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Article by DailyStocks_admin    (08-28-08 07:39 AM)

The Daily Magic Formula Stock for 08/28/2008 is Pfizer Inc. According to the Magic Formula Investing Web Site, the ebit yield is 12% and the EBIT ROIC is 50-75 %.

Dailystocks.com only deals with facts, not biased journalism. What is a better way than to go to the SEC Filings? It's not exciting reading, but it makes you money. We cut and paste the important information from SEC filings for you to get started on your research on a specific company.

Dailystocks.com makes NO RECOMMENDATIONS whatsoever, and provides this for informational purpose only.



Pfizer Inc. (which may be referred to as Pfizer, the Company, we, us or our ) is a research-based, global pharmaceutical company. We discover, develop, manufacture and market leading prescription medicines for humans and animals.

The Company was incorporated under the laws of the State of Delaware on June 2, 1942.

We acquired Pharmacia Corporation (Pharmacia) in April 2003. The acquisition was accounted for as a purchase. In accordance with GAAP, we did not restate our results of operations and financial position to reflect the historical results of operations and financial position of Pharmacia.

We acquired Esperion Therapeutics, Inc. (Esperion) in February 2004. The acquisition was accounted for as a purchase. Esperion is a biopharmaceutical company focused on the development of high density lipoprotein (HDL)-targeted (“good cholesterol”) therapies for the treatment of cardiovascular disease.

In September 2005, we acquired Vicuron Pharmaceuticals, Inc., a biopharmaceutical company focused on the development of novel anti-infectives. The acquisition was also accounted for as a purchase.

In February 2006, we acquired from sanofi-aventis the worldwide rights to Exubera (inhaled insulation therapy) and the insulin product business and facilities located in Frankfurt, Germany, which were previously jointly owned by the Company and sanofi-aventis. In the third quarter of 2007, the Company decided to exit Exubera and recorded charges totaling $2.8 billion ($2.1 billion, net of tax).

We completed the sale of our Consumer Healthcare business to Johnson & Johnson for $16.6 billion in December 2006. Revenues from our Consumer Healthcare business were $4.0 billion for full-year 2006.

In January 2008, we completed the acquisition of Coley Pharmaceutical Group, Inc., a company whose area of expertise is immunotherapy with specific emphasis on Toll-like receptor research and development. The acquisition was accounted for as a purchase.

In January 2008, we completed the acquisition of CovX Research LLC, a privately-held biotherapeutics company focused on preclinical oncology and metabolic research and a developer of a technology platform. The acquisition was accounted for as a purchase.

Pfizer Website

Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 are available on our website (www.pfizer.com) as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission (SEC).

Throughout this 2007 Form 10-K, we “incorporate by reference” certain information from parts of other documents filed with the SEC, including our Annual Report to Shareholders for 2007 and our Proxy Statement for the 2008 Annual Meeting of Shareholders (2008 Proxy Statement). The SEC allows us to disclose important information by referring to it in that manner. Please refer to such information. Our Annual Report to Shareholders consists of: the 2007 Annual Review (2007 Annual Review); and the 2007 Financial Report (2007 Financial Report), which is contained in Appendix A to our 2008 Proxy Statement. Portions of our 2007 Financial Report are filed as Exhibit 13 to this 2007 Form 10-K. On or about March 14, 2008, our 2007 Annual Review, our 2007 Financial Report and our 2008 Proxy Statement will be available on our website (www.pfizer.com).

Information relating to corporate governance at Pfizer, including our Corporate Governance Principles; Director Qualification Standards; Chief Executive Officer and Chief Financial Officer certifications; Pfizer Policies on Business Conduct (for all of our employees, including our Chief Executive Officer, Chief Financial Officer and Principal Accounting Officer); Code of Business Conduct and Ethics for our Directors; as well as information concerning our Directors; e-mail
communication with our Directors; Board Committees; Committee charters and the Lead Independent Director Charter; and transactions in Pfizer securities by Directors and officers, is available on our website (www.pfizer.com). We will provide any of the foregoing information without charge upon written request to Margaret M. Foran, Senior Vice President-Corporate Governance, Associate General Counsel and Corporate Secretary, Pfizer Inc., 235 East 42nd Street, New York, NY 10017-5755. Information relating to shareholder services, including our Shareholder Investment Program, book-entry share ownership and direct deposit of dividends, is also available on our website (www.pfizer.com).

Business Segments

We operate in two business segments: Pharmaceutical and Animal Health.

We also operate several other businesses, including the manufacture of gelatin capsules, contract manufacturing and bulk pharmaceutical chemicals. Due to the size of these small businesses, they are grouped into the “Corporate/Other” category of our segment information.

Comparative segment revenues and related financial information for 2007, 2006, and 2005 are presented in the tables captioned Segment and Revenues by Therapeutic Area in Note 21 to our consolidated financial statements, Segment, Geographic and Revenue Information, in our 2007 Financial Report. The information from those sections of our 2007 Financial Report is incorporated by reference in this 2007 Form 10-K.

Our businesses are heavily regulated in most of the countries where we operate. In the U.S., the principal authority regulating our operations is the Food and Drug Administration (FDA). The FDA regulates the safety and efficacy of the products we offer and our research quality, manufacturing processes, product promotion, advertising and product labeling. Similar regulations exist in most other countries, and in many countries the government also regulates our prices. See Government Regulation and Price Constraints below.

Our Pharmaceutical business is the largest pharmaceutical business in the world. Each year, Pfizer pharmaceuticals help over 150 million people throughout the world live longer, healthier lives. With medicines across 11 therapeutic areas, we help to treat and prevent many of the most common and most challenging conditions of our time. Our products are in Cardiovascular and Metabolic Diseases; Central Nervous System Disorders; Arthritis and Pain; Infectious and Respiratory Diseases; Urology; Oncology; Ophthalmology; and Endocrine Disorders. As of October 2007, our portfolio of medicines included seven medicines that led their therapeutic areas based on revenues.

In 2007, Pharmaceutical revenues declined 1%, to $44.4 billion primarily resulting from the earlier-than-expected loss of U.S. exclusivity for Norvasc in March 2007 and the loss of U.S. exclusivity for Zoloft in August 2006. Solid performance from products launched in the U.S. since 2005 such as Lyrica, Sutent and Chantix and several in-line products, as well as the favorable impact of foreign exchange, were able to partially offset these declines. Revenues from this segment contributed 91.8% of our total revenues in 2007, 93.2% of our total revenues in 2006, and 93.4% in 2005. In 2007, Lipitor, Norvasc, and Celebrex each delivered at least $2 billion in revenues while Lyrica, Viagra, Detrol/Detrol LA, Xalatan/Xalacom and Zyrtec/Zyrtec D each surpassed $1 billion. A table captioned Revenues — Major Pharmaceutical Products, in our 2007 Financial Report, is incorporated by reference.

Our major pharmaceutical products and certain recently approved products are as follows:

Cardiovascular and Metabolic Diseases

* Lipitor , for the treatment of elevated LDL- cholesterol levels in the blood, is the most widely used treatment for lowering cholesterol and the best-selling pharmaceutical product of any kind in the world.
* Norvasc , for treating hypertension, lost exclusivity in the U.S. in March 2007 and has also experienced patent expirations in most other major markets with the exception of Japan and Canada. Norvasc is covered by a compound patent in Japan that will expire in March 2008.

* Caduet is a single pill therapy combining Lipitor and Norvasc for prevention of cardiovascular events.
* Chantix/Champix , the first new prescription treatment to aid smoking cessation in nearly a decade, became available to patients in the U.S. in August 2006. It also is currently available in over 20 European markets as well as Canada, Australia, Korea, Brazil and Mexico. For further information on Chantix/Champix, including a recent label change in the U.S., see the discussion under the heading Pharmaceutical-Selected Product Description, Chantix/Champix in the Financial Review section of our 2007 Financial Report, which is incorporated by reference.

Central Nervous System Disorders

* Lyrica was approved by the FDA in June 2005 for adjuctive therapy for adults with partial onset epileptic seizures. This indication built on an earlier FDA approval of Lyrica for the treatment of two of the most common forms of neuropathic pain—painful diabetic peripheral neuropathy and post-herpetic neuralgia. In June 2007, Lyrica was approved in the U.S. for the management of fibromyalgia, one of the most common chronic pain conditions. This approval represents a breakthrough for the more than six million Americans who suffer from this debilitating condition who previously had no FDA-approved treatment.
* Geodon/Zeldox , a psychotropic agent, is a dopamine and serotonin receptor antagonist indicated for the treatment of schizophrenia and acute manic or mixed episodes associated with bipolar disorder. It is available in both an oral capsule and rapid-acting intramuscular formulation.
* Aricept , discovered and developed by Eisai Co., Ltd., is the world’s leading medicine to treat symptoms of Alzheimer’s disease. We co- promote Aricept with Eisai in the U.S. and several other countries and have an exclusive license to sell this medicine in certain other countries.
* Zoloft , lost exclusivity in the U.S. in August 2006 and earlier in many European markets. It

is indicated for the treatment of major depressive disorder, panic disorder, obsessive-compulsive disorder (OCD) in adults and children, post-traumatic stress disorder (PTSD), premenstrual dysphoric disorder (PMDD) and social anxiety disorder (SAD). Zoloft is approved for acute and long-term use in all of these indications, with the exception of PMDD. Zoloft was launched in Japan in July 2006 for the indications of depression/depressed state and panic disorder.

Arthritis and Pain

* Celebrex is for the treatment of arthritis pain and inflammation and acute pain. It also was approved by the FDA in July 2005 and in Europe in February 2007 for the treatment of ankylosing spondylitis, a form of spinal arthritis, and in December 2006, for the treatment of juvenile rheumatoid arthritis.

Infectious and Respiratory Diseases

* Vfend is a treatment that can be administered orally or intravenously for certain serious and potentially fatal fungal infections, for the treatment of esophageal candidiasis and for the treatment of certain blood stream infections in non-neutropenic patients (those without low white blood cell counts). It is also available in an oral-suspension formulation suitable for patients unable to swallow the tablet form.
* Zyvox is for the treatment of bacterial infections, which increasingly are caused by drug-resistant bacteria, and the treatment of diabetic foot infections. Zyvox is available in intravenous, tablet and oral-suspension formulations.
* Selzentry/Celsentri is the first in a new class of oral HIV medicines in more than a decade known as CCR5 antagonists. CCR5 antagonists work by blocking the CCR5 co-receptor, the virus’ predominant entry route into T-cells. Selzentry/Celsentri stops the R5 virus on the outside surface of the cells before it enters, rather than fighting the virus inside, as do all other classes of oral HIV medicines. Selzentry/Celsentri was approved in the U.S. in August 2007 and in Europe in September 2007, and is indicated for combination anti retroviral treatment of treatment-experienced adults infected with only CCR5-tropic HIV-1 detectable, who have evidence of viral replication and have HIV-1 strains resistant to multiple anti-retroviral agents.


* Viagra remains the leading treatment for erectile dysfunction (ED), and one of the world’s most recognized pharmaceutical brands.
* Detrol is the world’s leading product for the treatment of overactive bladder. Detrol LA is an extended-release formulation of this medicine, taken once a day.


* Camptosar , which is marketed under the name Campto in many countries outside the U.S., is indicated as first-line therapy for metastatic colorectal cancer in combination with 5-fluorouracil and leucovorin. The U.S. basic patent for Camptosar expired in February 2008.
* Sutent is an oral multi-kinase inhibitor that combines anti-angiogenic and anti-tumor activity to inhibit the blood supply to tumors. Sutent was approved by the FDA and launched in the U.S. in January 2006 for advanced renal cell carcinoma, including metastatic renal cell carcinoma, and gastrointestinal stromal tumors (GIST) after disease progression on or intolerance to imatinib mesylate. In January 2007, Sutent received full marketing authorization and extension of the indication to first-line treatment of advanced and/or metastatic renal cell carcinoma, as well as approval as a second-line treatment of GIST in the EU.


* Xalatan/Xalacom is one of the world’s leading branded glaucoma medicines. It is used to treat open-angle glaucoma and ocular hypertension. Xalacom , the only fixed combination prostaglandin ( Xalatan ) in combination with a beta blocker, is available primarily in European markets.

Endocrine Disorders

* Genotropin is the world’s leading human recombinant growth hormone. It is used for the treatment of various growth disorders in children and adults. Novo Nordisk has granted us a non-exclusive license to sell Genotropin in the U.S.


* Zyrtec/Zyrtec D is for the treatment of year- round indoor and seasonal outdoor allergies and hives in adults and children. We lost U.S. exclusivity for Zyrtec in January 2008. Since we sold our rights to market Zyrtec over-the- counter in connection with the sale of our Consumer Healthcare business, we ceased selling this product in late January 2008.

Animal Health

Our Animal Health business is one of the largest in the world. We discover, develop and sell products for the prevention and treatment of diseases in livestock and companion animals. In 2007, Animal Health revenues increased 14%, to $2.6 billion, primarily due to the continued performance of Revolution/Stronghold, Rimadyl , and other products, and the launches of important new products such as Convenia (single dose antibiotic for dogs and cats), Slentrol (anti-obesity treatment for dogs), Cerenia (prevention and treatment of emesis for dogs), and Improvac (boar taint vaccine for pigs).

Among the products we market are parasiticides, anti-inflammatories, antibiotics, vaccines, antiemetics, and anti-obesity agents, including the products discussed below.

Parasiticides constitute the largest segment of the animal health market for companion animals, consisting mainly of medicines for the control of parasites such as fleas and heartworm. Our product, Revolution/Stronghold, is our largest-selling parasiticide for dogs and cats.

Rimadyl relieves pain and inflammation associated with canine osteoarthritis and soft tissue orthopedic surgery. Rimadyl is the only arthritis pain medication prescribed by veterinarians available in chewable tablets, regular caplets and in an injectable formulation.

Clavamox/Synulox is an antibiotic for skin and soft tissue infections in dogs and cats.

Our vaccine portfolio for livestock is extensive and includes RespiSureOne/StellamuneOn e, a single-dose vaccine used to prevent pneumonia in swine, and Bovi-Shield Gold, a cattle vaccine for reproductive and respiratory protection.

Dectomax injectable and pour-on formulations remove and control internal and external parasites in beef cattle.

Draxxin is an effective and convenient single dose antibiotic used to treat infections in cattle and swine.

Excede is an effective and convenient single-dose antibiotic used to treat infections in dairy cows, beef cattle and swine.

Research and Product Development

Innovation by our research and development operations is very important to the Company’s success. Our goal is to discover, develop and bring to market innovative products that address major unmet medical needs. This goal has been supported by our substantial research and development investments. We spent $8.1 billion in 2007, $7.6 billion in 2006 and $7.3 billion in 2005 on research and development in support of Pfizer’s Pharmaceutical and Animal Health businesses.

We conduct research internally and also through contracts with third parties, through collaborations with universities and biotechnology companies and in cooperation with other pharmaceutical firms. We also seek out promising compounds and innovative technologies developed by third parties to incorporate into our discovery or development processes or projects, as well as our product lines, through acquisition, licensing or other arrangements.

Drug discovery and development is time consuming, expensive and unpredictable. On average, only one out of many thousands of chemical compounds discovered by researchers proves to be both medically effective and safe enough to become an approved medicine. The process from early discovery to development to regulatory approval can take more than ten years. Drug candidates can fail at any stage of the process. Candidates may not receive regulatory approval even after many years of research.

We believe that our investments in research have been rewarded by the number of pharmaceutical compounds we have in all stages of development. We currently are working on 213 projects in development, including 151 new molecular entities and 62 product-line extensions. In addition, we have more than 300 projects in discovery research. In recent years, our discovery scientists have delivered over 100 new chemical compounds to early development. While these new candidates may or may not eventually receive regulatory approval, new drug candidates entering development are the foundation for future products.

In addition to discovering and developing new products, our research operations add value to our existing products by improving their effectiveness and by discovering new uses for them.

Information concerning several of our drug candidates in development, as well as supplemental filings for existing products, is set forth under the heading Product Developments in our 2007 Financial Report. That information is incorporated by reference.

Pfizer provides a detailed update of its pipeline twice a year, which is available at www.pfizer.com/pipeline for tracking development compounds across Pfizer’s robust pipeline.

Our competitors also devote substantial funds and resources to research and development. In addition, the consolidation that has occurred in our industry has created companies with substantial research and development resources. We also compete against numerous small biotechnology companies in developing potential drug candidates. The extent to which our competitors are successful in their research could result in erosion of the sales of our products and unanticipated product obsolescence.

International Operations

We have significant operations outside the United States. They are managed through the same business segments as our U.S. operations —Pharmaceutical and Animal Health.

Revenues from operations outside the U.S. of $25.3 billion accounted for 52.2% of our total revenues in 2007. Revenues exceeded $500 million in each of 12 countries outside the U.S. in 2007. The U.S. was the only country to contribute more than 10% of our total revenues, comprising 47.8% of total revenues in 2007, 53.4% of total revenues in 2006 and 52.2% of total revenues in 2005. Japan is our second-largest national market, with 7.0% of our total revenues in 2007, 6.7% in 2006 and 7.3% in 2005.

For a geographic breakdown of revenues and changes in revenues, see the table captioned Geographic in Note 21 to our consolidated financial statements, Segment, Geographic and Revenue Information, in our 2007 Financial Report and the table captioned Change in Revenues by Segment and Geographic Area in our 2007 Financial Report. Those tables are incorporated by reference.

Our international businesses are subject, in varying degrees, to a number of risks inherent in carrying on business in other countries. These include currency fluctuations, capital and exchange control regulations, expropriation and other restrictive government actions. Our international businesses are also subject to government-imposed constraints, including laws on pricing, reimbursement and access to our products.

See Government Regulation and Price Constraints below for discussion of these matters.

Depending on the direction of change relative to the U.S. dollar, foreign currency values can increase or decrease the reported dollar value of our net assets and results of operations. In 2007, both revenues and net income were favorably impacted by foreign exchange, as foreign currency movements relative to the U.S. dollar increased our revenues and net income in many countries. While we cannot predict with certainty future changes in foreign exchange rates or the effect they will have on us, we attempt to mitigate their impact through operational means and by using various financial instruments. See the discussion under Note 10-D to our consolidated financial statements, Financial Instruments: Derivative Financial Instruments and Hedging Activities in our 2007 Financial Report. That discussion is incorporated by reference. Related information about valuation and risks associated with such financial instruments in parts E and F of that Note is also incorporated by reference.


In our global Pharmaceutical business, we promote our products to healthcare providers and patients. Through our marketing organizations, we explain the approved uses, benefits and risks of our products to healthcare providers, such as doctors, nurse practitioners, physician assistants, pharmacists, hospitals, Pharmacy Benefit Managers (PBMs), Managed Care Organizations (MCOs), employers and government agencies. We also market directly to consumers in the U.S., through direct-to-consumer advertising that communicates the approved uses, benefits, and risks of our products while continuing to motivate people to have meaningful conversations with their doctors. In addition, we sponsor general advertising to educate the public on disease awareness, important public health issues, and our patient assistance programs.

Our operations include several pharmaceutical sales organizations. Our structure aligns the sales, marketing, and medical functions to work closely in tandem along the same therapeutic groups of products, reinforcing common coordination, focus, and accountability across the organizations.

Our prescription pharmaceutical products are sold principally to wholesalers, but we also sell directly to retailers, hospitals, clinics, government agencies and pharmacies. We seek to gain access to health authority, PBM and MCO formularies (lists of recommended, approved, and/or reimbursed medicines and other products). We also work with MCOs, PBMs, employers and other appropriate healthcare providers to assist them with disease management, patient education and other tools that help their medical treatment routines.

Our Animal Health business also uses its own sales organization to promote its products. Its advertising and promotion are generally targeted to health professionals, directly and through veterinary journals. Animal health products are sold through veterinarians, distributors and retail outlets as well as directly to users. Where appropriate, these products are also marketed through print and television advertising.

During 2007, sales to our three largest wholesalers were as follows:

* McKesson, Inc.—18% of our total revenues;
* Cardinal Health, Inc.—12% of our total revenues; and
* AmerisourceBergen Corporation—10% of our total revenues.

Sales to these wholesalers were concentrated in the Pharmaceutical segment. Apart from these instances, neither of our business segments is dependent on any one customer or group of related customers.

Patents and Intellectual Property Rights

Our products are sold around the world under brand-name, logo and certain product design trademarks that we consider in the aggregate to be of material importance. Trademark protection continues in some countries for as long as the mark is used and, in other countries, for as long as it is registered. Registrations generally are for fixed, but renewable, terms.

We own or license a number of U.S. and foreign patents. These patents cover pharmaceutical and other products and their uses, pharmaceutical formulations, product manufacturing processes and intermediate chemical compounds used in manufacturing.

Patents for individual products extend for varying periods according to the date of patent filing or grant and the legal term of patents in the various countries where patent protection is obtained. The actual protection afforded by a patent, which can vary from country to country, depends upon the type of patent, the scope of its coverage and the availability of legal remedies in the country.

In the aggregate, our patent and related rights are of material importance to our businesses in the U.S. and most other countries. Based on current product sales, and considering the vigorous competition with products sold by others, the patent rights we consider most significant in relation to our business as a whole, together with the year in which the U.S. basic product patent expires (including, where applicable, the additional six-month pediatric exclusivity period), are those for the drugs set forth in the table below.

Dennis A. Ausiello

The Jackson Professor of Clinical Medicine at Harvard Medical School and Chief of Medicine at Massachusetts General Hospital since 1996. President of the Association of American Physicians in 2006. Member of the Institute of Medicine of the National Academy of Sciences and a Fellow of the American Academy of Arts and Sciences. Director of MicroCHIPS (drug delivery technology) and Advisor to the Chairman of the Board of TIAX (formerly Arthur D. Little). Our Director since December 2006. Member of our Science and Technology Committee and our Corporate Governance Committee.

Michael S. Brown

Distinguished Chair in Biomedical Sciences from 1989 and Regental Professor from 1985 at the University of Texas Southwestern Medical Center at Dallas. Co-recipient of the Nobel Prize in Physiology or Medicine in 1985 and the National Medal of Science in 1988. Member of the National Academy of Sciences, the Institute of Medicine and Foreign Member of the Royal Society (London). Director of Regeneron Pharmaceuticals, Inc. Our Director since 1996. Chair of our Science and Technology Committee and member of our Corporate Governance Committee.

M. Anthony Burns

Chairman Emeritus since May 2002, Chairman of the Board from May 1985 to May 2002, Chief Executive Officer from January 1983 to November 2000, and President from December 1979 to June 1999 of Ryder System, Inc., a provider of transportation and logistics services. Director of The Black & Decker Corporation and J.C. Penney Company, Inc. Life Trustee of the University of Miami. Our Director since 1988. Member of our Audit Committee and our Executive Committee.

Robert N. Burt

Retired Chairman and Chief Executive Officer of FMC Corporation, a company that manufactures chemicals, and FMC Technologies Inc., a company that manufactures machinery. Mr. Burt was Chairman of the Board of FMC Corporation from 1991 to December 2001, its Chief Executive Officer from 1991 to August 2001 and a member of its Board of Directors from 1989 to April 2002. Chairman of the Board of FMC Technologies, Inc. from June 2001 to December 2001 and its Chief Executive Officer from June 2001 to August 2001. Life Trustee of the Rehabilitation Institute of Chicago and Chicago Symphony Orchestra. Our Director since June 2000. Member of our Compensation Committee.

W. Don Cornwell

Chairman of the Board and Chief Executive Officer since 1988 of Granite Broadcasting Corporation, a group broadcasting company. On December 11, 2006, Granite Broadcasting Corporation filed for voluntary reorganization under Chapter 11 of the U.S. Bankruptcy Code, and emerged from its restructuring on June 4, 2007. Director of Avon Products, Inc. Director of the Wallace Foundation. Trustee of Big Brothers/Sisters of New York. Our Director since February 1997. Chair of our Audit Committee.

William H. Gray III

Chairman of the Amani Group, a government affairs firm, since August 2004. Pastor Emeritus of the Bright Hope Baptist Church in Philadelphia since June 2005. President and Chief Executive Officer of The College Fund/UNCF (Educational Assistance) from September 1991 to June 2004. Mr. Gray served as a Congressman from the Second District of Pennsylvania from 1979 to 1991, and at various times during his tenure, served as Budget Committee Chair and House Majority Whip. Director of Dell Inc., J. P. Morgan Chase & Co., Prudential Financial, Inc. and Visteon Corporation. Our Director since June 2000. Member of our Corporate Governance Committee.

Constance J. Horner

Guest Scholar from 1993 until 2005 at The Brookings Institution, an organization devoted to nonpartisan research, education and publication in economics, government, foreign policy and the social sciences. Commissioner of the U.S. Commission on Civil Rights from 1993 to 1998. Served at the White House as Assistant to President George H. W. Bush and as Director of Presidential Personnel from August 1991 to January 1993. Deputy Secretary, U.S. Department of Health and Human Services from 1989 to 1991. Director of the U.S. Office of Personnel Management from 1985 to 1989. Director of Ingersoll-Rand Company Limited and Prudential Financial, Inc., Fellow, National Academy of Public Administration; Trustee, Annie E. Casey Foundation; Member of the Board of Trustees of the Prudential Foundation. Our Director since 1993 and Lead Director since February 2007. Chair of our Corporate Governance Committee and a member of our Executive Committee.

William R. Howell

Chairman Emeritus of J. C. Penney Company Inc., a major retailer, since 1997. Chairman of the Board and Chief Executive Officer of J. C. Penney Company from 1983 to 1997. Director of American Electric Power Company, Exxon Mobil Corporation, Halliburton Company and The Williams Companies, Inc. Mr. Howell will not be standing for re-election at American Electric Power Company, Exxon Mobil Corporation and Halliburton Company in 2008 having reached the mandatory retirement age. He is also a Director of Deutsche Bank Trust Corporation and Deutsche Bank Trust Company Americas, the non-public wholly-owned subsidiaries of Deutsche Bank A.G. Our Director since June 2000. Member of our Audit Committee.

David L. Shedlarz

Our Vice Chairman from March 2005 until December 2007. Executive Vice President from May 1999 to March 2005 and our Chief Financial Officer from June 1995 to March 2005. Mr. Shedlarz was appointed a Senior Vice President in January 1997 with additional worldwide responsibility for our former Medical Technology Group. He is a Director of Pitney Bowes Inc., member of the Board of Trustees of TIAA, Trustee of the International Accounting Standards Committee Foundation and a member of the J. P. Morgan Chase & Co. National Advisory Board. He also serves as Director of the Board of Overseers, Leonard N. Stern School of Business, New York University; as a Director of the National Multiple Sclerosis Society and as a Director of Junior Achievement of New York. Mr. Shedlarz, a member of the Pfizer Executive Leadership Team during 2007, joined us in 1976.

Frank A. D’Amelio

Our Chief Financial Officer since September 2007. Previously, he was Senior Executive Vice President of Integration and Chief Administrative Officer of Alcatel-Lucent from November 2006 until August 2007. Mr. D’Amelio was the Chief Operating Officer of Lucent Technologies from January 2006 until November 2006. From May 2001 until January 2006, he was Executive Vice President, Administration and Chief Financial Officer of Lucent Technologies. He is a Director of Humana, Inc., the Independent College Fund of New Jersey and the JP Morgan Chase National Advisory Board. Mr. D’Amelio, a member of the Pfizer Executive Leadership Team, joined us in September 2007.

Martin Mackay

Our Senior Vice President; President of Pfizer Global Research & Development (PGRD) since October 2007. Early in 2007, he was named Vice President PGRD, Head of Worldwide Development. From 2003 to 2007, he held the position of Senior Vice President, Head of Worldwide Research and Technology. From 1999 to 2003 he was the Senior Vice President, Head of Worldwide Discovery. In 1998 he held the position of Vice President, UK Discovery and in 1997 he was the Senior Director, Head of Biology. Dr. Mackay, a member of the Pfizer Executive Leadership Team joined Pfizer in 1995.

Ian C. Read

Our Senior Vice President and President, Worldwide Pharmaceutical Operations since August 2006. Mr. Read has held various positions of increasing responsibility in pharmaceutical operations. He previously served as Area President, Europe, Canada, Africa and Middle East, Senior Vice President of the Pfizer Pharmaceuticals Group, and Executive Vice President of Europe and Canada. In July 2002 he was appointed President – Europe and Canada. Mr. Read served as President of the Latin American region and was elected a Vice President of Pfizer Inc. in April 2001. He is a director of Kimberly Clark Corporation. Mr. Read, a member of the Pfizer Executive Leadership Team, joined us in 1978.

John L. LaMattina

Our Senior Vice President; President, Pfizer Global Research and Development from October 2003 until December 2007. Dr. LaMattina has held various positions of increasing responsibility in research and development. He was elected Vice President of Pfizer Inc.; Executive Vice President – Pfizer Global Research and Development; President – Worldwide Research and Technology Alliances in May 2002. He was elected Vice President of Pfizer Inc.; Executive Vice President – Pfizer Global Research and Development; President – Worldwide Research in April 2001. He was elected Senior Vice President of Worldwide Development in 1999. He is a director of Neurogen Corporation. Dr. LaMattina, a member of the Pfizer Executive Leadership Team until 2007, joined us in 1977.

Alan G. Levin

Our Senior Vice President and Chief Financial Officer from March 2005 until September 2007. In 2003, he was named Senior Vice President of PGRD Finance & Strategic Management. In September 2000, Mr. Levin was elected Vice President, Finance, with oversight responsibility for Pfizer’s Corporate Tax, Treasurers and Controllers Divisions. He was elected Treasurer in 1995, and in 1997 was elected a Vice President of the Company with additional responsibilities for the Corporate Tax Division. Mr. Levin joined us in 1987.



Our MD&A is provided in addition to the accompanying condensed consolidated financial statements and footnotes to assist readers in understanding Pfizer's results of operations, financial condition and cash flows. The MD&A is organized as follows:


Overview of Our Performance and Operating Environment . This section, beginning on page 19, provides information about the following: our business; our performance during the three months and six months ended June 29, 2008; our operating environment; our strategic initiatives, such as acquisitions; and our cost-reduction initiatives.


Revenues . This section, beginning on page 23, provides an analysis of our products and revenues for the three months and six months ended June 29, 2008, and July 1, 2007, as well as an overview of important product developments.


Costs and Expenses . This section, beginning on page 31, provides a discussion about our costs and expenses.


Provision for Taxes on Income . This section, beginning on page 33, provides a discussion of items impacting our tax provision for the periods presented.


Adjusted Income . This section, beginning on page 34, provides a discussion of an alternative view of performance used by management.


Financial Condition, Liquidity and Capital Resources . This section, beginning on page 38, provides an analysis of our balance sheets as of June 29, 2008, and December 31, 2007, and cash flows for the six months ended June 29, 2008, and July 1, 2007, as well as a discussion of our outstanding debt and commitments that existed as of June 29, 2008, and December 31, 2007. Included in the discussion of outstanding debt is a discussion of the amount of financial capacity available to help fund Pfizer's future activities.


Outlook . This section, beginning on page 41, provides a discussion of our expectations for full-year 2008.


Forward-Looking Information and Factors That May Affect Future Results . This section, beginning on page 42, provides a description of the risks and uncertainties that could cause actual results to differ materially from those discussed in forward-looking statements set forth in this MD&A relating to our financial results, operations and business plans and prospects. Such forward-looking statements are based on management's current expectations about future events, which are inherently susceptible to uncertainty and changes in circumstances. Also included in this section is a discussion of Legal Proceedings and Contingencies.


Our Business

We are a global, research-based company applying innovative science to improve world health. Our efforts in support of that purpose include the discovery, development, manufacture and marketing of safe and effective medicines; the exploration of ideas that advance the frontiers of science and medicine; and the support of programs dedicated to illness prevention, health and wellness, and increased access to quality healthcare. Our value proposition is to demonstrate that our medicines can effectively prevent and treat disease, including the associated symptoms and suffering, and can form the basis for an overall improvement in healthcare systems and their related costs. Our revenues are derived from the sale of our products, as well as through alliance agreements, under which we co-promote products discovered by other companies.

Our Performance for the Three Months and Six Months Ended June 29, 2008

Revenues in the second quarter of 2008 increased 9% to $12.1 billion, compared to the same period in 2007. Revenues in the first six months of 2008 increased 2% to $24.0 billion, compared to the same period in 2007.

Revenues benefited from favorable foreign exchange impacts of about $800 million, or 7%, in the second quarter of 2008 and $1.4 billion, or 6%, in the first six months of 2008. In the U.S., revenues decreased 2% in the second quarter of 2008 and decreased 12% in the first six months of 2008, compared to the same periods in 2007, while international revenues increased 18% in the second quarter of 2008 and increased 15% in the first six months of 2008, compared to the same periods in 2007.

The impact of rebates in the second quarter of 2008 decreased revenues by $721 million, compared to $630 million in the second quarter of 2007. The increase in rebates was due primarily to:


the impact of our contracting strategies with both government and non-government entities in the U.S.,

partially offset by:


changes in product mix, among other factors.

The impact of rebates in the first six months of 2008 decreased revenues by approximately $1.6 billion, compared to approximately $1.3 billion in the first six months of 2007. The increase in rebates was due primarily to:


the impact of our contracting strategies with both government and non-government entities in the U.S.; and


a favorable adjustment recorded in the first quarter of 2007 based on the actual claims experienced under the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (the Medicare Act), which went into effect in 2006,

partially offset by:


changes in product mix, among other factors.

(See further discussion in the "Revenues - Pharmaceutical Revenues" section of this MD&A.)

Income from continuing operations for the second quarter of 2008 was $2.8 billion, compared to $1.3 billion in the second quarter of 2007, and $5.5 billion in the first six months of 2008, compared to $4.7 billion in the first six months of 2007. The increases were primarily due to:


lower restructuring costs associated with our cost-reduction initiatives;


tax benefits in the second quarter of 2008 related to favorable tax settlements and the sale of one of our biopharmaceutical companies (Esperion Therapeutics, Inc.);


the favorable impact of foreign exchange;


savings related to our cost-reduction initiatives; and


the nonrecurrence of a one-time 2007 payment to Bristol-Myers Squibb Company (BMS) in connection with our collaboration to develop and commercialize apixaban,

partially offset by:


the increase in Acquisition-related in-process research and development charges .

(See further discussion in the "Costs and Expenses" and "Provision for Taxes on Income" sections of this MD&A.)

In the second quarter of 2008, we acquired Serenex, Inc. and Encysive Pharmaceuticals Inc. In the first quarter of 2008, we acquired CovX and Coley Pharmaceutical Group, Inc. and completed two smaller acquisitions related to Animal Health. In the first quarter of 2007, we acquired Embrex, Inc. and BioRexis Pharmaceutical Corp. (See further discussion in the "Our Strategic Initiatives - Strategy and Recent Transactions: Acquisitions, Licensing and Collaborations" section of this MD&A.)

We have also made progress with our cost-reduction initiatives, which comprise a broad-based, company-wide effort to leverage our scale and strength more robustly and increase our productivity. (See further discussion in the "Our Cost-Reduction Initiatives" section of this MD&A.)

Our Operating Environment

We and our industry continue to face significant challenges in a profoundly changing business environment, as explained more fully in Pfizer's Annual Report on Form 10-K for the year ended December 31, 2007. Industry-wide factors, including pharmaceutical product pricing and access, intellectual property rights, product competition, the regulatory environment, pipeline productivity and the changing business environment, can significantly impact our businesses. In order to meet these challenges and capitalize on opportunities in the marketplace, we are taking steps to change the way we run our businesses.

Generic competition and patent expirations significantly impact our business. We lost U.S. exclusivity for Camptosar in February 2008 and Norvasc in March 2007 and, as expected, significant revenue declines followed. Zyrtec/Zyrtec D lost its U.S. exclusivity in January 2008 and we ceased marketing the product in late January 2008. Lipitor began to face competition in the U.S. from generic pravastatin (Pravachol) in April 2006 and generic simvastatin (Zocor) in June 2006, in addition to other competitive pressures. The volume of patients who switch from Lipitor to generic simvastatin in the U.S. continues to negatively impact prescribing trends, particularly in the managed-care environment. (For more detailed information about Lipitor, Norvasc, Zyrtec, Camptosar and other significant products, see further discussion in the "Revenues - Pharmaceutical - Selected Product Descriptions" section of this MD&A.)

We will continue to aggressively defend our patent rights against increasingly aggressive infringement whenever appropriate.

(See Part II - Other Information ; Item 1. Legal Proceedings , of this Form 10-Q for a discussion of certain recent developments with respect to patent litigation.)

These and other industry-wide factors that may affect our businesses should be considered along with the information presented in the "Forward-Looking Information and Factors That May Affect Future Results" section of this MD&A.

Our Strategic Initiatives - Strategy and Recent Transactions

Acquisitions, Licensing and Collaborations

We are committed to capitalizing on new growth opportunities by advancing our new-product pipeline, and maximizing the value of our in-line products, as well as through opportunistic licensing, co-promotion agreements and acquisitions. Our business development strategy targets a number of growth opportunities, including biologics, oncology, diabetes, Alzheimer's disease, cardiovascular disease, vaccines and other products and services that seek to provide valuable healthcare solutions. Some of our most significant business-development transactions during the first six months of 2008 and 2007 are described below.


In the second quarter of 2008, we acquired Encysive Pharmaceuticals Inc. (Encysive), a biopharmaceutical company, whose main product (Thelin), for the treatment of pulmonary arterial hypertension, is commercially available in much of the E.U., is approved in certain other markets, and is under review by the Food and Drug Administration (FDA). The cost of acquiring Encysive, through a tender offer and subsequent merger, was approximately $200 million, including transaction costs. Upon our acquisition of Encysive, Encysive's change of control repurchase obligations under its $130 million 2.5% convertible notes came into effect and as such, Encysive repurchased the convertible notes in consideration for their par value plus accrued interest in June 2008. In addition, in the second quarter of 2008, we acquired Serenex, Inc. (Serenex), a privately held biotechnology company with SNX-5422, an oral Heat Shock Protein 90 (Hsp90) inhibitor currently in Phase I trials for the potential treatment of solid tumors and hematological malignancies and an extensive Hsp90 inhibitor compound library, which has potential uses in treating cancer, inflammatory and neurodegenerative diseases. In connection with these acquisitions, we recorded $156 million in Acquisition-related in-process research and development charges and approximately $450 million in intangible assets.


In April 2008, we entered into an agreement with a subsidiary of AVANT Immunotherapeutics Inc. (Avant) for an exclusive worldwide license to CDX-110, an experimental therapeutic vaccine in Phase II development for the treatment of glioblastoma multiforme, and exclusive rights to the use of EGFRvIII vaccines in other potential indications. Under the license and development agreement, an up-front payment of approximately $40 million in Research and development expenses and an equity investment of approximately $10 million were recorded in the second quarter of 2008. Additional payments exceeding $390 million could potentially be made to Avant based on the successful development and commercialization of CDX-110 and additional EGFRvIII vaccine products.


In the first quarter of 2008, we acquired CovX, a privately held biotherapeutics company specializing in preclinical oncology and metabolic research and the developer of a biotherapeutics technology platform that we expect will enhance our biologic portfolio. Also in the first quarter of 2008, we acquired all the outstanding shares of Coley Pharmaceutical Group, Inc. (Coley), a biopharmaceutical company specializing in vaccines and drug candidates designed to fight cancers, allergy and asthma disorders, and autoimmune diseases, for approximately $230 million. In connection with these and two smaller acquisitions related to Animal Health, we recorded $398 million in Acquisition-related in-process research and development charges .


In the second quarter of 2007, we entered into a collaboration agreement with BMS to further develop and commercialize apixaban, an oral anticoagulant compound discovered by BMS. We made an up-front payment to BMS of $250 million and additional payments to BMS related to product development efforts, which are included in Research and development expenses for the three months and six months ended July 1, 2007. We may also make additional payments of up to $750 million to BMS based on development and regulatory milestones. In a separate agreement, we are also collaborating with BMS on the research, development and commercialization of a Pfizer discovery program, which includes preclinical compounds with potential applications for the treatment of metabolic disorders, including obesity and diabetes.


In April 2007, we agreed with OSI Pharmaceuticals, Inc. (OSI) to terminate a 2002 collaboration agreement to co-promote Macugen, for the treatment of age-related macular degeneration, in the U.S. We also agreed to amend and restate a 2002 license agreement for Macugen, and to return to OSI all rights to develop and commercialize Macugen in the U.S. In return, OSI granted us an exclusive right to develop and commercialize Macugen in the rest of the world.


In the first quarter of 2007, we acquired BioRexis Pharmaceutical Corp. (BioRexis), a privately held biopharmaceutical company with a number of diabetes candidates and a novel technology platform for developing new protein drug candidates, and Embrex, Inc. (Embrex), an animal health company that possesses a unique vaccine delivery system known as Inovoject that improves consistency and reliability by inoculating chicks while they are still inside the egg. In connection with these and other small acquisitions, we recorded $283 million in Acquisition-related in-process research and development charges .

The following transaction was not completed as of June 29, 2008, and is not reflected in our consolidated financial statements as of June 29, 2008:


In April 2008, we announced an agreement to acquire a number of animal health product lines from Schering-Plough Corporation for sale in the European Economic Area in the following categories: swine e.coli vaccines; equine influenza and tetanus vaccines; ruminant neonatal and clostridia vaccines; rabies vaccines; companion animal veterinary specialty products; and parasiticides and anti-inflammatories. The acquisition is subject to certain closing conditions, including anti-trust approval.

Our Cost-Reduction Initiatives

We have made significant progress with our multi-year productivity initiatives, which are designed to increase efficiency and streamline decision-making across the company.

We are generating net cost reductions through site rationalization in R&D and manufacturing, reductions in our global sales force, streamlined organizational structures, staff function reductions, and increased outsourcing and procurement savings. Projects in various stages of completion include:


Reorganization of our Field Force - Since 2004, we have reduced our global field force by 23%. Additional savings are being generated from de-layering, eliminating duplicative work and strategically realigning various functions. In May 2008, we launched a new structure for our U.S. field force and implemented a hiring freeze in the U.S. and Europe.


Strategic Outsourcing - We are undergoing a reorganization within our information technology infrastructure and are also consolidating a number of third-party service providers, thereby reducing labor costs. We expect to generate considerable annual savings and provide consistent global service levels related to information technology.


Plant Network Optimization - We are transforming our global manufacturing network to improve efficiency and reduce overall cost. We have reduced our network of plants from 93 four years ago to 52 currently. The latter also reflects the acquisition of seven plants and the sites sold in 2006 as part of our Consumer Healthcare business. By the end of 2009, we plan to reduce our network of manufacturing plants around the world to 43. We expect that the result will be a more focused, streamlined and competitive manufacturing operation, with less than 50% of our plants and a reduction of more than 40% of our manufacturing employees compared to 2003. Further, we currently outsource the manufacture of approximately 17% of our products on a cost basis and plan to increase this substantially by 2010 and beyond.


Enhanced R&D Productivity - To increase efficiency and effectiveness in bringing new therapies to patients-in-need, in January 2007, Pfizer Global Research and Development (PGRD) announced a number of actions to transform the research division. Of six sites that were identified for exit by PGRD, two (Mumbai, India, and Plymouth Township, Michigan) have been closed. We have ceased R&D operations in Ann Arbor and Kalamazoo, Michigan, and in Nagoya, Japan. On July 1, 2008, the former Pfizer R&D site in Nagoya became the base of operations of an R&D spin-off in which Pfizer retains a small interest. Operations have been scaled back significantly in Amboise, France. The timing of the end of PGRD's activities in Amboise is subject to consultation with works councils and local labor law. The reorganization has resulted in smaller, more agile research units designed to drive the growth of our bigger pipeline, without increasing costs, and generating more products.

By the end of 2008, on a constant currency basis (the actual foreign exchange rates in effect during 2006), we expect to achieve a net reduction of the pre-tax total expense component of Adjusted income of at least $1.5 billion to $2.0 billion, compared to 2006. As of June 29, 2008, we had achieved $1.2 billion of the target. We expect to achieve much of the remaining reduction in the fourth quarter of 2008, which would favorably impact fourth-quarter earnings. (For an understanding of Adjusted income, see the "Adjusted Income" section of this MD&A.)


Charles E. Triano - Senior Vice President, Investor Relations

Good morning and thank you for joining us today to review our second quarter 2008 performance. I am here where Jeff Kindler, Chairman and CEO; Frank D'Amelio, Chief Financial Officer, and other members of our senior management team. The financial charts that will be presented on this call can be viewed on our home page at www.Pfizer.com in the Investor Presentations tab by clicking on the link, quarterly corporate performance second quarter 2008.

We know this is a busy day for many of you, and our conference call will last an hour, and we will end at noon. As we would like to hear from as many of you as we can in this time, we ask that you limit your question to just one question please.

Before we start, I would like to remind you that our discussions during this conference call will include forward-looking statements. Actual results could differ materially from those projected in the forward-looking statements. The factors that could cause actual results to differ are discussed in Pfizer's 2007 annual report on Form 10-K and in our reports on Form 10-Q and Form 8-K. Also, the discussions during this conference call will include certain financial measures that were not prepared in accordance with Generally Accepted Accounting Principles. Reconciliation of those non-GAAP financial measures to the most directly comparable GAAP financial measures can be found in Pfizer's current report on Form 8-K dated July 23rd, 2008. These reports are available on our website at www.Pfizer.com in the Investors SEC filing section.

I will now turn the call over to Jeff Kindler. Jeff?

Jeffrey Kindler - Chief Executive Officer and Chairman of the Board

Thanks, Chuck, and hello, everyone. I would like to welcome Chuck to Pfizer, along with Amy Schulman, our new General Counsel, who is here this morning and who joined us just last month. It is great to have you both on board.

We are pleased with our second quarter financial performance, especially at this time of great uncertainty in the world economy and capital markets and significant challenges in our industry. Pfizer continues to be on track to deliver the revenue and adjusted diluted EPS guidance that we set out for 2008.

Our pharmaceutical and animal health businesses grew at a healthy rate this quarter, and our cost reduction efforts remained solidly on track with our second quarter adjusted total costs decreasing by $475 million compared to the year ago quarter, excluding foreign exchange. In short, we are doing what we said we would do.

As you know, the U.S. pharmaceutical market continues to be challenging given the regulatory environment, generic competition, payer pressures and an uncertain political environment. But despite this and despite the loss of U.S. exclusivity of Norvasc, Zyrtec and Camptosar, which collectively decreased revenues by approximately $500 million during the quarter, our U.S. revenues in the quarter nevertheless declined by only 2% versus the previous year. Without these LOE products, our U.S. pharmaceutical business actually increased by 10%.

In this tough U.S. marketplace, we have six products outperforming the branded competition; Chantix, Aricept, Lyrica, Spiriva, Rebif and Sutent. As well as four more mature in-line products successfully defending their positions against newer agents;Viagra, Xalatan, Lipitor and Geodon.

Bottom-line, there is certainly more work to be done, but we're more than holding our own against the competition in a particularly challenging U.S. environment. Meanwhile outside the United States, we have one of the strongest global footprints and broadest portfolios in the industry, now accounting for more than half of our total revenues. Revenues from international markets grew a solid 5% this quarter compared to last year, even before the benefit of foreign exchange.

Our primary growth strategy around the world is to refocus and optimize our patent protected portfolio of both marketed medicines and compounds in development. In that connection, the agreement we made with Ranbaxy this quarter brings substantially certainly that a generic version of Lipitor won't be introduced in the U.S. for another nearly three-and-a-half years. While the lipid-lowering market is one of the world's most challenging, Lipitor is holding its own as we continue to fight for market share and to press the essential message that Lipitor has no generic or branded equivalent.

Pfizer is far more than Lipitor, of course, and our year-to-date results show positive trends for a number of key medicines in our patent-protected portfolio. Lyrica is up 50% year-to-date with growth driven by strong efficacy in managing nerve pain associated with diabetes and shingles, as well as in managing fibromyalgia, which increasingly is being understood as a serious and debilitating disease.

Revenues for our cancer agent, Sutent, were up 62% year-to-date. Currently Sutent's international growth is outpacing its growth in the U.S. where it has been available longer. That said, we are pursuing additional indications for Sutent and conducting Phase III trials for patients with breast, colorectal and lung cancer among others. Sutent represents our commitment to emerge quickly as a leader in fighting cancer. To advance that goal, we created this quarter a dedicated global oncology business unit within our pharmaceutical segment led by Gary Nicholson, formerly the head of Lily's U.S. oncology business unit. This unit will serve as the single point of accountability for Pfizer's worldwide oncology business in keeping with our commitment to reorganize into more focused and agile business units.

Now, of course, we would all prefer to prevent cancer and heart disease than to have to treat them, and that's why smoking cessation is so important. Smoking is expected to be the largest preventable cause of death in this century with some estimates that the toll may be one billion people. There are few things that provide greater health benefits than quitting smoking. And our innovative smoking cessation aid, Chantix, is an effective option for those who want to quit. In fact, we get letters day after day from patients who had given up all hope of quitting smoking until they used Chantix.

Its global sales grew 3% this quarter compared with the same period a year ago. Strong international growth was largely offset by a 35% decline in U.S. revenues, which was due mainly to labeling changes and to external reports about adverse events. Let me be clear; we believe the Chantix labeling appropriately reflects the medication's risks and benefits, and we will continue to encourage doctors and patients to have a robust dialogue about the dangers of smoking and appropriate treatment options.

Meanwhile, we're seeing strong performance among other important brands. So far this year Geodon is up 20%. Viagra is up 13%. Xalatan is up 12%, and Celebrex is also up 12%. In addition, we continue to pursue [ph] new opportunities for our in-line medicines. We recently launched Champix in Japan, where we also earned approval for Sutent for certain types of cancer and submitted Lyrica for nerve pain after shingles. And in Europe last month we launched the product we licensed from Schwartz Pharma called Toviaz fesoterodine to treat overactive bladder.

Efforts like these extend the lifecycles of our in-line medicines, complementing our R&D work on new compounds. In that connection, we also continue to make steady progress advancing one of the most robust pipelines in the industry. In our R&D labs, we are looking to significantly increase our return on invested capital by making smart and focused decisions, including where appropriate exiting certain areas of activity. And we're seeing progress in productivity. Since our last pipeline update in March, we had begun Phase III development of five new molecular entities and product line extensions. We now have 20 Phase III projects underway. A noteworthy example is CP-751871, a biologic discovered by Pfizer and proposed for the treatment of non-small cell lung cancer. We advanced apixaban, our development project with Bristol-Myers Squibb into a Phase III study for treatment of Venous Thromboembolism.

In addition to line extensions to maximize the value of Geodon and Celebrex, we also added Thelin, a once daily oral treatment for pulmonary arterial hypertension which is already approved in Europe, Canada and Australia. It was acquired through our purchase of Encysive. In addition, we expect seven Phase III oncology studies in 2008 with two already open and enrolling, reflecting Pfizer's commitment to oncology which currently accounts for 22% of our R&D budget.

One of the milestones this quarter was a license agreement with Quad for CDX-110, a Phase II oncology vaccine candidate for the treatment of brain cancer. We continue to move ahead on our goal of 15 to 20 Phase III starts this year and next with the objective of having 24 to 28 compounds in Phase III by the end of next year. We are on track to meet these goals.

An important research initiative this quarter was the establishment of the Pfizer Regenerative Medicine Unit, which will provide us with new targets, new tools and ultimately new therapies across a number of disease areas including Alzheimer's disease, cancer and other debilitating disorders.

Now just as our R&D work is shaping Pfizer's future, changes in our business strategy are shaping the future as well. The fast growth of Pfizer's business outside the United States points to significant potential in emerging markets where we have set a goal of outpacing market growth, which is expected to be 11% per year between now and 2012, the year after Lipitor loses exclusivity.

In addition by then, we aim to be the number one pharmaceutical company by revenues in six of our seven top priority emerging markets. Namely Brazil, China, Mexico, Russia, South Korea and Turkey. The competitive advantages of our broad portfolio of established products and our strong global footprint lie at the heart of our strategy to grow in emerging markets, many of which have more than half of their total sales being driven by established products compared to about 12% in the United States.

To understand the potential of these markets for Pfizer, consider the fact that $80 billion in new revenues from increased use of established products is expected between now and 2012, and we currently have about a 4% share. There is an enormous opportunity here for us to take a greater share of this growth over the next three to five years. Steady execution of all of this commercial, R&D and strategic work demonstrates that Pfizer is continuing to change and change fast. A new culture of innovation and continuous improvement is shaping a new, leaner and smarter Pfizer.

Throughout the Company we have new, smaller, more accountable business units which have been given much more freedom to innovate. Over the past two years, while building an outstanding management team, we have challenged colleagues to think differently, to work differently and to examine our business in new ways and from all angles but, especially from that of the customer. We have shaped a new corporate culture that is cost conscious where employees are encouraged to think and act like entrepreneurs. These efforts are supported by our financial strength, a competitive advantage that allows us to balance our strategic needs while meeting our financial commitments.

We have also kept our commitment to greater candor and transparency. Just this past quarter, we stood alone in reforming the way we finance continuing medical education in the United States to remove any appearance of conflict of interest. We begun to build the strong new presence in biotherapeutics, made progress in rebuilding our pipeline, particularly in the late stages; streamlined our manufacturing; attracted a new generation of leaders to Pfizer; and created the path forward for our future.

The hard work is far from over, and it will never truly be over. But in this quarter's results, we see some reflection of our hard work and one more important step in doing what we said we would do, build a Pfizer that can and will succeed. And now for the financial details, please welcome Frank D'Amelio.

Frank D'Amelio - Chief Financial Officer

Thank, Jeff. Good morning, everyone. The charts I am reviewing today are included in our webcast and will help facilitate the discussion of our second quarter 2008 results. Now let me get to our financials.

Today we reported revenues for the second quarter 2008 of $12.1 billion, a 9% increase year-over-year which reflects the positive impact of foreign exchange, which increased revenues by approximately $800 million or 7% and solid performance of many key products, which more than offset the negative impact of revenue declines resulting from the loss of exclusivity in 2008 for Zyrtec whose revenues decreased $377 million and Camptosar whose revenues decreased $104 million.

Reported net income increased year-over-year by 119% to $2.8 billion in the second quarter, and reported diluted EPS of $0.41 increased to 128%. These increases were primarily driven by lower restructuring charges related to our cost reduction initiatives, as well as savings resulting from these initiatives; the positive impact of foreign exchange; and favorable income tax adjustments related to the sale of Esperion and favorable tax settlements, which were partially offset by increased in-process R&D expenses associated with the acquisitions of Serenex and Encysive Pharmaceuticals, which closed during the quarter, and the impact from the loss of U.S. exclusivity for certain products.

We generated adjusted income of $3.7 billion in the second quarter, an increase of 26% year-over-year and adjusted diluted EPS of $0.55, an increase of 31%, driven by the savings resulting from our cost reduction initiatives; the positive impact of foreign exchange; the non-recurrence of the one-time '07 payment to Bristol-Myers Squibb in connection with our collaboration to develop and commercialize apixaban; and tax settlements, which more than offset the impact from the loss of U.S. exclusivity for certain products.

Both reported and adjusted diluted EPS in the second quarter were favorably impacted by the full-year benefit of our 10 billion share repurchase in 2007. During the second quarter of 2008, we repurchased approximately $500 million or 26.4 million shares of our common stock. I would also like to point out that our debt level at the end of the second quarter decreased sequentially by approximately $400 million, notwithstanding our dividend payment, share repurchases and the funding of our operations.

We had several significant items included in our reported results this quarter. More detailed disclosures will be provided in our Form 10-Q filing with the SEC. In the second quarter, we incurred $562 million in restructuring charges compared with $1 billion in the prior year quarter. This significant decrease was driven by greater restructuring charges associated with employee related cost in the year ago quarter. We also incurred $405 million of implementation cost compared with $317 million in the prior year quarter, primarily related to sites we exited or are in the process of exiting. These implementation amounts are reported in cost of sales, R&D, SI&A expenses and other income deductions and are detailed more fully in supplemental information accompanying the release.

Now I would like to provide more details regarding our second quarter adjusted income components. Adjusted revenues were $12.1 billion, an increase of 9% year-over-year. Adjusted cost of sales as a percentage of revenue was 16.9% versus 17% in the prior year quarter, notwithstanding less favorable geographic mix and the impact of foreign exchange. Excluding foreign exchange, adjusted cost of sales as a percentage of revenue was 16.1%.

Adjusted SI&A expenses were $3.7 billion, a decrease of 1% year-over-year, reflecting a decrease in marketing expenses which more than offset the negative impact of foreign exchange. Adjusted R&D expenses were $1.9 billion, a decrease of 8% year-over-year due primarily to realized savings resulting from our cost reduction initiatives and the non-recurrence of the one-time payment to Bristol-Myers Squibb in '07 associated with our collaboration to develop and commercialize apixaban.

Our effective tax rate on adjusted income for the quarter was 20% versus 22.2% in the year ago quarter, due to favorable tax settlements. Our EPS growth is outpacing our revenue growth, which clearly reflects positive leverage.

Now I would like to provide a mid-year update on our adjusted results. Revenues increased 2% to $24 billion in the first half of 2008 compared with the prior year period, driven by the solid performance of many key products. First-half revenues reflect the favorable impact of foreign exchange, which increased revenues by approximately $1.4 billion or 6%, which was offset by the negative impact of the loss of U.S. exclusivity of Norvasc in 2007 and Camptosar and Zyrtec in 2008, which collectively decreased revenues by $1.4 billion.

Adjusted cost of sales as a percentage of revenue for the first half was 16.1% compared with 15.4% in the prior year period, primarily due to less favorable geographic mix and the negative impact of foreign exchange. Excluding foreign exchange, adjusted cost of sales as a percentage of revenues for the first half of the year was 15.3%. Adjusted SI&A expenses increased 1% in the first half compared with the prior year period, and adjusted R&D expenses decreased 4%.

We posted adjusted income of $7.8 billion in the first half of 2008, an increase of 1% compared to prior year period, and adjusted diluted EPS of $1.15, an increase of 5%, reflecting the benefit of savings associated with our cost reduction initiatives; the positive impact of foreign exchange; the non-recurrence of the one-time '07 payment to Bristol-Myers Squibb; favorable income tax adjustments and our share repurchases in 2007, which were offset by the impact from the loss of U.S. exclusivity for certain products.

As I previously mentioned, this quarter foreign exchange increased revenues by approximately $800 million or 7%. We continued to achieve cost reductions this quarter, and our ongoing cost reduction initiatives continue to have the positive impact on our results. That said, foreign exchange continued to have an unfavorable impact on our cost and expenses this quarter. Overall foreign exchange unfavorably impacted adjusted total cost by approximately $440 million or 6% this quarter compared with the prior year quarter. Excluding foreign exchange, our adjusted total cost decreased operationally by approximately $475 million or 6% year-over-year.

The net effect of foreign exchange on our adjusted diluted EPS during the second quarter as compared with the year ago quarter was a positive impact of $0.04. This positive impact was not incremental to our EPS guidance since the guidance we provided in January of '08 and reiterated during the second quarter was given at current exchange rates.

We continue to make progress against our objective to reduce absolute adjusted total costs by at least $1.5 billion to $2 billion at the end of '08 compared with '06 on a constant currency basis. To date we have achieved a cumulative operational cost reduction of $1.2 billion. We expect to achieve much of the remaining reduction in the fourth quarter, which will favorably impact that quarter's adjusted diluted EPS. I want to point out that we expect to achieve this reduction even after absorbing inflation, which adds approximately $1 billion to adjusted total cost annually and reinvesting in our business.

While our cost reduction initiatives will continue to reduce absolute costs for the balance of 2008, the timing of the realization of these reductions is also a function of spending patterns in both '06 and '08. The spending level in the fourth quarter of '06 was higher than usual due to establishing research collaborations with third parties and sales and marketing investments in international markets. By comparison, quarterly spending patterns in '08 have been and are expected to be more consistent with historical norms. Because of the different spending levels between '06 and '08, much of the remainder of our absolute cost reduction target will be achieved in the fourth quarter of this year.

Our cost reduction initiatives continue to span essentially all divisions, functions, markets and sites across Pfizer. Broad categories of activity include manufacturing and research side exits, outsourcing and targeted work force reductions such as our ongoing previously announced European field force reduction. We reduced our global network of manufacturing plants from 78 four years ago to 54 currently. By the end of '09, we expect to further reduce this global network to 44. As part of this effort, we recently announced our decision to cease operations at our Terre Haute facility by the middle of '09.

We also recently announced the spin-off of our R&D laboratory in Nagoya, Japan. We are continuing to exit the three remaining R&D sites of the six that have been identified for closure. Also, we have a wide array of outsourcing opportunities in various stages of implementation, manufacturing, logistics, finance, facilities, legal and IT are among the functions contributing to the financial and operational benefits of this strategy.

Finally, we are continuing to match our workforce level with the current market. Over the past 18 months, our workforce level has decreased by 13,500 to 84,500 as of June 29, '08 from 98,000 at the end of 2006. And, as a result of recent actions this month, our current level is approximately 84,100. All key in line and new product revenues increased in the second quarter compared with the year ago period. Lipitor revenues increased 9% year-over-year to approximately $3 billion, including the positive impact of foreign exchange which increased revenues by approximately $170 million or 6%.

Year-over-year Lipitor revenues in the U.S. increased 1%, and revenues from international markets increased 18%. Lyrica continued to deliver strong performance with revenues of $614 million, an increase of 52% year-over-year. Sutent, our treatment for advanced kidney cancer and gastrointestinal stromal tumors, posted revenues of $211 million, an increase of 45% compared with the year ago quarter. I want to point out that while Sutent revenues in the U.S. declined 2% year-over-year during the second quarter, first-half U.S. revenues increased 10% versus the prior year period.

Year-over-year Chantix revenues increased 3% to $207 million. As Jeff stated, Chantix's results reflect the negative impact resulting from updates to the U.S. label to include additional safety information, as well as from certain external events. As a result, U.S. revenues decreased 35% year-over-year to $109 million. That said, Chanpix continued to perform well outside the U.S. Chanpix revenues from international markets grew 197% year-over-year to $98 million.

As we expected, revenues from products that recently lost U.S. exclusivity declined year-over-year with Norvasc declining 2% to $627 million, Camptosar declining 43% to $137 million, and Zyrtec declining 98% to $8 million.

Today we are reaffirming full year 2008 revenue and adjusted diluted EPS guidance. As a result of the significant unfavorable impact of foreign exchange on adjusted cost of sales in the first half of '08 we are tightening our guidance on the lower end of the range. We currently expect adjusted cost of sales as a percentage of revenue to be between 15 and 15.5% compared with our previous expectation of 14.5% to 15.5%.

We continue to be on track to achieve the reduction in absolute adjusted total cost of at least $1.5 billion to $2 billion at the end of '08 compared with '06 on a constant currency basis. As I previously stated, we have achieved $1.2 billion of the targeted reduction to date. We expect the balance of this reduction to gain momentum throughout the second half of the year with much of the remaining savings to be realized in the fourth quarter to favorably impact that quarters adjusted diluted EPS.

Finally, we are updating our guidance on our 2008 effective tax rate. We now expect the effective tax rate on adjusted income for the year to be between 21.5% and 22% versus our previous expectation of 22% to 22.5%.

So, to summarize the key takeaways, we are reaffirming our '08 revenue and adjusted diluted EPS guidance. We continued to see steady growth in several key products, including Lyrica, Geodon, Viagra, Celebrex and Sutent. As we expected, this quarter's results were negatively impacted by the decline in revenues from the loss of U.S. exclusivity of Zyrtec and Camptosar. We are continuing to execute and make progress, and our cost reduction initiatives on track to achieve our adjusted total cost reduction target. To date we've achieved $1.2 billion in adjusted total cost reductions. We expect to realize the majority of the remaining cost reductions in the fourth quarter.

Finally, we're pleased with the solid results that we delivered in the second quarter, including the benefit of our cost reduction initiatives. Our EPS growth this quarter outpaced our revenue growth, demonstrating the benefit of these initiatives to our bottom-line.

And now I will turn it back over to Chuck.

Charles E. Triano - Senior Vice President, Investor Relations

Thanks Frank and at this point if we could ask the operator to begin pulling for questions please.

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