Q3 2007 Johnson & Johnson Earnings Webcast and Analyst

FINAL TRANSCRIPT

JNJ - Q3 2007 Johnson & Johnson Earnings Webcast and Analyst Meeting

Event Date/Time: Oct. 16. 2007 / 8:30AM ET

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CORPORATE PARTICIPANTS Louise Mehrotra Johnson & Johnson - VP, IR Dominic Caruso Johnson & Johnson - VP, Finance & CFO Nick Valeriani Johnson & Johnson - Worldwide Chairman, Medical Devices and Diagnostics

CONFERENCE CALL PARTICIPANTS Rick Wise Bear Stearns - Analyst Larry Biegelsen Wachovia - Analyst Bob Hopkins Lehman Brothers - Analyst Sara Michelmore Cowen & Co. - Analyst Catherine Arnold Credit Suisse - Analyst Valerie Brown Alliance Bernstein - Analyst Glenn Novarro Banc of America - Analyst

PRESENTATION Louise Mehrotra - Johnson & Johnson - VP, IR Good morning and welcome. I am Louise Mehrotra, Vice President of Investor Relations for Johnson & Johnson and it is my pleasure this morning to review our business results for the third quarter of 2007.

Joining me on the podium today are Nick Valeriani, Worldwide Chairman, Medical Devices and Diagnostics and Dominic Caruso, Vice President, Finance and Chief Financial Officer.

A few logistics before we get into the details. The audio and visuals from this presentation are being made available to a broader audience via a webcast accessible through the Investor Relations section of the Johnson & Johnson website.

I will begin by briefly reviewing highlights of the third quarter for the Corporation and highlights for our three business segments. Following my remarks, Dominic will provide an additional commentary on the results for the quarter and the guidance for the year. Nick will then provide an update on our Medical Devices and Diagnostics business. We will then open the floor to your questions. We will conclude our formal presentation at approximately 9.30 and following Q&A with some final remarks by Dominic, we will conclude the meeting around 10 a.m.

Distributed with the copy of the press release that you just received is a schedule with actual revenues for the major products and/or business franchises. For the listening audience, these are available on the Johnson & Johnson website as is a copy of the press release.

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Before I get into the results, let me remind you that some of the statements made during this meeting may be considered forward-looking statements. The 10-K for the fiscal year 2006 identifies certain factors that could cause the Company's actual results to differ materially from those projected in any forward-looking statements made this morning. The Company does not undertake to update any forward-looking statements as a result of new information or future events or developments. The 10-K is available through the Company or online.

Last item, during the meeting, non-GAAP financial measures may be used to provide information pertinent to ongoing business performance. These measures are reconciled to the GAAP measures and are available on the Johnson & Johnson website.

Now I would like to review our results for the third quarter of 2007. If you would refer to your copy of the press release, let's begin with the schedule titled Supplementary Sales Data. Worldwide sales to customers were $15 billion for the third quarter of 2007, up 12.7% as compared to the third quarter of 2006. Our operational growth was 9.7% and currency had a positive impact of three points. The sales results include the net impact of the acquisition of Pfizer Consumer Healthcare or PCH, which was completed in December 2006.

On a pro forma basis, including the net impact of the PCH acquisition in both periods, worldwide sales increased approximately 2.4% operationally. Further, operational growth in the quarter was negatively impacted by approximately five points due to a number of factors. Generics and sales rebate adjustments in our pharmaceutical business and pressures causing decreases in the overall market for both drug-eluting stents and erythropoietin stimulating agents or ESAs. I will cover each of these items in more detail in the segment commentary.

If you turn to the schedule showing sales by geographic area, you will see that we achieved growth of 5.8% in the US. In regions outside the US, our operational growth was 14.7% while the effect of currency exchange rates positively impacted our reported results by 6.8 points.

The Western Hemisphere, excluding the US, grew 24.9% on an operational basis. Europe grew 13.3% while the Asia-Pacific/Africa region grew by 11.8%. The results in all regions have been positively impacted by the acquisition of Pfizer Consumer Healthcare.

If you now turn to the consolidated statement of earnings, net earnings on a reported basis were $2.5 billion while earnings per share were $0.88. This compares to $2.8 billion and $0.94 in the same period in 2006.

Please direct your attention to the boxed section of the schedule where we have provided adjusted earnings information. As a reference in the footnote, third-quarter 2007 results were adjusted to exclude the after-tax impact of the costs associated with the previously announced restructuring program of $528 million. The third-quarter 2006 results were adjusted to exclude the after-tax impact of an in-process research and development charge of $115 million associated with the acquisitions of Colbar LifeSciences and Ensure Medical. On an adjusted basis, third-quarter 2007 net earnings and earnings per share were up 7% and 8.2% respectively.

I would now like to make some additional comments relative to the components leading to the adjusted earnings before we move on to the segment highlights. For the third quarter of 2007, cost of goods sold at 28.5% was up 100 basis points as compared to the same period in 2006. The third-quarter results included the addition of the PCH business to our mix of businesses, increasing cost of goods sold as a percentage of sales by an estimated 80 basis points.

Selling, marketing and administrative expenses at 32.7% of sales were up 40 basis points as compared to 2006. The addition of the PCH business to our mix of businesses increased these expenses by an estimated 100 basis points, substantially offset by continued cost containment efforts across our business.

Our investment in research and development as a percent of sales was 12.3%, 60 basis points less than the third quarter of 2006. The addition of PCH to our mix of businesses reduced R&D as a percentage of sales by approximately 60 basis points.

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Interest income net of interest expense of $52 million was down $142 million compared to the third quarter of 2006 due to a lower cash balance and higher debt position. Other expense net of other income was $2 million in the third quarter of 2007 compared to $45 million of net other expense in the same period last year. As previously reported, the 2006 results included an increase to our product liability reserve.

With regard to taxes, please direct your attention to the effective tax rate excluding special charges shown in the boxed section of the schedule. In the third quarter of 2007, taxes were 23.3% as compared to the prior year rate of 23.9%. Dominic will provide further comments on taxes during his remarks.

Looking at year-to-date results, consolidated sales to customers for the first nine months of 2007 were $45.1 billion, an increase of 13.9% as compared to the same period a year ago. On a year-to-date basis, operational growth was 11.3% and currency had a positive impact of 2.6 points.

On the consolidated statement of year-to-date earnings, I would first like to draw your attention to the boxed section. In 2007, the after-tax impact of charges for in-process research and development and the costs associated with the restructuring program have been excluded.

In 2006, after-tax amounts for both in-process research and development and the Guidant acquisition termination fees have been excluded. With these adjustments, net earnings for the first nine months of 2007 were $9.5 billion or $3.27 per share, up 9% and 10.8% respectively as compared to the same period in 2006.

Now, turning to the business segment highlights. I will begin with the Consumer segment. Worldwide consumer segment sales of $3.6 billion increased 47.5% as compared to the third quarter of 2006. Operational growth was 43.4% while currency contributed 4.1%. US sales were up 39.8% while international sales grew 46.5% on an operational basis. On a pro forma basis, including the net impact of the acquisition of Pfizer Consumer Healthcare in both periods, sales were up an estimated 3.5% on an operational basis.

For the third quarter of 2007, sales for the over-the-counter pharmaceuticals and nutritionals increased 79% on an operational basis compared to the same period in 2006. Sales in the US were up 36% while sales outside the US were up 173% operationally. On a pro forma basis, including the net impact of the PCH acquisition in both periods, estimated operational sales growth was flat.

Healthy growth for adult analgesics and SPLENDA was offset by lower sales of upper respiratory products. The 2006 upper respiratory sales included the impact of the launch of the products reformulated with phenylephrine.

Our skincare business achieved operational sales growth of 12% from the third quarter of 2007 driven by strong US sales growth of 17%. Sales outside the US grew 8% on an operational basis. The addition of the PCH products and the new product launches and successful promotional campaigns for Aveeno, Clean & Clear and Neutrogena productlines resulted in strong growth for the quarter. On a pro forma basis, including the net impact of the PCH acquisition in both periods, operational sales growth was approximately 6% ahead of projected category growth rates for the year.

Baby and kids care products achieved operational growth of 7% when compared to the third quarter of 2006, driven by the strong performance of cleansers and powders. Sales growth in the US was 10% while sales outside the US grew 6% on an operational basis. On a pro forma basis, including the net impact of the PCH acquisition in both periods, operational sales growth was approximately 5%, ahead of projected category growth rates for the year.

Women's health achieved operational growth of 2% with the US declining 1% and sales outside the US up on an operational basis by 3%. On a pro forma basis, including the net impact of the PCH acquisition in both periods, sales declined on an operational basis by approximately 3% due to increased competition combined with retail inventory reductions in certain categories.

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On a pro forma basis, including the net impact of the PCH acquisition in both periods, operational sales growth for the oral care business was approximately 10%, ahead of projected category growth rates for the year. Double-digit growth for LISTERINE mouthwash driven by the strong results in the international markets and the US launch of the LISTERINE dissolvable whitening strips were the major contributors to the growth in the quarter.

That completes our review of the Consumer segment and I will now review highlights for the Pharmaceutical segment. Worldwide net sales for the third quarter up $6.1 billion were up 3.7% compared to the same period a year ago. Operational growth was 1.2% with currency contributing 2.5%. Reported sales in the US decreased 2% while sales outside the US increased on an operational basis by 7.2%.

As we discussed last year, US sales results in the third quarter of 2006 included a reduction to reserve for sales rebates of approximately $130 million, while the third quarter 2007 included a reduction to sales rebate reserves of approximately $60 million. Both sales reserve adjustments were related to sales recognized in previous periods. The most significant impacts were to antipsychotics, TOPAMAX and LEVAQUIN and I will provide additional commentary as it relates to those products in a moment.

Our results continue to be impacted by generic competition on some of our products, namely Duragesic, oral contraceptives, DITROPAN, SPORANOX and RISPERDAL ORAL certain countries outside the US. The combined effect of this generic competition has reduced the third-quarter worldwide pharmaceutical growth rate by approximately three percentage points with a similar impact both in and outside the US.

Additionally, we saw a retraction in the US market for ESAs as a result of the ODAC discussions, the label changes and changes to reimbursement. The combined effect of the estimated impact of all items noted -- generics, the declining ESA markets and the change in the reserve reductions -- impacted the worldwide pharmaceutical operational sales growth by approximately 7.5 times.

PROCRIT/EPREX had a combined operational decline of 17% with PROCRIT down 27% and EPREX up on an operational basis by 1%. New competition and label changes have contributed to the slowing growth for EPREX. PROCRIT results have been impacted by a decline in the market versus the third quarter of 2006 estimated at over 25%, partially offset by an increase in overall marketshare. PROCRIT aggregate share across all markets was approximately 45% in the third quarter of 2007, up two points sequentially and three points versus the third quarter of 2006. Increased share in the hospital and retail markets was partially offset by lower share in the oncology clinics due to our competitive/anti-competitive contracting strategy.

Let me now move on to discuss some of our growth drivers. Our antipsychotic franchise, which includes RISPERDAL ORAL, RISPERDAL CONSTA and INVEGA had operational growth of 6% when compared to the same period a year ago with similar results both in and outside the US. Both the worldwide and US sales growth, excluding the reductions for the rebate reserves mentioned earlier, would have been double-digit. Sales results outside the US were impacted by generic competition for RISPERDAL ORAL in certain markets. The global success of RISPERDAL CONSTA continue to contribute strongly to the third quarter with sales of approximately $295 million, up 20% on an operational basis.

REMICADE, a biologic approved for the treatment of a number of immune-mediated inflammatory diseases, grew by 6% when compared to the third quarter of 2006. Sales in the US increased 8%. Market growth in the anti-TNF category continues to be strong and the competitive dynamics have intensified with the new entrants and the expansion of labels for existing competitors. Sales to our partners for markets outside the US declined 1% due to the timing of supply shipment.

Sales of TOPAMAX, which is approved for the treatment of epilepsy and migraine prophylaxis, increased operationally by 14%. Sales growth in the US was reported as 14% and excluding the rebate reserve adjustments mentioned earlier, growth was approximately 20%.

Continued success in the migraine category has been the major driver of growth. Sales outside the US grew by 10% on an operational basis with strong growth seen in many markets partially offset by generic entries in certain other markets.

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Sales of LEVAQUIN were up 5% operationally when compared to the same period a year ago and double digit excluding the rebate reserve adjustments mentioned earlier. Solid market growth contributed to the increase.

ACIPHEX as it is known in the US market and PARIET outside the US is a proton pump inhibitor that we co-market with Eisai. Overall operational growth was 6%. Sales in the US grew 8% with market growth partially offset by lower script share. Operational sales growth outside the US was 4%.

CONCERTA for Attention Deficit Hyperactivity Disorder grew operationally by 4% in the third quarter as compared to the same period last year. Sales in the US were down 1% due to lower marketshare partially offset by market growth. Sales outside the US grew 25% on an operational basis with very strong growth in all regions.

Let me now turn to the Medical Devices and Diagnostics segment. Worldwide Medical Devices and Diagnostics segment sales of $5.2 billion grew 3% operationally as compared to the same period in 2006 while currency contributed three points to bring reported growth to a total of 6%. Sales in the US grew 2.4% while sales outside the US increased on an operational basis by 3.7%. Sales, excluding the impact of lower sales of CYPHER, grew nearly 10% operationally with healthy growth seen across the other franchises.

Now turning to the franchises starting with Cordis. Cordis sales declined approximately 23% in the third quarter due to lower sales of CYPHER, our sirolimus-eluting stent, partially offset by strong growth in both our Biosense Webster business and our neurovascular business. US sales were down 26% and sales outside the US declined 21% on an operational basis.

CYPHER sales in the US declined 44% to approximately $185 million. The reduction in PCI procedures and a lower penetration rate of drug-eluting stents resulted in an estimated market decline in the US of over 40% versus the third quarter of 2006. Estimated share in the US of 46% were stable on both a sequential basis and versus the third quarter of 2006. Sales outside the US of approximately $190 million declined nearly 40% operationally.

The international market decline versus the third quarter of 2006 was estimated at over 10% while the estimated marketshare in the quarter of 37% was down from 51% in the third quarter of 2006 and 43% last quarter. Increased competition has impacted the share outside the US. CYPHER estimated worldwide share for the quarter was 41%.

The Biosense Webster franchise, our electrophysiology business, achieved operational growth of 18% with the US growing over 20% and sales outside the US growing 15%. Neurovascular sales also achieved strong growth in the quarter due to the relaunch of the TRUFILL DCS ORBIT coil system.

Our DePuy franchise had operational growth of 9% when compared to the same period in 2006 with the US growing 5% and the business outside the US growing by 15% operationally. Both our worldwide hip and sports medicine businesses and our knee business outside the US achieved double-digit operational growth.

In the US, sales were impacted by the continuing competitive challenges in our spine business and lower sales of trauma products to an international distributor. Ethicon worldwide sales grew operationally by 6% with the US up 7% and sales outside the US up 5% on an operational basis. Strong growth was achieved across many categories, namely hemostasis, women's health, biosurgical, meshes and drain.

Ethicon Endo-Surgery achieved operational growth of 8% in the third quarter of 2007 with the US up 6% and sales outside the US growing 11%. The Endo-Cutter, the key product in performing bariatric procedures, grew 13% operationally in the quarter and was a major contributor to the growth. Strong, double-digit results were achieved in the energy business due to the continued success with the HARMONIC SCALPEL, up 18% operationally in the quarter.

The LifeScan franchise achieved operational growth of 13% in the third quarter of 2007. The US sales increased 15% reflecting the continued success of the Ultra Mini and the Ultra Strip complemented by growth of the Animas business. The Animas

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© 2007 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial. FINAL TRANSCRIPT Oct. 16. 2007 / 8:30AM, JNJ - Q3 2007 Johnson & Johnson Earnings Webcast and Analyst Meeting business achieved sales growth of nearly 30% in the quarter due to the launch of the 2020 pump earlier this year. Sales outside the US increased 9% on an operational basis due to the strong results of the Ultra products.

Ortho-Clinical Diagnostics sales grew on an operational basis 10% in the third quarter with the US sales up 19%. Sales outside the US were flat on an operational basis impacted by softness in the immuno diagnostics market and lower sales of donor screening products. The results in the US were driven by the rapid uptake of the Chagas screening assay and strong results achieved in immuno diagnostic products.

Lastly, in the Medical Devices and Diagnostics segment, our Vision Care franchise achieved operational sales growth of 16% with sales in and outside the US growing at similar rates. Operational growth for the franchise was driven by the global success of ACUVUE OASYS, ACUVUE ADVANCE for Astigmatism and ACUVUE Moist. Additionally, outside the US, 1-DAY ACUVUE DEFINE continues to make strong contributions to growth in the quarter.

That completes highlights for the Medical Devices and Diagnostics segment and concludes the segment highlights for Johnson & Johnson third quarter of 2007. I will now turn the discussion over to Dominic Caruso for some additional comments. Dominic?

Dominic Caruso - Johnson & Johnson - VP, Finance & CFO Thank you, Louise and good morning, everyone. While we are pleased with our solid financial results for the third quarter as Louise highlighted for you, during the third quarter, our sales results were slightly above the mean of the analyst models published by First Call.

Our solid earnings performance for the quarter demonstrates our ability to continue managing our costs and improving our margin even in the face of sales pressures in certain markets while continuing to invest in the future. In fact, if you were to look at the impact of adding the Pfizer Consumer Healthcare business to our base business for 2006, as we filed in an 8-K earlier this year, you would see that our pro forma operating margin for 2006 was negatively impacted by 1.2 points.

However, when you look at our operating margin for the first nine months of this year, now including the PCH business, you will see an operating margin of 26.7% or only 0.5% negative impact versus the 2006 period. Thus indicating leverage in the base business of approximately 0.7%.

As you know, we recently announced a $10 billion share repurchase program, the largest in our history. We began purchasing shares in August and through the end of the third quarter, we purchased $2 billion of our stock. This share repurchase program, along with our dividends, demonstrates our strategy of returning value to our shareholders while allowing us the flexibility to continue to invest in business-building activities.

In July, we announced cost restructure improvements that will help us manage through some near-term challenges in our pharmaceutical business and Cordis franchise. As you saw, our third-quarter results reflect the restructuring charge of approximately $745 million on a pretax basis, consistent with the guidance that I provided during our conference call when we announced the restructuring activities and our estimate at that time of restructuring charges of between $550 million and $750 million.

Our plans are being executed by our operating companies and the majority of the announcements have been made and actions have been taken or are in the process of being implemented. I can tell you that these actions are consistent with the guidance I have provided, namely reductions of approximately 3% to 4% of our global workforce in accordance with local works councils and labor laws and we are on track to achieve annual cost savings for 2008 of approximately $1.3 billion to $1.6 billion.

Leaders in our operating companies have been spending the last few months talking with employees about adjustments in their respective business models and I am proud to say that our leaders are executing against these plans to reduce our cost

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© 2007 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial. FINAL TRANSCRIPT Oct. 16. 2007 / 8:30AM, JNJ - Q3 2007 Johnson & Johnson Earnings Webcast and Analyst Meeting infrastructure while maintaining the proper balance of investing in the future. Our goal remains to build on the strengths of our business, reduce our overall cost base and become better positioned for continued profitable growth in the years ahead.

That said, I would like to provide some comments for you to consider as you refine your models for 2007. Let's start with a discussion of cash and related interest income and expense. During the third quarter of 2007, the Company continued to generate strong cash flows. At the end of the third quarter, we had approximately $400 million of net cash. This is approximately $8.3 billion of cash and investments and $7.9 billion of debt. This is an improvement of $2.9 billion in our overall net cash position from year-end 2006.

We achieved this improvement while completing the $1.4 billion acquisition of Conor Medsystems during the first half of this year and also utilizing $2 billion to repurchase shares as we began our share repurchase program this past quarter.

Turning to interest income, we had net interest income of $52 million during the quarter. For purposes of your models and considering the impact from the share repurchase program, but assuming not major additional acquisitions, I suggest you consider net interest income in the range of $125 million to $175 million for the full year 2007, slightly lower than our prior guidance, to reflect the impact of the share repurchase program, which is now underway.

Turning to other income and expense, as a reminder of the nature of this account, this is the account where we record royalty income, as well as one-time gains and losses arising from such items as litigation, gains or losses from investments by our development corporation or asset sales. This is also the account where we recorded the gain on the divestitures of certain brands in connection with the PCH acquisition in the first quarter, as well as the integration costs associated with the PCH acquisition.

This account is difficult to forecast, but assuming no other major one-time gains or losses, I would recommend that you consider modeling other income and expense for 2007 as a net gain ranging from approximately $250 million to $300 million. This is higher than our prior guidance reflecting additional royalty income and gains in our development portfolio.

And now a word on taxes. For the first nine months year to date in 2007, the Company's effective tax rate, excluding special charges, was 23.7% as compared to 23.9% in the prior year period. We suggest you model our effective tax rate for 2007 in the range of 23.5% to 24%, consistent with our prior guidance. As always, we will continue to pursue opportunities in this area to further improve upon this rate as we approach the end of the year and we finalize implementation of some of our plans.

Turning to sales and starting with operational sales growth, we would be comfortable with your models reflecting operational sales growth for the full year between 11.5% and 12%, consistent with the guidance I have provided during our conference call with you at the end of the second quarter.

Regarding currency, we cannot predict the impact that movements in currency will have on our sales growth and we are not providing a forecast based on currency. But to give you a sense of possible currency impacts, if currency were to remain where it is today, currency would have a positive impact to our full-year sales growth of approximately three points.

Now turning to earnings. When I last checked the First Call mean estimate for our EPS for full year 2007, it was $4.06 per share and this included both the dilutive effect of PCH, as well as the Conor acquisition, but not including any in-process research and development charges or other special items such as restructuring charges.

Given the strength of our earnings performance for the third quarter and considering the fact that restructuring actions will result in approximately $0.02 to $0.03 per share of additional costs that will be reflected in our ongoing operations this year, we suggest that you consider full-year 2007 EPS estimates, excluding the impact of in-process R&D charges, restructuring charges or other special items, of between $4.10 and $4.13 per share.

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This enhanced earnings performance is a reflection of the fine work of the people of Johnson & Johnson who continue to integrate acquisitions, make appropriate changes to our cost structure, all the while continuing to move our promising new growth opportunities forward and make important advances in human healthcare. In fact, at this level of earnings per share, we are able to absorb the dilutive effect of the PCH and the Conor acquisition, as well as enhance our earnings performance despite some of the pressures we face in the markets for drug-eluting stents and erythropoietin-stimulating agents. This is a true testament of the value of our broad-based business model.

That concludes my comments on our operating performance and I look forward to updating you at our meeting in January to discuss our full-year 2007 results.

Let's move on to the next portion of our program today. At our analyst meeting in June, we presented the growth plans for our Pharmaceutical and Consumer businesses and we have made a good deal of progress since then that I would like to mention. Our consumer group is well into the integration of Pfizer Consumer Healthcare and continues on track to meet or exceed our target of $500 million to $600 million in cost synergies by 2009.

In January, we said we expected this transaction to be breakeven or modestly accretive by 2009, a full year ahead of the original schedule, and we continue to be on track to achieve this. The consumer group continues to generate new platforms for growth through new products and geographic expansion. LISTERINE just released its new quick-dissolving whitening strips in the US, an exciting new market building on the strength of our oral care.

New skincare products with the unsurpassed protection of Helioplex sunscreen are rolling out worldwide, and we are preparing to launch an over-the-counter version of Zyrtec anti-allergy medication in the US shortly after Zyrtec moves from prescription to over-the-counter status.

In June, we also spoke to you about our pharmaceutical segment, highlighting the many promising medicines we have in late-stage development. Looking at our late-stage pipeline of new medicines, we received FDA approval last week for DORIBAX, doripenem for injection for the treatment of complicated urinary tract infections and intra-abdominal infections.

At [ICAC], we presented data showing that DORIBAX is as effective as commonly used therapies in treating nosocomial pneumonia. In June of this year, DORIBAX was filed in the US and Europe for treatment of nosocomial pneumonia and in Europe for complicated urinary tract infections and complicated intra-abdominal infections.

New data for ceftobiprole also presented at ICAC showed it was as effective as combination therapy in treating patients with complicated skin infections, including MRSA, a growing public health threat. Ceftobiprole is currently in registration in the US and the EU for complicated skin and skin structure infections.

Our HIV medicine, TMC125, was granted priority review by the FDA last month and also has been filed for approval in Europe. In two studies published in the Lancet and presented at the IAS meeting in Sydney, TMC125 became the first medicine in the NNRTI class to show significant efficacy in HIV patients who are resistant to all other currently approved NNRTIs.

We remain on track to file three additional medicines for approval by the end of this year -- Dapoxetine for premature ejaculation in the EU, CNTO 1275 for psoriasis and paliperidone palmitate for schizophrenia.

We announced positive data on CNTO 1275 at the world Congress of Dermatology in Buenos Aires earlier this month. More than two-thirds of patients with moderate to severe plaque psoriasis, receiving two doses of CNTO 1275, achieved at least 75% reduction in psoriasis at week 12, the primary endpoint of the study.

We also expect to file and number of medicines for approval next year, including tapentadol, rivaroxaban and CNTO 148. As you know, we plan to file between seven and ten medicines for approval between 2008 and 2010. So we continue to make progress on a number of fronts in both our Consumer and Pharmaceutical businesses.

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I am very pleased this morning to have our Worldwide Chairman of our Medical Device and Diagnostics business, Nick Valeriani, with us today to talk to you about this exciting part of our business. Most of you know Nick very well. He leads the largest medical device and diagnostic business in the world with more than $20 billion in revenues last year. As you may recall in September 2006, we held a full day MD&D analyst meeting and we plan to do so again in 2008.

Today, however, Nick is going to give you a brief update on the progress we have made in seven franchises in MD&D. At the end of his presentation, we look forward to taking your questions. It is my pleasure to introduce my colleague on the executive committee of Johnson & Johnson, Nick Valeriani. Nick?

Nick Valeriani - Johnson & Johnson - Worldwide Chairman, Medical Devices and Diagnostics Well, thank you, Dominic and good morning, everyone. Thank you for the opportunity to talk to you today about the Johnson & Johnson Medical Device and Diagnostics segment. This is an exciting time for our businesses. We are working comprehensively across our franchises to address some of the most pervasive diseases.

We are committed to a vision of restoring the joys of life for patients around the world and there can be no doubt that our technologies make a difference. More than three million patients live more active lives thanks to our CYPHER stent. More than 100,000 people are dealing better with morbid obesity with our adjustable gastric band.

More than one million knees bend and rotate with less pain with our joint replacement. 40 million eyes focus more clearly wearing ACUVUE lenses. Four million people better manage diabetes with our OneTouch Ultra products and in hospitals around the world, there are enough Ethicon sutures to wrap around the earth eight times.

We achieved this vision by focusing on our mission, listening to our customers to identify unmet need and develop innovative solutions by paying particular attention to working with the grain of healthcare in terms of addressing issues like availability, access and affordability and by enhancing our leadership position in markets around the globe.

We are, as you can see here, the world's largest medical technology business by a significant margin and we have achieved strong and steady growth relative to our competition. Over the past five years, the MD&D segment has achieved strong operational growth. In fact, our compound annual growth rate for the past five years has exceeded that of our competitive set and importantly operating profit has grown well in excess of sales, a pattern we expect to continue growing forward.

Our consistent level of acquisitions and divestitures suggests that we have been disciplined in our approach, continuously refreshing our product portfolio. For the broad product portfolio, we are also the world's most diverse medical technology business. I am going to have time today to talk to you about just a few of our exciting platforms for growth. They are suggestive of a business that leverages strengths from throughout Johnson & Johnson. They include consumer insights, direct-to-consumer marketing and pharmaceutical expertise for example applied to our technologies to gain an unparalleled strategic advantage.

Within their respective categories, most of our seven franchises are industry leaders or strong number two players. Their individually strong performances over the past five years have enabled our MD&D segment to achieve an impressive five-year compound annual operational growth rate of approximately 11%.

We participate in about 40% of the vast space of the global medical technology market of roughly $230 billion leaving us plenty of room to continue to grow in the areas we find attractive.

Our growth strategies consider that leadership in the key therapeutic categories in which we compete is essential to our future. They include cardiology, orthopedics, diabetes, obesity, and vision care. We will lead here and we will build on our core strengths, including those you see here and expand and attract adjacencies like women's health and biosurgicals to strengthen our position in core markets.

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We are continually assessing new market opportunities, one of which I will talk about today, where we see significant growth opportunities in the medical technology space. Finally, we continue to actively explore attractive white spaces, just a few of which you see here.

As a segment of the Johnson & Johnson family of companies, we believe we have significant advantages over our competition, including the strength of our Pharmaceutical and Consumer business. One of them is the capacity to educate physicians and patients, an effort we have now put to work on behalf of the CYPHER stent in the drug-eluting stent category. While we recognize that new entries will increase competitive pressure in this space, we continue to believe that we will compete successfully on a foundation of the world's largest and deepest body of clinical evidence supporting the safety and efficacy of our product.

For the past several months, reported studies have helped to dispel concerns about the safety of drug-eluting stents compared to bare metal stents. In the recently published 18,000 patient network, meta analysis further points out the positive advantages of the CYPHER stent compared to TAXUS and bare metal stents.

Our educational campaign has two objectives. Against the backdrop of the newest literature and the impressive body of data supporting the category, we are working to restore physician and patient confidence in percutaneous coronary intervention as a treatment of choice for coronary artery disease and we are speaking directly to patients, caregivers and physicians about the world's most used, most studied and most proven drug-eluting stent, CYPHER, and about the quality of what we call life wide open.

These newspaper ads and the slides you saw previously are just a few of the efforts in this campaign, which began last month and which we will continue into the coming year with a number of new elements. We are running in major national outlets, directing readers to an enhanced website for more information. That website, www.cypherusa.com, is the foundation of the effort because it offers significant information for patients to improve their dialog with their physicians and to help make them -- to help them make more informed decisions for themselves.

Now before I begin a review of selected technologies in our pipeline, I would like to remind you of some of the updates we have provided last fall at our Medical Devices and Diagnostics business review. As you can see from this chart, we have achieved most of the milestones we've projected about a year ago.

More notable among them are the Ortho-Clinical Diagnostics' FDA clearance late last year of the world's first test to detect Chagas disease, an insect borne illness. Already more than 70% of donated blood is now tested for this disease. We anticipated a fourth-quarter clearance of our adjustable gastric band and it came in the third quarter of this year.

We are on target for the BLA submission for the Fibrin Patch and we have begun the global rollout of the [Prinia] skin closure system with CE Mark clearance in Europe.

We terminated development of CYPHER NXT and CYPHER Neo and launched, as planned, the FIRE STAR and DURA STAR balloon catheters.

So now let's turn to some of the exciting highlights on our near, mid and long-term horizons. I would challenge that our pipeline in Medical Devices and Diagnostics is as rich as any company, and our recent launches and approvals demonstrate our diversity with technologies ranging from blood glucose monitors that make it possible for patients in developing markets to test for the first time, to adhesives that can trim hours from surgical procedures by replacing sutures. And as I indicated earlier, a disciplined approach to portfolio management has allowed us to realize approximately 35% of sales in 2006 from products introduced over the last three years.

Now time only permits me to talk with you today about a few of these highlights, the recent launches and approvals and near-term technologies and platforms we see as game changers for the way we deal with significant diseases and conditions. And before we conclude today, I will also offer a view of our aspiration for a future that leverages our technologies, our expansive

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© 2007 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial. FINAL TRANSCRIPT Oct. 16. 2007 / 8:30AM, JNJ - Q3 2007 Johnson & Johnson Earnings Webcast and Analyst Meeting breadth and our customer relationships to dramatically improve the care of people with metabolic disorders that totally change the way we approach that patient.

So let's start with diagnostics where development of novel medical markers could change the way we approach disease. This is a skill set that derives from its partnership between our diagnostics company and our pharmaceutical researchers. While many companies, including our own, are focused on treating chronic illness, that is only part of the equation.

The key strategic issue in healthcare is reducing the incidence of chronic illness worldwide and we are creating, through our Ortho-Clinical Diagnostics franchise, a new generation of sophisticated diagnostics tests that we believe have the potential to not only help reduce chronic illness, but also improve patient outcomes and reduce healthcare costs worldwide. These tests will accomplish that by detecting diseases and medical conditions earlier than ever before.

The market opportunity for these technologies is significant, but the potential to impact the way patients are managed is even more significant. With this example of just one product in the space, GENESEARCH breast lymph node assay, surgeons have a new molecular tool to confirm the spread of breast cancer while a patient is undergoing initial surgery, thereby sparing patients and the healthcare system the need for costly and painful additional surgical procedures to remove cancerous lymph nodes. The GENESEARCH BLN assay was the first intra-operative and gene-based test ever approved to detect if cancer has spread to the lymph nodes.

Our objective is to translate novel biomarkers into advanced diagnostic tests to identify disease earlier than ever before. We have several other biomarkers in advanced stages of the development pipeline, including tests for preeclampsia, prediabetes and some of the world's most pervasive chronic diseases.

Obesity affects 300 million people worldwide and many of them experience multiple serious comorbidities. It is estimated that obesity represents a global healthcare cost in excess of $100 billion; yet less than 1% of the patients who are eligible actually get surgical treatment for this disease.

With the recent US regulatory clearance of the REALIZE adjustable gastric band, Ethicon Endo-Surgery is now the only company in the world with a complete portfolio of offerings for the surgical treatment of obesity. Coupled with our capabilities and physician education, consumer marketing, health economics and payer advocacy, Ethicon Endo-Surgery is better positioned than any company in this space to address the surgical treatment of obesity, a significant healthcare issue and a significant driver of future growth for our business.

This is a particularly -- this is particularly exciting in light of clinical evidence presented in two recently published studies in the New England Journal of Medicine confirming the life-prolonging benefits of bariatric surgery.

HARMONIC is a great example of an acquisition that became the linchpin of a successful growth strategy in action. Acquired in 1995 with a single product code and just $12 million in revenue, HARMONIC Energy technology is today a portfolio of over 50 product codes and more than $500 million in revenue. It has become a standard in laparoscopic surgery and is being used today in more open procedures as well.

The most recent launch in this line shown here is the HARMONIC FOCUS Curved Shears for which the initial applications are thyroidectomy and other ENT procedures. I believe it is also a great example of how our decentralized philosophy works best. By staying close to the surgeon customer to understand his or her needs, we have adapted this technology to procedures across specialties that enable better care.

Take a look at this next set of photos to see what I mean. These are photos of facial plastic surgery used in traditional techniques and HARMONIC devices. The photo on the right depicts the results achieved with HARMONIC Energy. Over time, the Ethicon Endo-Surgery strategy is to leverage the use of HARMONIC not only to other areas of general surgery, but to specialties that are the focus of other Johnson & Johnson MD&D businesses. For instance, plastic surgery, orthopedics and gynecology.

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I will tell you more in a few minutes about our vision for making a true difference in the way care is provided for people with diabetes, but it all started with the enormous insights we have gained over time from our LifeScan business and its flagship OneTouch platform. We have been able to continue to leverage the OneTouch Ultra platform and strip technology by bringing out new meter innovations that are aimed at driving better testing compliance, providing greater patient insights with the goal of better outcomes.

The benefit is that we are able to leverage the capital investments we have made within our facilities to support a single strip technology. Some of the newest additions to the line are those that support solutions tailored to this specific market need.

Again, the customer's voice told us that many markets attempting to deal with the epidemic of diabetes needed an affordable blood glucose monitoring solution that offered basic information to patients who previously hadn't been testing blood glucose levels at all. We continue to offer the best meters at all levels, but these basic affordable models enable us to make an important contribution to the management of this pervasive disease.

Of course, the acquisition of Animas Corporation expanded our presence in the diabetes area and the company continues to innovate in insulin delivery products. The most recent is the Animas 2020 pump, the smallest full-featured pump available.

Now in MD&D, we also take advantage of our strengths by applying them to important adjacencies. For example, the materials expertise of Ethicon known for suture and mesh coupled with our understanding of biologics puts us in a great position in the emerging platform of biosurgicals. These products address the significant clinical challenge of dealing with bleeding whether it is leaks or severe bleeding in surgery. This includes advanced hemostatic agents and sealants that can improve the management and control of bleeding, air and fluid leaks.

It includes EVITHROM, the first plasma-derived human thrombin for achieving hemostasis, and EVICEL, a fibrin sealant that also includes human thrombin. Commercialization of both products was the result of our partnership with OMRIX Biopharmaceuticals. Through this growing portfolio of products and developing expertise, we expect to lead with products that can rapidly control a range of bleeding in trauma and other operating room procedures.

In cardiovascular disease, we remain committed to the pursuit of technologies that advance the safety and efficacy profile of products to treat coronary artery disease. Among them, of course, is the platform acquired through our acquisition of Conor Medsystems. Our first priority here is the development of a coronary stent with sirolimus, the proven drug of choice for drug-eluting stents along with the bioabsorbable polymer. The promise for the future of this platform, however, is its use with multiple drugs for clinical indications both inside and outside of cardiology. We remain committed and excited to leveraging this platform across many therapeutic categories.

Of course, our Cordis franchise is not a one-dimensional business and we have continued to expand our focus outside of interventional cardiology. For example, in our endovascular business, we have now filed our PMA for the approval of the ExoSeal vascular closure device, which we gained through the acquisition of Ensure Medical in 2006.

We are also excited about the work of our Biosense Webster franchise and the study of catheter ablation for the treatment of atrial fibrillation. This condition affects about 10 million people, mostly over the age of 65, and we expect to see incidents doubling in the coming years. It's one of the leading causes of stroke.

Currently, ablation is recommended as second-line therapy in the US after patients have failed drug therapy. There is no catheter ablation approved for this use in the US; although a number of technologies, including ours, are available outside the US. We have now concluded enrollment in our IDE clinical trial for an indication for AFib for our NaviStar ThermoCool Catheter, expecting to file our PMA next year and we are working and committed towards leadership in this important category.

We see structural heart disease as a potential new frontier in cardiology and we are developing a number of solutions for structural problems such as a [CFO] closure device. We also have active development programs in percutaneous valve repair

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© 2007 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial. FINAL TRANSCRIPT Oct. 16. 2007 / 8:30AM, JNJ - Q3 2007 Johnson & Johnson Earnings Webcast and Analyst Meeting and replacement, including potential applications of the previously approved Intracardiac Echo catheter. In all, we expect structural heart disease to represent a multibillion dollar opportunity in the future.

In joint replacement, an aging population coupled with patient demand, will result in highly customized solutions. You don't have to look far to see evidence of an increasingly competitive effort to gain consumer's mindshare in knee replacement. Our consumer insights have demonstrated that what patients really want is a joint implant closely matched to their individual knee.

For example, a patient in his early 50s with an active lifestyle needs a joint that allows him to exercise everyday, while a patient in her 70s who walks to the corner grocery store has a different set of needs. To that end, we are pursuing a patient segmentation strategy focused on performance and next year, DePuy will launch a new high-performance SIGMA knee platform, which will include new instrumentation and a series of new product introductions.

Another exciting opportunity we are pursuing is the delivery of active pharmaceuticals through contact lenses. We are in late-stage clinical trials with the first of these products, which not only corrects vision, but also delivers medications to treat allergy symptoms in the eye. These products will appeal to consumers who have not worn or have stopped wearing contact lenses because of discomfort and other issues. We see this as an exciting market expansion opportunity and it also represents further realization of our strategy to move from a vision correction business to a more comprehensive vision care franchise.

The next platform I want to discuss is probably one of our most transformational technologies that has the potential to truly disrupt how and where surgical and medical procedures are performed today. That is computer-assisted personalized sedation or CAPS. Here, our vision is to create technologies that allow for less pain, less anxiety and a faster return to normal activity.

An important driver to achieving this goal is managing the intraoperative pain and anxiety of patients and that is what CAPS will do. Today, there are more than 38 million short surgical and medical procedures performed that require some form of sedation for the management of patient's pain and anxiety. These procedures are done in a variety of settings and anesthesia providers are not always available.

Gastroenterology alone represents nearly 16 million of these procedures and this is our initial target market and it is here where early clinical research gives us reason to believe this technology can dramatically improve current standard of care. We believe better procedural sedation, more effective and efficient sedation has the potential to both increase practice capacity for colon cancer screening and minimize a main patient turn deterrent to getting screened, fear.

We are currently conducting the pivotal trial for this system. Results from two feasibility trials are very promising. As promising as these results look in our initial area of focus, the transformational value of CAPS lies in its vision. That is the shift of site of care, reduce patient pain and increase access to care, the meaningful contribution to healthcare and an exciting platform for growth for Ethicon Endo-Surgery.

I think you will agree that our robust pipeline in the near and mid term puts us in a very competitive position, but more importantly offer meaningful solutions to some of today's most challenging clinical needs. We plan to update you on our progress against these efforts at a Johnson & Johnson Medical Devices and Diagnostics business review to be held next June, so stay tuned for details.

Now before I close, I want to leave you with the sense of the possibilities we are looking at in the longer term. Possibilities that take advantage of the unique breadth of Johnson & Johnson across Device, Diagnostic, Pharmaceutical and Consumer technologies. We have the capacity by virtue of our size and depth to address some of the world's most pervasive and challenging conditions in a way no other company can do.

Take a look at just one example, metabolic disease, to understand the strength our focus across the enterprise affords us. Despite the prevalence of diabetes and its incumbent comorbidities, this remains a seriously undertreated, complex and overwhelming disease. For instance, the diabetic patient often takes as many as 16 prescription medicines, deals with conditions like obesity,

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© 2007 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial. FINAL TRANSCRIPT Oct. 16. 2007 / 8:30AM, JNJ - Q3 2007 Johnson & Johnson Earnings Webcast and Analyst Meeting coronary artery disease and joint pain and has a Rolodex of care providers from physicians to educators to retailers. We believe we have an unparalleled capacity by virtue of our breadth and scope to address diseases like this one in a more comprehensive approach than any other company in the world.

In fact, in the next few days, we will be announcing a commitment to diabetes education for the creation of the Johnson & Johnson Diabetes Institute to be led by former acting Surgeon General of the United States Dr. Ken Moritsugu. We will be launching these diabetes Institutes in Japan, the US, France and China initially as part of our commitment that goes well beyond products and technologies to addressing a global issue in a way that no other corporation can do. The first four centers will be open and operational by mid-2008, offering curriculum that is the result of consultation with leaders of the International Diabetes Organization and public health institutions. We have a vision for a presence in metabolic disease that transcends any single business segment and addresses the enormous breadth of needs faced by people with these chronic conditions.

In all, we are a diverse composite of innovative companies aggregating to the world's largest medical technology company and dedicated to a common vision. Our seven franchises are each industry leaders in their own right. They are globally balanced with roughly half our business outside the United States and many unique market-specific solutions.

Our size enables us to pursue standardization and cost efficiency where it makes sense, but our individual franchise focus enables us to make decisions close to the customer and with the best interest of the patient in sight. We believe we are cultivating the right skills to innovate with the grain of healthcare in areas that matter -- convergent technologies, evidence-based medicine, and educated and empowered stakeholders.

In order to participate as fully as possible in this space, we will continue to compete aggressively and manage efficiently, growing our profits in excess of sales. In all, we believe we are making a difference and that our innovations will continue to improve the way medical technology impacts delivery of care around the world. Thank you.

So now, let me turn the meeting back to Louise who will open up the question and answer session.

Louise Mehrotra - Johnson & Johnson - VP, IR Thank you, Nick. We will now begin the Q&A session. I ask that you wait for a microphone as the meeting is being webcast.

QUESTIONS AND ANSWERS Unidentified Audience Member A quick question for Dominic. When we look at last quarter versus this quarter, last quarter, you gave guidance of $4.02 to $4.05. This quarter it is $4.10 to $4.13. I guess the three categories who are different are FX, gains on the other income line and cost-cutting. Can you quantify how that corresponds with the changes in guidance among those three categories?

Dominic Caruso - Johnson & Johnson - VP, Finance & CFO I will give it a try. The previous guidance was actually $4.02 to $4.07 and the increased guidance is now $4.10 to $4.13. FX has had a -- not that significant of an impact in that overall change because we essentially hedged most of our foreign currency exposure. Therefore, we don't gain the benefit or suffer the loss associated with that.

In terms of cost-cutting, I think that is probably the most (inaudible) efficiency in our operations. That is the most significant part of the change. And the (inaudible) component is some additional other income that I referenced, which was related to

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© 2007 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial. FINAL TRANSCRIPT Oct. 16. 2007 / 8:30AM, JNJ - Q3 2007 Johnson & Johnson Earnings Webcast and Analyst Meeting increased royalty income and gains on the sales of our investments in our development portfolio. I would say that cost improvement probably is the largest part of that -- of that swing in our guidance.

Rick Wise - Bear Stearns - Analyst Rick Wise, Bear Stearns. A couple of questions. First, maybe, Dominic, can you give us any greater specificity on the other -- any one-time items that are there in the third quarter that are not likely to be there in the fourth quarter, maybe if you could just call that out and I will ask my other two now and just go ahead and say them?

INVEGA -- can you give us some kind of update on how it is tracking? I think your last public comment was "it is on track to be where you want it to be by the time RISPERDAL goes generic". Can you just update us on what that is and where things stand and last real quick maybe you could review the US stent pricing environment? Our contacts are suggesting J&J has been incrementally more aggressive on price in stents. Maybe you could tell us where stent prices were in the quarter and whether that is valid and your strategy for dealing with the competition there. Thanks so much.

Dominic Caruso - Johnson & Johnson - VP, Finance & CFO Sure, Rick. With respect to other income in this particular quarter, other income and expense, you may remember that we executed a settlement agreement with the Department of Justice on the orthopedics industry matters and that cost associated with that settlement, which we announced, was $85 million. It was included in our results -- fully included in our results now. That is the only one-time unusual item you wouldn't expect to repeat in future quarters.

The royalty income we are experiencing is higher in certain agreements that have triggering aspects where we get royalty agreements. I don't want to tell you which particular entities they are, but we will receive see better royalty income for the remainder of the year.

With respect to INVEGA, we still continue to see INVEGA as a promising product for the treatment of schizophrenia. I would tell you that we continue to see restrictions in the use of INVEGA based on formulary status. So whether it is tier 3, whether it is prior authorization, etc., we continue to see that. It is a very difficult environment for new products and the new reimbursement arena and those pressures are difficult to overcome without additional data on the product, especially this additional data comparing it to other products.

So you may know that we have just recently this past weekend had a poster session on head-to-head trial of INVEGA and Seroquel. So it is recent data. That trial showed that INVEGA performed very nicely against Seroquel and placebo in terms of efficacy and was very well-tolerated and in fact, the dropout rates for INVEGA patients due to adverse events was far lower than either Seroquel or even placebo frankly.

So we are very pleased because the factors are kind of data that the reimbursement environment is waiting for to see if we are lightening up on the restricted pressures we placed on it. Whether it lightens up enough, we will wait and see, but we have taken a realistic view of INVEGA in both our guidance for this year and in targeting cost improvement programs that I previously announced.

With respect to DES pricing, I think Louise has the actual data for the quarter.

Louise Mehrotra - Johnson & Johnson - VP, IR For the US, price was down about 5% and that is down to about $2080. OUS price was down a similar amount, higher in terms of local currency, but we did have a favorable impact of the currency strengthen.

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Unidentified Audience Member It sounds like it might not be where you would like it to be (inaudible) RISPERDAL goes generic. What's the final point on it?

Dominic Caruso - Johnson & Johnson - VP, Finance & CFO Well, it is not tracking today where we had hoped it would track by this point and therefore, we have taken that into consideration in our plans.

Unidentified Audience Member (inaudible) JPMorgan. First, a pharma pipeline question and then maybe a couple of questions for Nick since we have him here. The pharma pipeline question is on CNTA 148. We are going to see data in a couple of weeks at ACR I believe in psoriatic arthritis and ankylosing spondylitis. Could you talk about your filing strategy for the different indications for 148 RA, as well as psoriatic arthritis and spondylitis and so forth?

And then the questions for Nick, you talked about a bunch of interesting opportunities. Let me just touch on a couple of them. The ability to deliver an agent with ACUVUE, with your contact lens franchise, what is the regulatory pathway for that type of product? How much visibility do you have on that and then anything you can give us -- -- what you have in front of you today on the clinical trial design for ThermoCool for AF and for the CAPS program and if you don't have that, understood.

Dominic Caruso - Johnson & Johnson - VP, Finance & CFO On the pharma pipeline question on CNTA 148, Louise, help me out here if I miss one, but Mike, our filing strategy there is (inaudible) we intend to file three indications. Rheumatoid arthritis, ankylosing spondylitis and psoriatic arthritis are all three indications planned to be filed in early '08.

Nick Valeriani - Johnson & Johnson - Worldwide Chairman, Medical Devices and Diagnostics Mike, with regards to action in contact lenses, the regulatory process of PMA filing, so what we are able to do obviously with this sort of convergent of combination product is certainly gaining the benefit of our pharmaceutical expertise that we have inside of Johnson & Johnson, as well as other expertise we have in MD&D to bring the right skill sets to bear there, but it is PMA.

With regards to the ThermoCool for AFib where we have completed enrollment of all the patients for this trial and so now we are in the follow-up period and we will be submitting that PMA in the future.

And then CAPS, what we have done with CAPS is the pivotal trial is in gastroenterology, so it is for colonoscopy predominately in the lab. That pivotal trial is ongoing today and we anticipate being able to file that PMA in the early part of 2008. So that is our first indication in the GI lab set.

Unidentified Audience Member Just a follow-up on ThermoCool. Is that a randomized trial and do you know what that looks like and what you need to show in terms of its (inaudible) success rates?

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Nick Valeriani - Johnson & Johnson - Worldwide Chairman, Medical Devices and Diagnostics You know, Mike, I am not really sure.

Louise Mehrotra - Johnson & Johnson - VP, IR Here, Larry.

Larry Biegelsen - Wachovia - Analyst Larry Biegelsen, Wachovia. First, a pharma question and then just a couple quick device questions. Carisbamate, I think it was previously mentioned as a 2008 filing unless I am wrong. Dominic, you didn't mention that today as an '08 filing. Could you please give us an update and then on devices, a follow-up to Mike's question, any sense of timing on that contact lens with the active ingredient. Then on the REALIZE band, the $1.7 billion in the market for 2011, what is the split between band and bypass? I think that was a bariatric growth rate -- market. And just lastly, do you have a telemetrically adjustable band in development? Thanks.

Dominic Caruso - Johnson & Johnson - VP, Finance & CFO Larry, on the pipeline, I mentioned three filings -- CNTO 148, rivaroxaban and tapentadol, but you are correct that there is actually six filings in '08. Carisbamate is still on track to be filed in '08, Dacogen in the EU is on track to be filed in '08, as well as YONDELIS for oncology. So we actually have six filings planned in '08, I happened to mention three earlier.

Nick Valeriani - Johnson & Johnson - Worldwide Chairman, Medical Devices and Diagnostics Larry, just again, the timing -- we are in the clinical trial right now on the contact lens, so we need to complete that trial and the submission for the PMA -- it is kind of too early right now to really determine when that will be submitted, but it is one of our top priority projects in the [actors] for our Vision Care business.

The $1.7 billion market potential for band versus bypass -- that really is predominately going to be we believe -- bypass surgery when you think about the other clinical benefits associated with these procedures as it relates to the resolution of other comorbidities -- diabetes and hypertension -- I think the jury is still out on that in terms of how. And now with the Ethicon Endo-Surgery business in the marketplace with the REALIZE band and our ability to develop that market, work with physicians and payers and consumers, we are going to see I think a changing -- perhaps a changing dynamic there.

Obviously today the indication is BMIs of 35 or greater with stated comorbidities. Who knows where the band could ultimately end up and perhaps be utilized in less severely obese patients. So we might see a segmentation change that that could potentially affect that $1.7 billion projection.

As it relates to a remote controlled adjustment, we are not at liberty at this point to really talk about what is in the early-stage pipeline.

Louise Mehrotra - Johnson & Johnson - VP, IR Bob Hopkins.

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Bob Hopkins - Lehman Brothers - Analyst Thanks very much. Bob Hopkins from Lehman Brothers. Two questions for Nick in light of the fact that next week we have the TCT meeting and the NAS meeting all in the same week, so I have a stent and spine question. First on the stent side, I just wanted to clarify, Nick, is now your next-generation drug-eluting stent a Conor platform-based stent?

And then on the spine side, you guys have been losing some share over the course of the last year. I am wondering is the market still growing double digits. How long do you think it will take you to get back to a market rate of growth and what do you need to do? Are there any key product launches coming in NAS or in the relatively near term that could turn that business around?

Nick Valeriani - Johnson & Johnson - Worldwide Chairman, Medical Devices and Diagnostics Sure. As it relates to stents, as you saw in the pipeline, we have two products that are under development. It is our CYPHER ELITE, which is a surface-coated product and the Conor sirolimus product. So we have a dual path going right now and as per the plan, the first product for the US market would be CYPHER ELITE, but we -- again, we remain very excited about the Conor sirolimus program where we believe we will have our first in-human experience in the early part of 2008.

With regards to spine, you are right. We have had some challenges in the recent past, a couple of things that are giving us some sort of positive feelings about that business. First and foremost is we have stabilized the distribution network in the US. We were having a significant degree of turnover in our distributors and we made a leadership change a couple of years ago now. [Gary Frechette] has been leading that business and working well with the distributors.

Our [Expedian] productline is out in the marketplace and doing very well. Our MIS program as well is supporting the stabilization of that business and we are beginning to see sort of a turnaround and some positive momentum in that business. Now when we will get to market rates of growth, that still remains to be seen.

Bob Hopkins - Lehman Brothers - Analyst Just one quick follow-up. Louise, I was wondering if you could give us the spine and hip and knee numbers if you don't mind, US and worldwide.

Louise Mehrotra - Johnson & Johnson - VP, IR Okay. Sure. This is operational growth -- hip 12%, outside the US also 12% for a total worldwide of 12%; knees are up 7% in the US, outside the US, they are up 12% for a total operational growth of 9%; spine in the US is down 1%, outside the US, up 34% operationally for a total of 8% growth operationally.

Sara Michelmore - Cowen & Co. - Analyst Sara Michelmore from Cowen. First a question for Dominic on ESA. If you could just give us an update in terms of how you feel about your visibility with regard to that product category. I know back in July, things were very much in flux, so if you could give us a quick update there and then two quick follow-ups for Nick.

Can you talk in terms of the diabetes products, where you guys are or what your interest is in continuous glucose sensors and also temporary or disposable insulin pumps, which seems to be an emerging technology area there and I was also surprised to see the amount of information you had up there in terms of biomarkers. If you can give us a sense of where you are in that development area and what your capabilities are? Thanks.

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Dominic Caruso - Johnson & Johnson - VP, Finance & CFO With respect to the (inaudible) point in stimulating the agent market, you are absolutely right. Back in the second-quarter call, there was still some uncertainty about reimbursement and there was still some uncertainty about what the next panel discussion was going to entail. That was a renal panel discussion that we still had to see the outcome of. I guess two things happened.

One is that the panel in -- got addressed. [Renal] did not recommend any reduction in the maximum dosing for ESAs, which is consistent with the ODAC panel, so that was good news in terms of looking at the efficacy of these products. It was an unfortunately more restrictive reimbursement than we had thought was going to be the case with respect to CMS reimbursement and although that was disappointing at this point, we had some more certainty over that than we've had before as opposed to uncertainty and sometimes you hope for certainty that is positive, but if you have uncertainty that is eliminated, you can plan your business in a more stable way.

I would say in that regard, we are still going to continue to discuss with CMS the nature of their reimbursement decisions. We believe, as others do, that that decision is not based on any clinical evidence, although it is a final decision at this point. We are still working with CMS to ensure that they understand the point of view of the decisions of patients with respect to that decision.

But I would say more -- a little bit more certainty in the market that we have had in the prior call that we had with you, but still some instability in terms of what may happen eventually with the label. As you know, the FDA did not come out with any further label discussions even though they had two panel meetings and so that particular aspect is still up in the air, but as I said, we were pleased to see that no restriction on dosing was recommended by both panels.

Nick Valeriani - Johnson & Johnson - Worldwide Chairman, Medical Devices and Diagnostics With regards to diabetes and continuous glucose monitoring, we see that as an important technology for the continuation and improvement of care for diabetic patients. We have two programs ongoing inside of our diabetes franchise and have had early clinical exposure with one of the devices.

One of the things -- one of the key challenges to ensure that you have the accuracy to deal with low readings, because if you think about what we want to try to do with this technology is to monitor and then pace the load of insulin to the patient, so we are taking a thoughtful and disciplined approach to understand the benefit of this technology and enhancing care for diabetics who are using insulin.

With regard to temporary insulin pumps, we are staying abreast of what is going on in the marketplace. Obviously we are committed and excited about the work at our Animas Corporation and the growth of that business year on year and the launch of the Animas 2020 though we also see the potential for a temporary or disposable insulin pumps perhaps for situations like gestational diabetes where you might want to just a short use of the product as opposed to a $4000 or $5,000 investment for a type 1 diabetic as the reusable pumps are used.

And in our OCD business in the area of biomarkers, it is a space that we're very excited about. Lloyd Davis who runs our OCD business has worked over the last four years now to really reconfigure the OCD franchise and its strategy and we really have been able to leverage some of the expertise we have in our pharmaceutical business typically out of La Jolla, as well as some extra licenses to put us in what we think is an exciting position as it relates to the development of these biomarkers in the area of cardiovascular disease, metabolic disorders, oncology and women's health.

So we see a real transition and we are not going to -- obviously our core lab business is important, but we really see the strategy moving to one of creating high-value, medical -- high-value medical content diagnostic testing in the future and that is what the biomarker strategy is all about.

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Louise Mehrotra - Johnson & Johnson - VP, IR Charlie?

Unidentified Audience Member Thank you. Dominic, I have a question for you regarding OTC Zyrtec. When you say that you are preparing for that launch, should we assume that there could be a contribution from OTC Zyrtec on January 1, 2008 and if the launch timeline is beyond the first of the new year, what exactly is preventing you from launching at the time that exclusivity expires?

Dominic Caruso - Johnson & Johnson - VP, Finance & CFO I would rather not comment on the specific timing. What I said is we are preparing for the launch shortly after the product goes off patent and the product goes off patent in December of this year.

Unidentified Audience Member No indication as to whether that might be a manufacturing issue or an approval issue, anything along those lines?

Dominic Caruso - Johnson & Johnson - VP, Finance & CFO It is just continuing to develop our plans (inaudible).

Unidentified Audience Member And it doesn't put you at a disadvantage with respect to others who might be waiting in the wings to launch an OTC version?

Louise Mehrotra - Johnson & Johnson - VP, IR We really can't comment any further on that at this point.

Unidentified Audience Member Okay. The second question is for Nick. One of the topics that you did not touch on in your prepared comments was the ASR hip resurfacing system. Could you give us an update there as to what is going on, in particular where we stand in the PMA process?

Nick Valeriani - Johnson & Johnson - Worldwide Chairman, Medical Devices and Diagnostics Well, first, with regard to ASR, it should be noted that that product is launched outside the US today and is a very successful part of our hip program in our DePuy franchise. As it relates to the timing of the PMA submission --

Louise Mehrotra - Johnson & Johnson - VP, IR In the '09 timeframe, '09 or '10 timeframe.

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Unidentified Audience Member And I am just curious how this progress -- how progress is being made in the clinical trial for that PMA submission.

Nick Valeriani - Johnson & Johnson - Worldwide Chairman, Medical Devices and Diagnostics I mean it is progressing fine. Again, it is a product that we have in the marketplace today. We don't anticipate any issues with regard to the product performance and (inaudible).

Louise Mehrotra - Johnson & Johnson - VP, IR Catherine at the back of the room here.

Catherine Arnold - Credit Suisse - Analyst Catherine Arnold from Credit Suisse. Last Friday, the FDA issued draft guidance on antibacterials suggesting that for some indications non-inferiority would not be an appropriate endpoint. Could you just confirm that you still expect non-inferiority to be okay for the three indications that you are filing or have filed? One of them you filed for ceftobiprole.

Dominic Caruso - Johnson & Johnson - VP, Finance & CFO Catherine, our design of the clinical trial obviously was initiated in consultation with the FDA and the protocol was the protocol that we agreed with the FDA. So our plan to move forward was that agreed-upon protocol and filed in accordance with that endpoint that was established with the FDA (inaudible).

Louise Mehrotra - Johnson & Johnson - VP, IR Up there, in the third row.

Valerie Brown - Alliance Bernstein - Analyst It's Valerie Brown with Alliance Bernstein. A question for Nick on the drug-eluting stent market. You had mentioned that you continued to see declines in PCI procedure volumes, as well as penetration rates. Could you quantify that if possible and provide some additional color both for the US and the OUS markets?

Nick Valeriani - Johnson & Johnson - Worldwide Chairman, Medical Devices and Diagnostics Sure. So when we look at this quarter, we estimate that PCI penetration year on year is probably down somewhere between 13% and 15% versus last year. And if you look at drug-eluting stent penetration as a percentage of total stents, that is probably somewhere in the 65% range as compared to let's say at its peak, it was probably 88%, 89%, you know some time a year ago.

So what we see -- again as one considers the body of evidence that continues to be published here, we believe that we are going to see a turnaround in both the PCI penetration and an uptake in DES penetration and the direct-to-patient or direct-to-consumer campaign that we are launching really is about getting the word out and informing healthcare providers, patients and caregivers that in fact drug-eluting stents, specifically CYPHER, is as safe as a bare metal stent when you consider the long-term potential complications, safer than TAXUS and more effective than both in treating coronary artery disease.

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And over this last 12 to 15 months, there has been all sorts of publicity that has gone out that has affected this and we continue to have great confidence in our product and its ability to best treat coronary disease for the appropriate patient and that is really what we are attempting to do now.

Louise Mehrotra - Johnson & Johnson - VP, IR With respect to everybody's time, we have time for one more question. Back here, Glenn.

Glenn Novarro - Banc of America - Analyst Glenn Novarro with Banc of America. A question for Dominic. One of the concerns that we hear out there is that the cost-cutting that you are going to undertake in 2008 and beyond, is that enough cost-cutting if PROCRIT disappoints further, if CYPHER comes under more pressure. So maybe can you comment on whether or not there is still wiggle room within that P&L for the Company to adjust if you haven't made the right assumptions for 2008? Thanks.

Dominic Caruso - Johnson & Johnson - VP, Finance & CFO Sure, Glenn. When we embarked on this cost restructuring program, we obviously had to look out into the future and try to get a sense for what the world would look like with drug-eluting stents and competition, PROCRIT etc. and the products like RISPERDAL and TOPAMAX losing patent protection in '08 and '09. We believe we sized the business appropriately to do two things. One is to get us through these near-term pressures, but also to continue investing in the future.

As Bill and I talked to you about this when we announced the restructuring program, it was our goal not only to reduce costs, but to also provide focus on the most exciting and promising opportunities in the pipeline. So as we move forward, we always keep that as a primary concern and move through this short-term period and come out of it stronger than when we entered it.

I think the cost reduction programs are intended to have a short-term impact in terms of getting us through some short-term pressures, but we certainly don't want them to have a long-term negative impact to reduce our growth rate going forward. So we will keep a close eye on that.

I would say our business leaders around the world have become very good at managing both costs and including things like implementing standardization initiatives that I've talk to you about before. I think we still have room to go there. That is one area where we have just started and we have tried to escalate that, but I think there is much more room there. But they have also done a fabulous job of balancing cost containment with investing in the future.

Louise Mehrotra - Johnson & Johnson - VP, IR Thank you. That is the end of the Q&A session. I will now turn it over to Dominic for some final remarks.

Dominic Caruso - Johnson & Johnson - VP, Finance & CFO Okay, thanks Louise. Well, I would like to thank Nick for the overview of the exciting opportunities in our MD&D business this morning and as you can see from our strong earnings performance this quarter, our broad-based business model enables us to continue delivering profitable growth while continuing to invest in our future. Thank you for your continued support of Johnson & Johnson and we look forward to updating you in January on our full-year 2007 results. Thanks for your attention today and have a great day.

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