share buyback program while we continue to actively look to put our financial strength to use to further