Good morning and welcome to Johnson and Johnson's Second Quarter 2015 Earnings 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 might press star 0 to reach the operator. I would now like to turn the conference call over to Johnson and Johnson. You may begin.
Good morning and welcome. I'm Louise Marrocher, Vice President of Investor Relations for Johnson and Johnson and it is my pleasure this morning to review our business results for the Q2 of 2015. Joining me on the call today are Alex Gorski, Chairman of the Board of Directors and Chief Executive Officer Sandy Peterson, Group Worldwide Chairman and Dominic Caruso, Vice President, Finance and Chief Financial Officer. A few logistics before we get into the details. This review is being made available via webcast accessible through the Investor Relations section of the Johnson and Johnson website at investor.
Jandj.com. I'll begin by briefly reviewing Q2 for the corporation and for our 3 business segments. Alex will provide additional commentary on the business and our progress with regards to our near term priorities. Next, Sandy will provide an update on our Consumer and Consumer Medical Device businesses. Lastly, Dominic will 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 the 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 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 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 results for the Q2 of 2015. Worldwide sales to customers were $17,800,000,000 for the Q2 of 2015, down 8.8% versus Q2 14.
On an operational basis, sales were down 0.9% and currency had a negative impact of 7.9%. In the U. S, sales were down 2.4%. In regions outside the U. S, our operational growth was 0.5%, while the effect of currency exchange rates negatively impacted our reported results by 14.8%.
On an operational basis, the Asia Pacific Africa region grew by 2.2%, while Europe grew 1% and the Western Hemisphere excluding the U. S. Declined 4%. Growth in the U. S.
And Japan was negatively impacted by hepatitis C competition. Growth in all regions was impacted by divestitures, the most significant one being Ortho Clinical Diagnostics. Excluding the net impact of acquisitions and divestitures, underlying operational growth was 1.7% worldwide, 0.6% in the U. S. And 2.7% outside the U.
S. Additionally, excluding hepatitis C sales, underlying operational growth was 5%. Turning now to earnings. Net earnings were 4 point $5,000,000,000 and earnings per share were $1.61 versus 1 $0.51 a year ago. As referenced in the table reconciling GAAP measures, 20 15 second quarter net earnings were adjusted to exclude after tax amortization expense of $230,000,000 and a charge of $66,000,000 for after tax special items.
2014 second quarter net earnings were adjusted to exclude a charge of 807 $1,000,000 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 $4,800,000,000 and adjusted diluted earnings per share were $1.71 representing decreases of 6.3% and 3.9% 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 6.7%. Turning now to business segment highlights.
Please note percentages quoted represent operational sales change in comparison to the Q2 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 point $5,000,000,000 increased 2.3 percent with U. S. Sales up 2.7%, while outside the U.
S. Sales grew 2.1%. Excluding the net impact of acquisitions and divestitures, underlying operational growth was 3.1% worldwide, 2.9% in the U. S. And 3.2 percent outside the U.
S. Growth was driven by OTC Worldwide, Women's Health Outside the U. S. And Oral Care. OTC sales growth was driven by worldwide analgesics, Zyrtec in the U.
S. And other upper respiratory products outside the U. S. Upper respiratory including Zyrtec sales included a seasonal inventory build. In the U.
S, adult analgesic market share was approximately 12%, up from approximately 11% a year ago, while U. S. Pediatric share was nearly 44%, up from 39 percent a year ago. 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 $7,900,000,000 increased 1% with 5% and sales outside the U. S. Up 3.8%. New competitors in hepatitis C significantly impacted sales results.
Excluding sales of our hepatitis C products, ALICIO and INCEVO, as well as the impact of acquisitions and divestitures, underlying growth worldwide U. S. And outside the U. S. Was approximately 9.7%, 16.5% and 2.5% respectively.
U. S. Results included a positive adjustment to sales reserves for managed Medicaid rebates reflecting final data received. U. S.
Comparisons to Q2 20 14 were positively impacted by approximately 2% and worldwide by approximately 1%. The most significant impact from the managed Medicaid adjustment was to hormonal contraceptives. Significant contributors to growth were INVOKANA, INVOKAMET, IMBRUVICA, Xarelto, ZYTIGA, INVEGA SUSTENNA OR ZEPLION, CONCERTA and immunology products, STELARA and Symphony. Strong momentum in market share increases drove results for INVOKANA and VOCAMET. In the U.
S, INVOKANA and VOCAMET achieved 5 point 9% TRx within the defined market of type 2 diabetes excluding insulin and metformin, up from 5.1 percent in the Q1 of 2015. TRx with endocrinologists grew to 13.2% for the quarter and 5.2% in primary care, up 1.2% and 0.8% respectively on a sequential basis. Invokana envokamat remains a category leader in Neutobron share with endocrinologists and has greater than 80% preferred access across commercial and Part D plans. Strong patient uptake with new indications, approvals and demonstrated efficacy drove results for IMBRUVICA in the U. S.
IMBRUVICA is leader in both new and total patient regimen share in the second line CLL and NCL. Outside the U.
S, results
were driven primarily by Europe with strong patient uptake, particularly in Germany, France and the U. K. Xarelto sales were up nearly 31% and total prescription share or TRx for the quarter in the U. S. Anticoagulant market grew to 15.4%, up over 2 points from a year ago.
TRx in primary care reached 12.4% and in cardiology 23.7%. Xarelto is broadly reimbursed with over 90% of commercial and Medicare Part D patients covered at the lowest branded product co pay. Strong growth of the combined metastatic castrate resistant prostate cancer market at nearly 12.5% drove the results for ZYTIGA in the U. S. ZYTIGA share was approximately 28.6% of that market, down approximately 1.7 points on a sequential basis due to increased competition.
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 ZYTIGA in the U. S. Before the expiration of the relevant patents listed in the orange book. The composition of matter patent is owned by our partner BTG and expires in December 2016 and the method of treatment patent is owned by Janssen Oncology Inc. And expires in August 2027.
We are currently evaluating the notices. Outside the U. S, ZYTIGA achieved very strong growth in Asia and Latin America, which was partially offset by lower sales in Europe due to increased competition. INVEGA, SYSENNA OR DEPLION achieved strong results due primarily to market share, while Concerta growth was primarily due to therapeutic equivalents reclassification of generic competitors. The results for immunology were driven by strong double digit market growth, complemented by increased market share for STELARA and combined SYMPHONY SYMPHONY ARIA.
Growth was partially offset by lower REMICADE sales to our distributors reflecting the weakening of the euro and the loss of exclusivity in Europe as well as a reduction in inventory levels. I'll now review the Medical Devices segment results. Worldwide Medical Devices segment sales of $6,400,000,000 decreased 4 0.7%. U. S.
Sales declined 5.8%, while sales outside the U. S. Declined 3.9%. Ortho Clinical Diagnostics was divested mid year 2014. Excluding the net impact of acquisitions and divestitures, underlying operational growth was 1 point 4% worldwide with the U.
S. Up 1.6% and growth of 1.4% outside the U. S. Growth was driven by specialty surgery, cardiovascular care and orthopedics. Specialty surgery growth was driven by biosurgery growth of over 8 percent and energy growth of approximately 6% due to market growth, share gains in certain segments and new product introductions.
Cardiovascular growth was driven by 10% worldwide increase in electrophysiology due to strong sales of the Thermocool Smart Touch Catheter. Orthopedic sales growth was driven by knees and hip as well as OrthoBisc and MonoBisc in Sports Medicines. The growth was partially offset by lower sales in Trauma and Spine due to pricing pressure coupled with the timing of tender business and competitive challenges in Spine. Knees Worldwide increased 4% with the U. S.
Up 5% and sales outside the U. S. Up 2% driven by strong sales of Atune, partially offset by pricing pressure. Hips growth of 2% worldwide was driven by 4% growth in the U. S.
With strong volume growth partially offset by continued pricing pressure. Primary stem platform sales were a major contributor to the results. Outside the U. S. Sales were flat with strong growth in China and India offset by lower sales in the Middle East due to the timing of tender business.
For your reference, there were some notable developments in the Q2, which we have summarized on this slide to assist you as you develop your models. That concludes the segment highlights for Johnson and Johnson's Q2 of 2015. It is now my pleasure to turn the call over to Alex Gorski. Alex?
Thank you, Louise, and good morning, everyone. I really appreciate you taking the time to join our call today. And since we're at midpoint of the year, I'm excited to share the progress we've made against our near term priorities. I'll also use the time today to give some perspective on the environment that we're operating in and some of the macro level issues we're seeing and also discuss why we believe with our innovation model and breadth and scale of our business that Johnson and Johnson is strongly positioned to drive continued growth and shareholder value. So I'll start the discussion though where I always do with our credo.
Our credo serves as the moral compass for our company and expresses a set of values that bond our associates worldwide with a shared commitment to meet and really exceed the expectations of the more than 1,000,000,000 people a day that rely on our products, as well as to support our fellow colleagues, the communities in which we live and work and generate solid return to our shareholders. Now back in January, I laid out our near term priorities for the business and I'm pleased with our progress towards them. Across the enterprise, we're very focused on delivering our financial and quality commitments. 1st, our commitment to ensuring our products meet the highest quality standards is of course non negotiable And as to our financial commitments, thus far in the year, we generated sales of $35,200,000,000 reflecting the strong underlying operational growth across the enterprise of about 6% when we adjust for the impact of hepatitis C sales and acquisitions and divestitures. And for the 1st 6 months, we delivered adjusted net earnings of $9,200,000,000 and adjusted EPS of 3 point $2.7 On an operational basis, we delivered adjusted EPS of $3.59 growing at 5.3%.
As we've highlighted previously, we knew that our year over year comparisons to our current results would be challenging because of the tremendous contributions of Aleafia last year as well as the impact of divestitures we made and also the significant devaluation of major foreign currencies against the U. S. Dollar. Now despite these headwinds, our broad base of innovative offerings, scale and global footprint are driving our strong core performance. In Pharmaceuticals, we reported sales of $15,700,000,000 reflecting strong underlying operational growth when excluding the products including Immokana, IMBRUVICA, Xarelto, and Stelara and ZYTIGA.
Our focused R and D strategy and commitment to driving launch excellence to ensure broad access and reimbursement has really come together to make a difference for patients and has us well positioned to continue to drive above industry compound annual growth over the next several years, fueled by 7 of our recently launched products that we expect will each exceed $1,000,000,000 in sales this year and the more than 10 new products we plan to file by 2019 that each have $1,000,000,000 plus potential of their own based on their transformational potential to treat significant unmet medical needs worldwide. And just last week, our partner Genmab that we have completed the FDA submission for daratumumab, a promising new breakthrough treatment option for people with multiple myeloma. This organization has collectively done great work to generate strong clinical evidence in the development process, which is enabling our reimbursement teams to gain the right coverage levels in order to create broad access and drive the strong performance of our despite the pricing pressures that exist in the marketplace. Now, I also want to make a comment here on our position regarding biosimilar competition for REMICADE, which I know many of you are thinking about.
Remember, biosimilars are not generics and we expect the biosimilar market to behave quite differently than the market typically has toward the introduction of a generic. Also, more than 2,200,000 people have been treated with REMICADE and about 70% of the current patients are receiving sustained and effective treatment. So we believe their doctors are very unlikely to switch them off with that level of success. And we also have a patent for the REMICADE antibody that doesn't expire until September 2018 that you can be sure we'll continue to vigorously defend. Look, we know competition in immunology space is fierce and to ensure we maintain the leadership position, we've built an established portfolio of $1,000,000,000 plus medicines that include STELARA and SYMPHONY and have potential $1,000,000,000 plus products in our late stage development like cirukumab for rheumatoid arthritis and guselkumab for psoriasis that we expect to introduce in the near term.
And we're also making very significant investments in disruptive research areas like the microbiome, which holds the potential to intercept the disease and prevent it entirely that will have applications in immunology really across all our disease areas. Now turning to medical devices. You know we're 1 or 2 in the majority of the categories in which we compete and have $10,000,000,000 plus platforms. Year to date, we reported global medical device sales of 12 $600,000,000 which is an operational decline of 4.6% due to the impact of the sale of Ortho Clinical Diagnostics, which we completed a year ago. When we adjust for that, our underlying operational growth in Medical Devices is up 1.4%.
I've been particularly pleased with the performance in several areas of this business where new innovations are driving growth, including our Biosense Webster business, which has grown nearly 11% operationally through the 1st 6 months of the year. Our Endocutter business has grown 15.5% and our biosurgery business with continued strong growth of 7.5%. In diabetes, our products and strong the impact of the 2014 price reset. In Orthopaedics, the business grew 1.5% operationally this year with good growth the we saw over 5% growth in knees and approximately 4% in hips. Our spine and trauma businesses, however, have lagged market growth to date and we are absolutely committed to turning them around and we have new products launching this year that will help us do just that.
Now as we look at this market, the ongoing consolidation among health systems and within the insurance industry is continuing to create pressure on pricing. We've been encouraged though by data showing that healthcare utilization trends in the U. S. Have continued to improve for the 4th global healthcare utilization as well. So we are absolutely committed to accelerating our growth in medical devices through innovation and through our research and development, which has been productive as the teams have already submitted more than half of the 30 major filings we previously announced we plan to file by the end of 2016.
And the work we're doing with Google illustrates how we're aiming to pioneer the operating room of the future with robotic surgery tools that will increase the surgeons' precision and minimize trauma for their patients while also reducing costs for the systems. We're also transforming our go to market model, so fully leverage the breadth and scale of our capabilities and we've taken significant measures to strengthen our core businesses and effectively position ourselves to lead over the long term. We just recently integrated our Global Orthopedics and Global Surgery businesses under the leadership of Gary Prudent, which will enable us to have a much more holistic approach to the way we do business. And the goal here is very straightforward. Let's enhance our partnerships with the hospital systems and identify ways to improve outcomes by leveraging our comprehensive portfolio.
Now we already have numerous examples of co promotions, broad contracting agreements and service and solution offerings in place that we can look to expand. And by better working in this new alignment model, we will be better positioned to create more of them to drive future growth. Gary will be on the Q3 call in October to tell you more about this approach. And now on the consumer business, Sandy Peterson and her team, which includes our new worldwide Chairman for the consumer companies, Jorge Mesquita, a seasoned leader who's been with us since the end of last year on this work in building and executing a strategy that has effectively addressed the past challenges in our supply chain and reprioritized our approach in the category. And we're positioned to expand our market leadership in key segments moving
forward.
Year to date, we generated $6,900,000,000 in sales and reported operational growth of nearly 4%, excluding acquisitions and divestitures, driven by our market leading OTC and oral care businesses. And our strategy to focus portfolio around the key consumer need states and brands that are back with strong clinical science and professional endorsements is having a strong impact. The United States OTC medicines are sharply up 13% for the year led by the strong campaigns we're leading in support in the relaunch of key brands like Tylenol, Motrin and Zyrtec. And our momentum here could not have been achieved without the efforts of our colleagues to complete the complex work required around consent decree. Globally, we see strong operational growth in emerging markets, particularly in Argentina, Brazil, India, Russia and Venezuela.
We are however experiencing market pressures in China, where our volumes have slowed due to lower demand is being compounded by shifts in consumer behaviors and the emergence of new retail channels in the country. In a few minutes, Sandy will take you through the strategy approach for how our consumer facing businesses are leveraging our unique consumer insights and integrating science and different forms of technology to better meet the needs of consumers and drive growth. But before we do that, I want to reiterate how we're navigating the environmental changes before us and how we strongly position Johnson and Johnson to deliver continued growth. As you well know, everything starts with innovation. And at Johnson and Johnson, we're doing that on multiple fronts and we're committed to working with researchers around the world to ensure we continue to operate the leading edge of science, medicine and technology.
And that approach drives our enterprise R and D and the significant investments we are making to benefit patients and stakeholders. We have a good balance of internal and externally sourced innovations and acquisitions have accounted for just under half of our sales growth over the last decade and we're always actively looking for new value creating acquisitions and deals to continue that success. We also invested about 11.5% of our net trade sales or $8,500,000,000 in R and D last year across the enterprise discover in license and develop innovative new products and you can see the impact reflected in our portfolio and robust development pipeline, which includes 25 active late stage development programs, 160 plus early stage programs and over 70 venture investments. And in just 2 years, there's already 90 startups working in our JLABS, which creates tremendous access to new ideas and potential downstream partnerships for the future. Now when it comes to making significant R and D investments, we must also focus on managing through the inherent complexities in the global regulatory environment in order to ensure our products are ultimately able to reach consumers.
We're encouraged by the steps governments are taking to increase access to quality healthcare for their people and to also create and support a more innovation friendly environment through designations that speed the review and approval of transformational products. We benefited from that with IMBRUVICA and today we have 2 other candidates in our pipeline already designated as breakthrough therapies by the FDA. At the same time, we can all agree that governments around the world must do more to protect intellectual property and ensure fair, transparent and consistent enforcement of regulations governing the trade of innovative products and we'll continue to watch and engage in these issues in the more than 65 countries in which we do business. Globally, about half our total year to date sales come from countries outside the United States. With strong national and regional models like those we've installed in China and Southeast Asia, we're better able to maximize the breadth of our portfolio, interact more effectively with governments and develop contracting strategies and gain consumer insights that are shaping our international portfolios and informing R and D and ultimately driving growth.
And by executing with excellence in all that we do, we've introduced a strong cadence of new product launches over the past 5 years that today account for about 25% of our overall sales and we're taking steps to ensure we're even more effective and efficient across the enterprise by investing in greater about the areas we're going to participate in or move on from. And as we stated before, our focus is on areas where we are or we can be 1 or 2 in a particular area as well as on those products or businesses that will be directly complementary. If we have an asset or a business that doesn't meet those criteria, we've demonstrated that we will divest it and redirect our resources to accelerate existing programs or to acquire new ones that we think are ultimately going to help more patients and also add more value to our enterprise. We also see that our broad base across the healthcare spectrum is a competitive advantage when the strategies we create consider and where appropriate incorporate insights and innovations from every aspect of our operations to attack disease and improve health outcomes. The work we are doing with IBM and Apple does this by cutting across the enterprise and leveraging our science, technology and consumer insights to empower patients and caregivers to help speed the post surgical recovery process.
Executing our strategy ultimately comes down to people and by focusing on them and emphasizing our credo based purpose, we developed a deep bench of extraordinary talent who are accountable for driving their businesses and who also ensure we are taking leading roles within the industry and world medical community to combat global public health issues like Ebola and HIV. Now just to summarize, Johnson and Johnson is a company that's built a remarkable legacy has a very exciting future. Healthcare though remains one of every society's greatest challenges and nothing affects people more personally or affects communities and nations more directly. Our business is strong and you can see that we're continuing to make considerable investments in innovation and have a robust pipeline of truly transformative products to ultimately benefit patients and that we're taking actions to to strengthen our leadership positions in areas in which we compete. With our transparent and consistent capital allocation strategy, we extended our track record of dividend to $0.75 per share and have returned about 70% of our free cash flow over the past decade to investors, outpacing the S and P 500 in 2014 as well as over the last 3, 10 20 years.
With that, it's now my distinct pleasure to turn the call over to Sandy Peterson. Sandy joined Johnson and Johnson just over 2.5 years ago and is leading a significant transformation across major components of our enterprise, including our consumer facing businesses, enterprise supply chain, quality and IT and she's been a tremendous leader here since day 1. I want to thank her and her team for what they've already accomplished for our business and more importantly for what they will continue to do to help patients and consumers worldwide. With that, I'm pleased to turn the meeting now over to Sandy and we'll rejoin you a bit later to take your questions.
Good morning. I'm happy to have the opportunity to talk about our progress in our consumer facing businesses, Consumer Diabetes Solutions and Vision Care. I'll also discuss the evolution in our approach to technology across the enterprise. Increasingly, as we lead through the disruptions and opportunities in global healthcare, we are fusing the power of technology with the power of science to deliver improved outcomes for patients, consumers and customers. 1st, our 3 consumer facing businesses.
As Alex said earlier, the future of these businesses looks promising. While they are at different stages of transformation, we believe that they are all well positioned attractive growing global markets and we are driving scale and growth in each. Let me start with consumer. Our iconic consumer brands are J and J's face to the world. They're how we are known by 1,000,000 around the globe.
They are our first point of entry into emerging markets, so they really are very important to the overall enterprise. They are and will increasingly be important contributors to J and J's financial performance. Demographic trends in the way consumers make health care decisions are creating new opportunities for our consumer business. Our consumer expertise and insight are highly valuable to payers and providers, which differentiates us from our competitors. We view a healthy consumer business as a growth annuity for J and J with less volatility than other markets.
As many of you know, we launched our new consumer quality issues in U. S. OTC and being clear about where and how to compete and when around the world. We are executing successfully against that strategy. We're pleased to say that we have remediated and re launched our U.
S. OTC business. 80% of our brands have returned to the market. Tylenol Arthritis will launch soon. We've made significant progress in Piedras, Puerto Rico and Lancaster, Pennsylvania.
We recently had a successful FDA inspection in Fort Washington and are awaiting final notification. Our OTC brands continue to be loved by consumers and we have regained the trust of our customers. Most of our OTC products are endorsed as number 1 in their categories by healthcare professionals. Tylenol remains the number 1 doctor recommended brand for pain relief and the brand most used by hospitals. Zyrtec, Children's Tylenol and Children's Motrin are also number one recommended brands.
13% growth in the first half and 16% in the latest quarter. More broadly across the consumer business, we've made significant progress in creating a world class brand building and marketing organization. We've globalized the management of 12 mega brands and are focused on 11 consumer needs states. We've expanded these brands into new markets and are seeing strong share gains in oral care, beauty and OTCs. We are growing 11% year to date and gaining share in feminine protection.
For example, in places like India, Germany, South Africa and Poland. And we've revitalized our iconic Band Aid brand. In the U. S, Band Aid consumption grew 6.3% and we gained 2 share points, thanks to decorated Band Aids and commercial innovation. As we invest in our global brands and our top regional brands and in our priority markets, we're building new marketing capabilities such as digital.
We doubled our digital media investment in digital channels with emphasis on social and mobile. Today, 40% of our digital ad spending is via mobile and more than 90 percent of our Facebook ads are served up on either smartphones or tablets. This global CenturyLink marketing approach is bringing our beloved brands to their full potential. You may have seen the results of the new model come to life in the Johnson's Baby So Much More campaign, first global campaign for our iconic baby equity. The campaign launched in 7 lead markets in February and is rolled out to more than 20 markets.
By the Q3 of this year, all major markets will launch. Early results show sequential consumption growth and share improvement. In the U. S. Alone through May, Johnson's has grown 2.4 share points since the launch.
Our product pipeline in consumer is also quite robust. We are focused on developing science based, clinically validated products grounded in deep consumer insights and most importantly endorsed by professionals. We have 20 key product launches this year. For example, Neutrogena Hydroboost, Motrin Liquid Gels and the launch of the new Listerine whitening formula in Europe, the Middle East, Africa and Latin America. Improving our supply chain has also been another critical focus in the consumer business with a strong emphasis on the U.
S. OTC consent deliver quality, customer reliability and benchmark profitability. We continue to see the benefits of integrating our supply chain organization to drive performance improvements in every J and J segment. As we look ahead in consumer, we will continue to rebuild our competitive edge. The underlying environmental drivers, demographics, the developing middle class and emerging markets and lifestyle shifts suggest growing consumer need for our products and increased opportunity to help more people live healthier, more vibrant lives.
Across the business, we are focused on delivering above market growth and benchmark profitability. Consumer IBT margin before special items and intangible amortization expense has increased from 14.1% in 20 13 to 15.4 percent in 20 14. And we'll continue to improve profitability until we achieve benchmark levels. Our organic sales adjusted for currency and excluding acquisitions and divestitures grew approximately 4% in the first half. Since mid-twenty 13, we have grown our consumer brand portfolio actively with an eye towards targeted expansion in key geographies and needs states through focused acquisitions and licensing agreements.
A recent example includes the acquisition in India of ORSL. The intersection of changes in the healthcare landscape, disruptions in the retail environment and changes in consumer expectations and behaviors creates an opportunity J&J's consumer business is well suited to capitalize on. Now let me turn to our Diabetes Solutions business. Diabetes is the 4th largest healthcare category in the world. Globally, the therapies and devices market is growing at 5%.
50% of patients with diabetes are unfortunately undiagnosed or not in control, which creates an opportunity for us to grow and an important opportunity to impact patients' lives. Given the power of our One Touch brand, a highly innovative pipeline, strong commercial execution and operational efficiency, we are well positioned to deliver profitable growth in diabetes despite negative industry pricing dynamics. In blood glucose monitoring, we hold the number one value and volume position in our 9 top markets. This year's One Touch Baria platform launch is our most successful launch in the last 2 decades. In the U.
S. Alone, volume share grew 3 points. We have strong penetration in emerging markets where Type 2 diabetes is growing, and we have simplified our portfolio dramatically, reducing the number of strip platforms from 5 to 2 and module meter offerings from 14 to 3. We have reduced our facility footprint, slash the number of SKUs by more than 55% and taken significant costs out of the business. In insulin delivery, we are growing at market leading rates, up operationally 32 percent year to date worldwide, driven by Animas 5.
In 2015, we took over the 2 share position. In addition, we are making excellent progress in preparing for the launch of Calibra, a new product which will create an entirely new category. Colibra is a wearable disposable insulin delivery patch that meets Type 2 patients' discretion, convenience and control. We are beginning the clinical outcome study and anticipate entering the market next year. Looking forward, we are developing insight driven market appropriate innovations across the BGM and insulin delivery platforms in areas such as digital solutions, continuous glucose monitoring and automated insulin delivery.
We will continue to leverage enterprise capabilities and expand targeted strategic partnerships. Great examples of this include with Novo Biomedical and Hospital Systems and DexCom with continuous glucose monitoring pumps. We are particularly enthusiastic about the potential to improve engagement and health outcomes with digital solutions that motivate patients to better self manage while creating value for health care providers and health care system. Now let me turn to Vision Care. Eye Health remains one of the largest, fastest growing and most underserved segments in healthcare.
Vision correction represents more than half of that market, with contact lenses representing a $7,000,000,000 segment. The presbyopia and astigmatism markets are especially underserved. Johnson and Johnson's Vision Care has a long history a global market leader in contact lenses. Our success was built on category leading innovation, strong relationships with the eye care professional and the most recognized brand equity in the category. It's no secret, however, that we face capacity and portfolio issues in Vision Care in 20122013.
At the same time, competition intensified and consumer preferences shifted. The market structure has evolved in response, driving increased emphasis on e commerce and increased price competition between channels. These developments have reduced engagement for eye care professionals who are an important ingredient in strong category health. Despite this, we continue to lead the category globally by 11 points. We continue to grow at double digits in our lead emerging markets.
Brick market operational sales are up double digits driven by continued strong performance of Russia, Brazil and China. Last year, we instituted a one time price reset to bring more value to consumers in close partnership with eye professionals in the trade in the U. S. And Japan. We will anniversary this event in Q3, as Alex said earlier, and should see revenue momentum in the second half.
Share has stabilized in consecutive months. We are outperforming the market in volume in our top 2 strategic brands, one Day Acuvue Moist, and our equity measures with eye care professionals have improved. In Q2 alone, we grew 15% operationally in Japan, driven by strong performance of our leading one day Acuvue TrueEye and the recent launch of one day Acuvue Define as well as favorable comps. Our R and D strategy leverages consumer expertise and science based clinically supported manufacturing enabled innovation, and we have built a robust multi generational pipeline. We are launching our first major innovations in 5 years with one day Acuvue Define, one day Acuvue Multifocal and Acuvue Oasis Overnight.
You will see us accelerate innovation in high growth specialty segments such as beauty, presbyopia and astigmatism. We will sustain innovation in our largest core platforms, spherical reusable and Sphere daily disposable. We anticipate at least 1 major product launch in each of the next 3 years, including innovations with the potential to disrupt the category. Vision Care used the new marketing process developed in consumer to relaunch the iconic and category growth and ensures a differentiated position with eye care professionals. Our world class supply chain is a competitive advantage in Vision Care.
Our manufacturing team produced approximately 4,000,000,000 lenses in 2014. We are continuing to invest in capacity expansion, while operating with 99.6 percent customer service levels. Though we are still in this rose of rejuvenating our eye care business, we have made considerable progress, which will continue this year and into the next. As we bring our core contact lens business back to market leading growth, we will also pursue our aspirations in the broader eye health market. Alex started this morning by talking about the power of Johnson and Johnson's broad base in healthcare.
Our consumer facing businesses are a critical contributor to that broad base. While consumer, diabetes solutions and vision care are at different stages in their transformations and represent unique opportunities, we are driving scale and growth in all of them. Before I turn it over to Dominic, I'd like to share some perspective on how Johnson and Johnson is capitalizing on the way technology is reshaping the entire healthcare landscape. The consumerization of healthcare, wearables and mobile apps are giving patients unprecedented access to health information. Physicians, regulators and payers are leveraging big data, analytics and real world evidence to personalize care, understand product safety and efficacy and drive improved outcomes.
Artificial intelligence, machine learning and advanced sensors are creating new opportunities to take advantage of the best clinical and wellness expertise. We are at a tipping point where technology is becoming the medium through which healthcare can become a more effective and efficient system. The opportunities this creates for Johnson and Johnson to become a healthcare technology innovator are immense. We have identified key technology areas that accelerate growth and are actively pursuing programs and partnerships in those areas. The relationships with Google and with IBM and Apple that Alex mentioned are great examples.
There are others in the works and more to come. We are working with and talking nearly every major technology company and many early stage companies. We are collaborating with retailers like Walgreens and CVS, where care is increasingly delivered health plans like Aetna and Kaiser Permanente and health systems such as Jefferson Health and Premier to leverage technology, digital tools and our health and wellness expertise. We find that Johnson and Johnson is most often the partner of choice for technology providers. We have the patient and consumer insights, the clinical and behavior modification expertise and the regulatory experience that can combine with technology to transform the continuum of care.
This is particularly exciting when you think about the work that we are doing with payers and providers as in our work with IBM and Apple. Apple. We are creating an ecosystem embedded in hospital networks, which gives us the ability health care IT infrastructure. I've been in healthcare long enough to have heard over and over again that technology was going to disrupt the industry beyond recognition. But today, maturing technology, scientific advances and global healthcare reform are combining to make disruption a reality.
Today, technology is intrinsic to the business. As the world's most broadly based healthcare company, we are uniquely positioned to be the company that connects the fragmented world of healthcare. Now let summarize. Our consumer facing businesses are executing well against focused strategies. They are demonstrating results, improving profitability and growing.
They have strong presence in the world's fastest growing markets and are building insight led innovation pipeline. Each business is strengthening its brand building capabilities, actively managing its portfolio and leveraging technologies in ways that increase efficiency and create competitive advantage. Across J and J, we are using technology to unlock the power of the enterprise to improve patient and financial outcomes in ways that will create value for our customers and ultimately for our shareholders. And we are building what I firmly believe is the best team of leaders in the industry. With that, I'll turn it over to Dominic and I look forward to answering your questions.
Thanks, Sandy, and good morning, everyone. As you've heard on the call, we're certainly pleased with the progress we continue to make in the execution against our priorities, which is reflected in the solid underlying financial results we have achieved thus far in 2015. And as Alex and Sandy discussed, we are well positioned for continued growth in this dynamic health care environment. I'll take the next few minutes to review our financial performance in the second quarter and we'll also then provide guidance for you to consider in refining your models for the balance of the year. Turning to the next slide, you can see our condensed consolidated statement of earnings for Q2 of 2015.
As we expected and as many of you on the sell side also reflected in your updated models, direct comparisons to our Q2 of 2014 are challenging due to the exceptional uptake of year as well as currency headwinds and the impact of not having ortho clinical diagnostics in our results for 2015. Our sales results for the Q2 of 2015 were essentially in line with analyst estimates as reflected in first call. On an operational basis, excluding the impact of acquisitions and divestitures and excluding the impact of Hep C products, sales were up 5% for the quarter. Please now direct your attention to the box section of the schedule, where we have provided earnings adjusted to exclude special items and intangible amortization expense. Adjusted net earnings of $4,800,000,000 in the quarter are down 6 percent compared to Q2 2014 and adjusted earnings per share of $1.71 versus $1.78 a year ago are down approximately 4%.
However, the adjusted EPS results exceeded the mean of the analyst estimates as published by first call. And excluding the net impact of currency translation, our operational earnings per share was $1.90 or up 6.7%. There were no significant non GAAP adjustments in the 2015 Q2 other than the exclusion of the expense for amortization of intangible assets. Now let's take a few moments to talk about the other items on the statement of earnings. As we have said before, we would use any gain from divestitures in 2015 offset the lower earnings impact of not having the Alisio sales uptake we had in 2014 and to provide some offset to currency headwinds, while also allowing continued investment for future growth.
This quarter's results reflect just that. Cost of goods sold was 90 basis points lower than the same period last year, mainly due to favorable product mix, somewhat offset by currency impacts. Selling, marketing and administrative expenses were 30.3 percent of sales or 220 basis points higher as compared to the Q2 of 2014. We are investing in a responsible manner and the absolute spending level is comparable to the prior year, mainly due to the impact of currency as we continue investment spending behind our key brands on a global basis. The prior year percent to sales level was artificially lower as there was very little spending in relation to Alisio sales.
Our investment in research and development as a percent of sales was 12% and 170 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 similar to last year. Other income and expense was a net gain of $900,000,000 in the quarter compared to a net charge of $200,000,000 in the same period last year. Excluding special items that are reflected in this line item, other income and expense was a net gain of approximately $1,100,000,000 compared to a net gain of $300,000,000 in the prior year period. This quarter, we recorded the gain on the previously announced divestiture of the Nucynta product.
Excluding special items and intangible amortization expense, the effective tax rate for the 6 month period was 22.3% compared to 21.1% in the same period last year. As I noted during our call in April, the effective tax rate this quarter is again higher than our guidance for the year as it 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 higher in 2015 as compared to 2014 as a result of the mix of earnings being higher in the United States this year. Now I'll provide some guidance for you to consider as you refine your models for 2015. Before I discuss sales and earnings, I will give 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 $15,000,000,000 of net cash, which consists of approximately $34,000,000,000 of cash and marketable securities and approximately $19,000,000,000 of debt. I'm pleased to report that we completed our share repurchase program to help offset the ongoing impact of the OCD divestiture. For purposes of your models and assuming no major acquisitions or other major uses of cash, I suggest you consider modeling net interest expense of between $450,000,000 $550,000,000 This is unchanged from our 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 special items as a gain ranging from approximately $2,200,000,000 to $2,300,000,000 This is slightly higher than our previous guidance.
As a reminder, this includes the gain from the divestiture of the U. S. Rights to Nucynta Pain Medicine as well as the anticipated gain divestiture of the Cordis business to Cardinal Health, which we expect will close towards the end of 2015, subject to regulatory clearances and other customary closing conditions. We have also refined our estimates for the items in this account now that we are halfway through the year. As I also noted in April, the guidance for other income and expense will flow through to increase operational earnings as we expect to use this other income to compensate for the decreased income from 14 as well as to help mitigate some of the impact of strong foreign currency headwinds this year, while we also continue to invest in our core business for future growth.
And now a word on taxes. 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% consistent with our previous guidance. If the R and D tax credit is not approved, that would negatively impact the tax rate by approximately 0.5% for 2015. Now turning to guidance on sales and earnings.
Consistent with our previous guidance for sales, our assumption for Procrit is that there will not be biosimilar competition in 2015. We also do not anticipate generic competition this year for Risperdal Consta or INVEGA SUSTENNA, but we are expecting a generic entrant for INVEGA in 2015. As expected, we have seen additional biosimilar competition for REMICADE in Europe following the patent expiration in many countries in February of this year. 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 exchange rates could have on the translation of those results. Consistent with our previous guidance, 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 Additionally, by way of comparison to how we've 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. And just to note, we are monitoring the situation in Greece as the country considers its path forward economically. We do not anticipate any significant negative impact to our sales results for 2015 nor to our earnings for 2015 unless there is a significant change in the current expected resolution.
As of last week, the euro was lower by approximately 17% as compared to 2014 average levels and the dollar has strengthened recently 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 the 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 negative 5% and negative 6% for a total expected level of reported sales of between approximately $70,000,000,000 to $71,000,000,000 This consistent with our previous guidance.
And now turning to earnings. A significant factor impacting our earnings guidance for 2015 is the impact of currency movements on transactions. And although they are hedged, it is still somewhat negatively incremental versus the prior year. We expect transaction currency impacts to be negative to our gross profit by approximately 60 basis points in 20 15 as compared to 2014. We would be comfortable with adjusted EPS guidance in a range between $6.70 to 6 point $8.0 per share on a constant currency basis, reflecting an operational or constant currency growth rate of 5% to 6%.
This is higher than our previous guidance as we have 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're 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 our previous guidance. Therefore, our reported adjusted EPS would range between 6 $0.10 to $6.20 per share. At this stage in the year, we would be comfortable with your models reflecting the midpoint of this range, which is higher than our previous guidance. 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 of acquisitions and divestitures and hepatitis C products, 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. And with regard to earnings, on a constant currency basis, our guidance on operational EPS growth is strong and in the range of between 5% percent 6%. And finally, as we execute on our growth plans, we're continuing to make portfolio choices and investments in our business, particularly in research and development as we continue to build our pipelines across the enterprise, which will position us for sustained future growth. And now I'd like to turn things back to Louise for the Q and A portion of the meeting. Louise?
Thank you, Dominic. And Hollie, can you please give the instructions for the Q and A session?
Your first question comes from Glenn Novarro with RBC Capital Markets. Good morning, Glenn.
Good morning. Question for Alex. In your first couple of years, Alex, you've spent a lot of time with divestitures divesting cardio devices, diagnostics, pharmaceutical and consumer brands. As you look at the enterprise now, do you think we are finished with the divestitures? Question 1.
And question 2, do we now enter a period where it's the company is more focused on acquisitions? Thank you.
Hey, good morning, Glenn. Alex here and thank you very much for your question. Glenn, 3 years ago when we started looking at our strategies going forward, we tried to outline a very clear path ahead that would really consist of multiple components. 1 is obviously, continuing to invest in our organic businesses, both in sales and marketing and research and development. And I think we've demonstrated that in spite of a lot of different
puts and takes that we've continued
to do that in a responsible way as Dominic outlined earlier when he was taking you through the P and L. An area where we did have a lot of focus was on making sure that our businesses were competitive. And of course, we tried to be very clear in our criteria there that look, we want to be number 1 or number 2 in the marketplace. We want to have a clear innovation or technology path to really helping patients or consumers or very importantly, we wanted the business to be complementary to something else that we're doing in another area of the enterprise. And of course, it's fundamentally be a strong business.
And if they didn't meet those criteria, then of course, we'd consider other options, but it may be better served in someone else's hands. And as you noted, we've demonstrated that we're willing to do that as well. We think that's an ongoing process in the business. We would expect there and a business our side is in excess of $70,000,000,000 involved in the numerous platforms that that's something that you'll see as part of our natural cadence and flow going forward. But clearly, we're always also interested in growth opportunities.
When we see strong innovations that really make a difference for patients that also where we feel it offers a great complement to one of our existing franchises or frankly a platform for significant growth into the future. We've got the balance sheet, We've got the wherewithal to make those investments. And that's always a priority for us and will remain so into the future.
And just as a follow-up to that, if you look at the pipeline of M and A potential, number 1, would you call the pipeline meaningful? In other words, there's a lot of rich targets out there. And then as you look at these targets, what do you see in terms of the valuation of these targets? Are these targets getting stretched? And is that maybe one of the reasons why you haven't done as much M and A here in the last few years?
Thank you.
No, Glenn. Thank you. Look, we do feel that there are several significant opportunities really across each one of our segments that offer potential for growth and that are consistent with the strategic outline that I mentioned earlier. At the same time, I think we demonstrated that we want to be thoughtful and disciplined about our approach and we intend to continue that path going forward.
Thank you. Next question please.
Your next question comes from the line of Kristen Stewart with Deutsche Bank.
Good morning, Kristen. Hi, Kristen.
Hey, good morning, everybody.
I was just wondering, Dominic, if you could maybe just walk us through just again with the disposition of Cordis, just kind of what you're assuming in terms of timing of the sale of the business and then the dilution, how we should think about that? Should we think about that similar with the OCD business in terms of the use of the proceeds perhaps with another round of repurchase to offset dilution again or just kind of how we're thinking still about cardiovascular?
Sure, Kristen. Well, we expect that the Cordis divestiture will close in the latter part of the year. We still have some regulatory approvals and customary closing conditions. So we would expect that towards the end of the year, that's been consistent with our previous discussion. Nothing's changed there.
The dilution of not having Cortis as part of the business is not that significant, quite frankly, not as much as it was for OCD. As you know that business after we exited the drug eluting stent business is a relatively small portion of our business. And then with respect to use of proceeds, as we do typically when we do divestitures, we wait after the transactions are complete, look at other opportunities we have for the use of cash and then make our decisions then as we prepare our plans for the coming year. So as of now, I really can't comment on what we might do with any of the proceeds.
Hey, Kristen, this is Alex. I just might also add that cardiovascular remains an area of strategic importance for us. We have a very strong Biosense Webster business. In fact, if you look at the quarterly performance for the Q2, it's once again double digit. I think this reflects almost 3 or 4 years now of consecutive improvements in that performance at a very similar level, a great flow of new technologies is really making a difference for patients.
We also think cardiovascular, look, it still remains a global health care issue with a lot of innovation. So it's an area where we remain interested and we still feel we have very solid footing with our Biosense Webster ED business.
Got it. And then maybe if
you could give us a little
more color just on REMICADE. I know that that's obviously been a key concern of investors just what you're seeing in the quarter and kind of expectations ahead just with respect to the business over in Europe with biosimilars?
So in the quarter, Kristen, we had in the export sales, we actually had an inventory change that negatively impacted the reported results there for the Pharmaceutical group by about 2%. What we're seeing in Europe is as expected. So for the countries that went off patent in February 2015, we're seeing about a market share for the biosimilars in the mid single digits, so as expected.
Okay, perfect. Thank you. Okay. Next question, please.
Your next question comes from the line of Mike Weinstein with JPMorgan.
Good morning, Mike.
Hi, good morning. Let me turn
to the pharma side for a minute. I think 2 products that people are focused on in the first half of the year for impact of competition were STELARA and INVACANA. INVACANA looks like its momentum has continued and continues to look fantastic. Stellar looks like it slowed this quarter. So could you just comment on both?
Yes, Mike, Alex. Look, we still see STELAR growth at over 15%, strong growth in the U. S. And particularly strong growth outside the United States at almost 20 7%. There was a slight sequential decrease in share we're projecting.
But overall, if we look at the competitive profile of the product, how we're doing, combined frankly with our overall franchise presence that we see in this area, we remain really confident in
it. And any comments on Invokana?
No. Invokana is the same. I think, look, we've continued to highlight the profile. We've got a great reimbursement, well in excess of 50% to 60% in both commercial as well as the Medicare side of the business. We've continued to see strong TRx trends, both in primary care as well as endocrinology.
So overall, we're seeing strong uptake and we think it's
a big opportunity Mike. Okay. Alex, I've got you here. It's been 3 years since you guys closed the Synthys acquisition and I'm sure as you commented you're not thrilled by the first half performance in trauma and in spine. So can you just talk a little bit about how you're feeling about that deal and what it will take to get it back on track?
Thanks.
Sure, Mike. Thanks for the question. Look, overall, we absolutely believe it was the right move when to bring Synthes in and create the largest and most diversified orthopedics company. And when we reflect back there, there have been changes that have 1,000 and 8, 2,009, 2010, we saw high single digit growth across all these segments. 1008, 2009, 2010, we saw high single digit growth really for hips, knees, trauma as well as spine.
That has changed significantly. We're now seeing that in the 3% to 4% range. I am pleased with the performance overall that we've seen through the integration. Whenever you bring 2 large organizations together, there's always a lot of moving pieces. But I think over the last 3 years, if you take a look at the overall disruption in the way that we've been able to manage it, I think the team has done a very good job.
And now we're really focused on what do we do to ensure that we're best positioned for the future. And frankly, we're doing it at a time when a lot of our competitors are just getting ready to go through a significant amount of integration and transition. And this is where we're excited. And I think it starts with innovation. We've had a nice cadence of innovation.
In fact, we're in the midst. We just launched the TFNA, the transfemoral male in trauma that we're excited about. We think will be an important addition to the bags of the portfolio of that part of the business. In the U. S, we were encouraged by the performance that we saw in knees and hips at 5% going going to continue to look for ways to drive that business through innovation, but also through increasing our effectiveness and and that's where we're focused right now.
Thanks, Alex.
Next question please.
Your next question comes from the line of Larry Biegelsen with Wells Fargo. Good morning, Larry.
Good morning. Thanks for taking the questions. Two clarifications on the utilization comments about the 4th consecutive quarter of improving utilization. Is that through Q1 or Q2? And then second on REMICADE outside the U.
S, by our math, we had the total international and export sales growth in Q2 down about 18% constant currency. Louise, you talked about that 2% impact from the inventory reduction. Was that to that 18% or so? Was that just a Remicade outside the U. S?
If you could help clarify those two points that would be great. And I just have one follow-up for Alex after that.
So Larry that 2% is on total pharmaceutical sales. So it's a large reduction in the inventory.
Total worldwide pharma?
Yes, yes.
Okay. And then the first and then on the utilization was that through Q1 or Q2? Yes, Larry, Alex here. That was through Q2. And again, you know this data as well as we do and we're trying to triangulate from multiple different sources.
But what we see is, for example, around 4% growth in hospital admissions. You take a look at hospital surgical procedures, we're thinking probably between 2.5% and 3%. And if we look at overall outpatient procedure growth, probably around 3%. So it's still positive. In some cases, it's flat, perhaps a slight decrease versus what we saw in Q1.
But we think overall the trends are relatively constant what we've seen thus far. That's helpful. And I appreciate your comments earlier on M and A and the M and A environment, but you have $15,000,000,000 in net cash, which is obviously not earning much. I know your first priority for cash is a dividend and then M and A, but at what point do you consider using your cash to repurchase shares, Alex? Thanks for taking Sure, Larry.
I think, look, overall, ultimately, we want to create more value for shareholders. And as we look at our capital allocation strategy, you just iterated, we have a strong commitment to dividends. We've done that for a long time. You know our statistics and our track record there. Regarding M and A, it's also another area obviously that we keep our eye on.
I mentioned earlier in the discussion that we're always looking for the right opportunity and we try to do that in a balanced approach. Of course, we want innovation. Of course, we want complementary things to add to our portfolio and growth opportunities. But we also want to ensure that we maintain the discipline and the perspective of our approach that I think has served us well over a lot of years. And even if you look at the internal versus external external investment in the company, I think if you look over a 2020, a 10 or even a near term period, about 45 percent of our growth comes from what I'd call organic investment in our research and development versus slightly over half through M and A.
And so that will continue to be our approach.
Also Larry, I would say that if you look at it over long periods of time, I think we're very proud of the fact that over a decade, we've returned about 70% of our free cash flow to shareholders. So I think it's important to keep that in mind. Although we may be evaluating opportunities all the time, we're always mindful of the fact of appropriate return to shareholders consistently over long periods of time.
And I think even recently through some of the announcements that we've made about share repurchases, we demonstrated that that's part of our mix and we'll continue to be so going forward. Thanks for taking the questions.
Next question please.
Your next question comes from the line of Jamie Rubin with Goldman Sachs. Good morning, Jamie. Good morning. Good morning, everyone. Just a couple of follow-up questions on sort of the major themes of the earnings call.
Alex and I appreciate you taking the time to be on the call. Just if you look at the MD and D business, the MD and D business has underperformed its peers for at least the last 4 to 5 years and maybe longer, I'm not sure. But I can't imagine you are pleased with that performance. And I'm just wondering, what is your interest level in moving up the technology curve out of what you're in, which are mostly commodity businesses? When I look across where the major growth opportunities are in medtech, you guys aren't there robotics, transcatheter, heart valves, etcetera.
So I appreciate valuations are high and you want to be disciplined, but at the same time, J and J's MD and D business continues to underperform. So if you could comment on that please. And then secondly to you Dominic, you are booking about $2,000,000,000 in non operating income in 2015 largely related to divestitures. How do you repeat that performance in 2016 without treating again a very difficult comparison? Thanks very much.
Hey, Jamie. Thank you for the question. Look, first of all, as I said regarding our Medical Device businesses, we think this is an important business and remains a very solid growth opportunity going forward. And look there as you look across that entire business, we have a number of very exciting areas frankly that are doing quite well. We highlighted some of them earlier, whether it's Biosense Webster, whether it's what we're seeing in areas like biosurgicals, energy, our Endocutter business.
We're starting to see the turnaround in areas such as Vision Care. And we don't think those are commodity businesses. We think those are driven by innovation, technology and they've been a steady stream. Now are there other areas where we're interested? Well, you know that we made an investment in the robotics space.
We've announced an exciting opportunity with Google. It's still early days. We recognize that. But we think that there's a lot of opportunity there given our expertise in general surgery overall and combining it with some of the expertise that those new technology partners can add. And we're also interested in other areas beyond that.
We've demonstrated the ability in the past that when we see them, we will participate and acquire them. And I think we've also demonstrated over the past years that in areas where we don't see that path forward that we'll be active on the divestiture front as well. So we think that there is room for improvement. We know that we've got businesses like diabetes care, for example, that had a significant impact from pricing a few years ago, vision care that's still in the midst of a turnaround. But we think that we've got the strategies, the innovation in place to turn those around and these can be very solid and strong performers going forward.
And Jamie with respect to the other income and expenses, dollars 2,000,000,000 roughly that you quoted, I think we were very clear early in the year that we were going to use those divestiture gains to offset some pretty significant headwinds and in particular the major headwind of currency this year. Going forward, I don't believe we'll have the same level of divestiture income, but we'll still have some. As Alex had mentioned earlier, we're continuously reviewing our portfolio and making decisions of where we want to participate and where we think the assets would be better off in someone else's hands and where we could get value for our shareholders by selling the assets. So I think for 2016, we would still see some level of divestiture income. But again, in 2016 versus 2015, we won't have we don't believe we'll have the significant headwinds of currency that we just experienced in 2015 nor will we have the tough comparisons of not having Alisio.
So I think you'll continue to see it as part of our strategy to reevaluate our portfolio and deploy those gains against higher growth
The 2% negative impact includes also some inventory reductions for ALICIO. So if you just looked at the REMICADE export, total U. S. Impact would be about 1%, about half of that.
Okay? Thank you. Next question please.
Your next question will come from the line of Josh Jennings with Cowen and Company.
Good morning, Josh. Hi, Josh.
Good morning. Thanks so much for taking the question. So I had the first one for Dominic. Just as we look into 2016 and beyond and the annualization of ALICIO and other headwinds experienced in 2015, how should we be thinking about leveraging the P and L driving a higher level of EPS growth relative to revenue growth? Should we anticipate consistent constant currency EPS growth in 100 basis points to 200 basis points range?
Or could that spread improve as you experience operating improvements in consumer and device franchises and then continued strength in the pharma unit?
Yes. Thanks, Josh. Well, as we've said many times, we always plan our business to grow our top line at a rate faster than the competitive set and then to grow the bottom line at a rate of growth that's slightly faster than the top line growth. That depends each year on what have
seen
us be very consistent in our ability to continue to continue to have seen us be very consistent in our ability to continue to grow earnings at a rate that's appropriately at a level faster than sales, again, depending on what the market's doing and then depending on what particular investments we have. We do see increased profitability in the consumer business because you mentioned it in your comments and Sandy had referred to it earlier. Now that we're through many of the issues in the consent decree, we saw the increase in the profitability last year and we expect that business will continue to
ANDA question. There's some recent ANDA filers for ZYTIGA. Can you just talk about any inherent risk of a generic coming to the U. S. Market prior to 2016?
And then just an update on your patent positioning for that asset. Thanks a lot.
Okay. So just to repeat what I said in the prepared remarks, the composition of Malopatin expires in December 2016 and the method of treatment patent expires in August of 2027.
We would not speculate on any ANDA approval timing or outcome
of any litigation. However, and the length of which would be a core subject in the outcome of any litigation.
Okay. Thank you. And next question?
Your next question will come from the line of Vamil Divan with Credit Suisse. Good morning, Vamil.
Hi, good morning. Thanks so much for taking the question. So just 2 here if I could. 1, you talked a little bit about InterContinental earlier. I know Mike asked about this as well.
But just about halfway through the quarter, we did have the FDA comments around ketoacidosis. And just curious, I mean, obviously, performance seems fine this quarter, but any on a qualitative basis, if you're sensing any sort of questions or changes in prescribing habits as a result of what the FDA has stated at this point? And then second, appreciate your comments on Greece. I was just curious also regarding Puerto Rico, just some of the kind of macro issues that are going on there. I know you guys have some manufacturing down there.
Do you sense any sort of risk or concerns there depending how that sort of plays out over the next few weeks or months
here? So, I'll take first the question on the DKA. It's early on, but our Phase III trials actually included about 10 1,000 patients and we saw very few cases of it.
Right. And with respect to Puerto Rico, well, we you're right. We have a significant manufacturing presence there and significant employment on the island, of course, as a result. But I don't see that as a major factor in our ability to continue progressing with our plan. So it's not on our radar screen as a major issue to contend
with.
Next question please. Your next question comes from the line of Jayson Bedford with Raymond James.
Good morning and thanks for taking the questions. I think I heard Alex mention $1,000,000,000 in cost savings by 2018. I just wanted a little clarity. Is that a new program? Or is that the program that I thought you introduced a couple of years ago?
This is Dominic, Jason. It's the program that we introduced a couple of years ago. We're a couple of years into it now. And so we're already seeing some of those cost benefits. And Alex is describing the same program where we looked at by 2018 if you compared it to a base year of 2013, the overall cost reduction would be in the aggregate $1,000,000,000
And how far along are you? Are you at 50%, 60%?
We kicked it off in 2013. We did a lot of planning, of course, in 2014. So we're just starting to ramp it up this year into the next couple of years.
Okay. And then maybe a question for Sandy on the consumer side. You've added investment over the last few years to support the relaunch of the OTC products, but margins seem to improve nicely over the last few quarters. Does the added investment wind down to generate better margins or does the growth pick up to improve margins?
So, thanks for the question. The way in which we're looking at this is the as we're sunsetting the consent So a large part of where you'll see continued improvement in the profitability of the business is by improving our COGS and our gross margins for the business. So that's one aspect of it. The other aspect of it is we are we have undertaken over the last couple of years an approach to globalize our brands and globalize how we manage them, which drives increased efficiency in every single marketing dollar. So our perspective on this is we need to continue to invest behind these brands, both the U.
S. OTC portfolio as well as the global portfolio. So you'll not see us reduce our investments behind our brand building of all of our core brands, but what you will see is improved leverage in our manufacturing footprint and actually how we're spending those dollars to drive improved profitability across the sector.
Jason, this is Alex. If I could just add, I really want to commend Sandy and Jorge and their teams for the job they're doing on these relaunches. I think when we were having these calls several years ago, there was probably a fair amount of skepticism on our ability to relaunch against private label, making sure that we could work our way to the consent decree requirements. And if you look at the progress that's been made over the past few years, obviously, it starts with great products. I think now we have over 80% of our brands return to the shelf, a lot of new recent launches, particularly along the Tylenol line.
If you combine that with the way that we've achieved all the consent decree requirements, I think we work closely with the agency. We've done that. And in fact, I think we'll be the if not the one of the only large over the counter companies to ever be able to do that successfully. And the really good news is that when you look at as we relaunch these brands, the share uptake is strong. I think we're back up to now about 60% of the share that we achieved in areas like pain.
So we're building our way back up. And when you combine that with some of the new innovations that we have, we definitely see a nice growth opportunity in that part of the business.
So with respect to everyone's time,
we'll take 2 more questions. Next question please.
Your next question comes from the line of David Lewis with Morgan Stanley. Good
morning, David.
Good morning. Thanks, Elyse, for squeezing me in. Maybe just a question for Alex and Sandy and a quick follow-up for Dominic. But consumer business is clearly recovering. That's the big message I think of this call.
And I think the commentary I think you've made publicly these last
few months seems to be that for M and A and Consumer, it's going
to center more on brands and not companies. So you seem more willing in Consumer, at least from our estimation, to rule out large M
and A. Am I reading that right? And why is that the case?
So our the way in which we're thinking about acquisitions in consumer is a combination of things. We're going to clearly stay focused on our priority consumer needs states and geographies. So the way we look at it is a combination, are there brands that are appropriate to tuck into our infrastructure to drive growth in certain markets or in certain areas of the consumer needs state. But we also will look at technologies that we can license in like we've done in other parts of J and J. And lastly, we do look at companies to acquire, whether they're midsized companies or whether they're larger companies.
And we are highly disciplined about looking at those and understanding the benefit of doing those kinds of larger acquisitions versus midsize or smaller acquisitions. So we haven't ruled out any particular part of the marketplace. We're looking at a variety of different opportunities. Given that the business is now stabilized and growing again, we believe we're in a position where we can look at these things a little bit more on an ongoing basis.
Yes. And David, I would just add on to that that consumer area remains one of strong strategic importance for Johnson and Johnson. When you think about the role of consumers and healthcare utilization going forward, when you think about the way that you're able to drive innovation, and frankly, when you think about the reach that it gives you, particularly in the emerging markets and the fast growing markets, and by the way, for Johnson and Johnson, it not only operates that way to drive growth in consumer, but it acts also as a way to increase our uptake in our other businesses, particularly in those growth markets, we think there's a lot of opportunities. And I think Mission 1 over the past few years has been getting it on the right track. As you mentioned yourself, we think we made a lot of progress there.
We're feeling much, much better. And now we're obviously looking for ways how do we expand that? How do we take it to the next level?
Okay. Very helpful. Thank you for that color. And then Dominic just a quick question on just thinking about international growth. This quarter was
a little slower. I just wonder if
you can just give us an update on what you're seeing macro in emerging markets, maybe specifically China, just given the events for the last month, Have you seen any acute slowdown? Or is it relatively stable? Thank you.
So we have seen in China some slowdown. I wouldn't call it acute. There's some dynamics of course of generic competition in China and an overall slower growth in economic growth. So we are seeing that, but I think we're well positioned. We've been in China for many, many years.
We have a good footprint there. We manufacture there as well and our brands continue to get good uptick there. And of course, we're not in the generic part of the pharmaceutical business in China because we're focused more on innovation in that market. So I wouldn't call it acute, but I would say we've seen some slowdown in the overall market growth in China.
Okay. Thank
you. Thank you very much.
Last question, please.
And your next question will come from the line of Rick Wise with Stifel.
Thanks. My first question is taking the question. Good morning everybody. Alex, maybe just a question for you and then one for Sandy. You talked again, you highlighted your focus on the OR of the future and talking about the Google JV and robotics.
Can you maybe give us a little more concrete color? I mean, is there a grand plan? Does it require acquisitions? Are we going to see some tangible products or launches that are going to impact sales and earnings over the next 6 to 12 months? How do you want us to think about it?
Yes. Rick, we would like you to think about this as a real strategic investment in the future for robotic surgery. And we as we see the surgical suite continue to develop in today's environment, I would say there's a pretty clear line of demarcation between what you would say is standard surgery and robotic surgery. And we think as technology develops in the future, whether it's real time data collection, whether it's visualization, whether it's incorporating some of the new technologies in areas such as energy and hemostats. Combining these in very new and unique approaches, we think offers a real significant opportunity to improve patient outcomes and ultimately to grow a business.
We also think there's some inherent limitations to today's robotic surgery environment when you frankly look at the size and the scale of some of the existing innovation. And if you look at what's happened with other technology platforms, as they have become smaller, more flexible, more mobile, and frankly have a better ability to integrate various activities around the OR, that's where we think we can really make a difference. We realize of course that we bring certain capabilities to the table, but we're also thinking working with partners like Google and others, it expands our capabilities significantly.
And so look, we see this
as really not something This is likely more over a 2 to 3 year plus timeframe. But we this is something that we are quite committed to that our partners are committed to and that we see as a real opportunity to fundamentally change the way we think about surgery and robotics in the future.
I really appreciate that. And just last quickly Sandy, I mean it seems clear that Vybe is off to
a strong start. I think you launched it in
the U. S. Late last year. Maybe just talk if you could give us a little more color on the rollout. Where are you?
Are you fully rolled out? Are you converting your own patients to Vybe? Or are you gaining new accounts? Just and maybe what's next beyond Vybe? Thanks so much.
So thanks. So as you in insulin delivery in total, what we have done is, as you know, we had launched the product in Europe and also in Canada over the last couple of years. And both in Europe and in Canada, it also has a pediatric indication, which clearly gives it some unique differentiation in the marketplace. We've seen significant positive growth and uptake of the product in the U. S, which is a combination of existing patients upgrading to the new product as well as gaining basically new to therapy insulin pumpers, as well as that we've seen a lot of conversion from other pump platforms to our platform.
We, in the second quarter, also filed for the pediatric indication for the U. S. Product. And so obviously the FDA will go through its review process, but we're hopeful that before the end of this year, we should have a pediatric indication, which will be a further uptick in the business in the U. S.
And be very helpful to us in the U. S. As I also mentioned earlier, there's 2 other things in insulin delivery that we're very focused on, actually 3. But 2 of them are working in partnership with DexCom on a next generation pump that really brings the best of what we've learned of how to make this much more friendly and effective with a patient, as well as ensuring that we've got the right algorithm in the pump for insulin delivery. Combining that with the next generation of sensor, we currently our current pump has that with Dexcom.
And then we're also and have done a lot of work, not just in the insulin side, but also in the BGM side, of really creating a much better ecosystem for the patient to have information and data that helps them manage their condition much more effectively. And so we're using information technology in a smarter way going forward and we're seeing very positive impact of that, not just in the insulin delivery side, but in our core BGM business. So that's another place that we'll see a number of different things that we're going to be doing this business. And last but not least, I mentioned that the Colibra patch pump is another great growth platform, we believe, for us because it's really a unique to the marketplace way to help type 2 diabetics who are insulin dependent have a new way of getting their insulin delivered to them in a much more discreet way. So there are a lot of things in the works.
There's a lot of things in our pipeline in insulin delivery.
Appreciate it. Thanks. Thank you. We'll have some closing remarks by Alex.
Okay. Well, thank you everyone. And look in closing, I want to again extend our appreciation to all of you for joining today's meeting. We're pleased with the solid results we reported this morning, which as we discussed today really do reflect the strong underlying growth we're seeing across the enterprise. And when you combine this with the actions we've taken to even further strengthen our core businesses and advance our pipelines, Johnson and Johnson is well positioned to continue to drive growth over the long term.
So I wish everyone a great day and thank you very much.
Thank you. This concludes today's Johnson and Johnson Second Quarter 2015 Earnings Conference Call. You may now disconnect.