•	Lyricawas launched in the U.K. and Germany for certain types of neuropathic pain and as an add-on therapy for uncontrolled partial epilepsy.Lyrica was approved by the FDA as a treatment for certain types of neuropathic pain in December 2004.

	medicine in the world for the treatment of this condition.
•	Detrolis the world’s leading product for the treatment of overactive bladder.Detrol LAis an extended-release formulation of the drug, taken once a day.

• Viagrais the leading treatment for erectiledysfunction (ED), and one of the world’s mostrecognized pharmaceutical brands. For furtherinformation onViagraand the overall EDmarket, see the discussion under the headingsHuman Health-Selected Product Descriptions,Viagrain the Financial Review section of our2005 Financial Report, which is incorporatedby reference.
  
  
• Detrolis the world’s leading product for thetreatment of overactive bladder.Detrol LAisan extended-release formulation of thismedicine, taken once a day.

CancerOncology

•	Camptosar, which is marketed under the nameCampto in many countries outside the U.S., is one of the leading treatments for colorectal cancer. In addition to our U.S. rights, in October 2004, we acquired rights to this medicine for Europe and Asia (except Japan).
•	EllenceandAromasinare for the treatment of breast cancer. In December 2004, we filed supplemental submissions forAromasinin the U.S. and E.U. for early breast cancer treatment.

• Camptosar, which is marketed under the nameCamptoin many countries outside the U.S., isone of the leading treatments for colorectalcancer. In addition to our U.S. rights, inOctober 2004, we acquired marketing rights toCampto/Camptosarin Europe and Asia (exceptJapan).
  
  
• EllenceandAromasinare for the treatment ofbreast cancer. In 2005,Aromasinwas approvedin the U.S. and E.U. to treat early breast cancerin post-menopausal women.
  
  
• Sutent, a new targeted anti-cancer treatmentfor patients with gastrointestinal stromaltumors, a rare stomach cancer, and advancedkidney cancer, was approved by the FDA forboth indications in January 2006. Applicationsfor these indications have also been filed inCanada and the E.U.Sutentwas available topatients in the U.S. within seven days of itsapproval.

Eye DiseaseOphthalmology

•	Xalatan/Xalcomis the most-prescribed branded glaucoma medicine in the U.S., Europe and Japan. It is for the treatment of open-angle glaucoma and ocular hypertension.Xalcomconsists ofXalatanwith the beta blocker timolol.
•	Macugen, which is for the treatment of age-related macular degeneration, was approved by the FDA in December 2004. Pfizer will jointly marketMacugen with Eyetech Pharmaceuticals, Inc., its discoverer. Regulatory approval forMacugenhas been applied for in the E.U., Canada, Australia, New Zealand, Switzerland, Brazil and Turkey.

• Xalatan/Xalacomis the most-prescribedbranded glaucoma medicine in the world. It isused to treat open-angle glaucoma and ocularhypertension.Xalacom,which consists ofXalatanin combination with a beta blocker, isavailable primarily in European markets.

• Macugenis a treatment for neovascular (wet)age-related macular degeneration (AMD).Macugen, which is jointly marketed by Pfizerand OSI Pharmaceuticals in the U.S., hasbecome the most frequently used treatmentregimen for wet AMD in the U.S. and receivedmarketing authorization in the E.U. in January2006. It was launched in the U.S. in January2005 and in Canada in September 2005.

Endocrine Disorders

•

Genotropinis the world’s leading human recombinant growth hormone. It is for the treatment of various growth disorders in children and adults. Novo Nordisk has granted us a non-exclusive license to sellGenotropinin the U.S. In July 2004, an application was filed in Japan forGenotropinfor the treatment of growth disorders.

• Genotropinis the world’s leading humanrecombinant growth hormone. It is used forthe treatment of various growth disorders inchildren and adults. Novo Nordisk has grantedus a non-exclusive license to sellGenotropinin the U.S.

AllergiesOther

• Zyrtecis for the treatment of year-roundindoor and seasonal outdoor allergies andhives in adults and children.Zyrtecis themost-prescribed antihistamine in the U.S.Zyrtec-D 12 Hourtreats both year-roundindoor and outdoor allergies as well as nasalcongestion.Zyrtecis licensed to us by theBelgian company UCB S.A. We co-promoteZyrtecas a prescription medicine in the U.S.with a subsidiary of UCB S.A. and we have alicense to sellZyrtecunder various tradenames as an OTC medicine in Canada,Europe, Mexico and Australia.

•

Zyrtecis for the treatment of year-round indoor and seasonal outdoor allergies and hives. It is indicated for use in children as young as six months old.Zyrtecis the leading branded antihistamine in the U.S. in new prescriptions and the only prescription antihistamine available in a syrup formulation.Zyrtec-D 12 Houris the only prescription oral antihistamine/decongestant combination medicine approved to treat both year-round indoor and outdoor allergies as well as nasal congestion.Zyrtecis licensed to us by the Belgian company UCB S.A. We copromoteZyrtecas a prescription medicine in the U.S. with a subsidiary of UCB S.A. and we have a license to sellZyrtec under various trade names as an OTC (over-the-counter) medicine in Canada, Europe, Australia and South Africa.

Consumer Healthcare Segment

     Our Consumer Healthcare business is one of the largest in the world. We market many of the world’s best-known OTC, medicationsor self-medications, for oral care, upper respiratory health, tobacco dependence, gastrointestinal health, skin care, eye care and hair growth.

     In 2004,2005, Consumer Healthcare revenues increased 19%10%, to $3.5$3.9 billion, due to the strong performance ofListerinemouthwash, which has benefited from recent product extensions and broader sales of the product outside the U.S. launch; growth from upper-respiratory products,Zantacand tobacco dependence products; inclusion of Natural Citrus flavorListerine

•	Zantac 75for prevention and relief of heartburn

•	Rolaidsantacid tablets

•	Efferdentdenture cleaner

•	Neosporinantibiotic ointment

•	Visineeye drops

•	BenGaytopical analgesic

•	Cortizoneskin care products

•	Lubridermmoisturizing lotions

•	Unisomsleep aids

•	Desitinointments for treatment of diaper rash

•	Ludensthroat drops

•	Purellinstant hand sanitizer

• Listerinemouthwash
• Listerine PocketPaksoral care strips
• Nicorettefor tobacco dependence
• Benadrylantihistamine for allergies
• Sudafedfor sinus congestion
• Rogainefor hair growth
• Zantacfor prevention and relief of heartburn
• Rolaidsantacid tablets
• Neosporinantibiotic ointment
• Visineeye drops
• Lubridermmoisturizing lotions
• Purellinstant hand sanitizer

     Consumer Healthcare can extend the life of some of our prescription medications by converting them to OTC medications.products, or “self-medications”. For example,Nicorette, Benadryl, SudafedandZantac 75were all previously prescription products and Zantac 150 was launched as an OTC medicine in January 2005.products. As market conditions permit, and when we have necessary approval from drug regulatory authorities, we plan to pursue similar launches for other products.

     On February 7, 2006, we announced that we will be exploring strategic alternatives for our Consumer Healthcare business, including spinning off or selling the business. We expect to make a decision in the third quarter of 2006.

Animal Health Segment

     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 2004,2005, Animal Health revenues increased 22%13%, to $2.0$ 2.2 billion, due to strong performances by key in-line brands, significant product launches includingExcede(a long acting anti-infective) in the U.S.,DraxxinandExcede(for treatment of respiratory disease in cattle and swine, strongswine) in the U.S. and Europe, the launch ofSpectramastin the U.S., double digit growth in sales ofRimadyl, Revolution(a parasiticide for dogs and cats) andClavamox(an antibiotic for dogs and cats) for companion animals, the launch of Simplicef (small animal anti-infective) in the U.S. in the fourth quarter of 2004, and the favorable impact of foreign exchange and the inclusion of Pharmacia product revenues for a full year.exchange. Revenues from this segment contributed 4.3% of our revenue in 2005, 3.7% of our total revenues in 2004 and 3.6% of total revenues in 2003 and 3.5% of total revenues in 2002.2003.

     Among the products we market are parasiticides, anti-inflammatories, vaccines, antibiotics and related medicines, 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, is our largest-selling parasiticide for companion animals.

     Spectramast, an antibiotic formulated to treat clinical mastitis, was launched in the U.S. in May 2005.

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

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

     Our vaccine portfolio for livestock is extensive and includesRespiSureOne/StellamuneOne,a single-dose vaccine used to prevent pneumonia in swine, andBovi-Shield Gold,a cattle vaccine for reproductive and respiratory protection.

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

     Naxcel/Excenel RTUis an antibiotic used to treat respiratory and internal infections in 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 $7.4 billion in 2005, $7.7 billion in 2004 and $7.5 billion in 2003 and $5.2 billion in 2002

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 approximately 225235 projects in development, including approximately 145152 new molecular entities and 8083 product-line extensions. In addition, we have more than 400 projects in discovery research. In recent years, our discovery scientists have delivered dozens of 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. In 2004,2005, for example, the FDA approved the additional use ofwe received approval for a new indication for our COX-2 inhibitorGeodonCelebrexfor the treatment of acute maniaankylosing spondylitis, a form of arthritis that affects the spine. We also received approval for the use ofLipitorto reduce the risk of stroke and heart attack in bipolar disorder.people with type 2 diabetes and multiple risk factors for coronary heart disease.

     Information concerning several of our drug candidates in development as well as supplemental filings for existing products is set forth under the headingProduct Developmentsin our 20042005 Financial Report. That information is incorporated by reference.

     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 —- Human Health, Consumer Healthcare and Animal Health.

     Revenues from operations outside the U.S. of $23$24.6 billion accounted for 44%48% of our total revenues in 2004.2005. Revenues exceeded $500 million in each of ten12 countries outside the U.S. in 2004.2005. The U.S. was the only country to contribute more than 10% of our total revenues, comprising 52% of revenues in 2005, 56% of revenues in 2004 and 60% of our revenues in 2003 and 64% of our revenues in 2002.2003. Japan is our second-largest national market, with 6%7% of our revenues in 2005 and 6% in each of 2004 2003 and 2002.2003.

     For a geographic breakdown of revenues and changes in revenues, see the table captionedGeographicin Note 1819 to our consolidated financial statements,Segment, Geographic and Revenue Information,in our 20042005 Financial Report and the table captionedChange in Geographic Revenuesin our 20042005 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 or reimbursement for use of products.

financial statements,Financial Instruments: Derivative Financial Instruments and Hedging Activitiesin our 20042005 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 same Note is also incorporated by reference.

Marketing

     In our global Human Health business, we promote our products to health carehealthcare 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) and government agencies. Through our marketing organizations, we explain the approved uses and advantages of our products to healthcare providers. We also market directly to consumers in the U.S., through direct-to-consumer print and television advertising.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 abouton disease awareness, important public health issues, and our innovative medical research.patient assistance programs in all major markets.

     Our operations include several pharmaceutical sales organizations. EachOur structure aligns the sales, organization markets a distinct groupmarketing, and medical functions to work closely in tandem along the same therapeutic groups of products.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 approvedreimbursed medicines and other products) and reimbursement lists by demonstrating the qualitiesclinical and treatment benefitseconomic value of our products. We also work with MCOs and PBMs and other appropriate healthcare providers to assist them with disease management, patient education and other tools that help their medical treatment routines. For example,In 2005, for instance, we sponsorwere awarded a program offered byCenter for Medicare/Medicaid Studies (“CMS”) contract to provide the State of Florida Agency forGreen Ribbon Health Care Administration that isInitiative, a joint-partnership with the MCO Humana designed to help manageimprove the health and quality of life for beneficiaries with multiple chronic diseases among Florida’s Medicaid population.conditions in Central Florida.

     Our Consumer Healthcare business primarily uses its own representatives to directly promote its products, including marketing certain products directly to professionals using a professional detail force. We also use print and television consumer advertising and offer sales incentives such as coupons. Our consumer healthcare products are sold through various retailers.channels.

     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 and nutrition products are sold through veterinarians, drug wholesalers, distributors and retail outlets as well as directly to users. Where appropriate, these products are also marketed through print and television advertising.

     During 2004,2005, sales to our three largest customers were as follows:

• McKesson, Inc. — 18% of our total revenues;
• Cardinal Health, Inc. — 13% of our totalrevenues; and
• AmerisourceBergen Corporation — 10% ofour total revenues.

•	McKesson, Inc. — 18.2% of our total revenues;
•	Cardinal Health, Inc. — 13.8% of our total revenues; and
•	AmerisourceBergen Corporation – 12.6% of our total revenues.

Sales to these wholesalers were concentrated in the Human Health segment. Apart from these instances, none of our business segments is dependent on any one customer or group of related customers.

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 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 following drugs:drugs set forth in the table below. The table also includes patent expiration information relating to certain recently approved drugs.

     In some instances, there are later-expiring patents relating to our products directed to particular forms or compositions of the drug or to methods of manufacturing or using the drug in the treatment of furtherparticular diseases or conditions. However, in some cases, such patents may not protect the Company’s drug from generic drug competition after the expiration of the basic product patent.

     Zithromaxis patented by Pliva, a Croatian pharmaceutical company. The drug is licensed exclusively to us by PlivaU.S. basic product patent for sales and marketingZithromaxexpired in major countries, and we purchase the compound in bulk crude form from Pliva. Although Zithromax has experienced patent expirations in certain countries, it retains basic patent protection in the U.S. until November 2005.

     Zyrtecis patented by the Belgian company UCB S.A. and is licensed to us for sales in the U.S., Canada, Europe, AustraliaMexico and South Africa.Australia. We copromoteco-promoteZyrtecas a prescription medicine in the U.S. with a subsidiary of UCB S.A. and have a license to sellZyrtecunder various trade names as an OTC medicine in the other markets.

     Ariceptis patented by Eisai Co., Ltd. We copromoteco-promoteAriceptwith Eisai in the U.S. and several other countries and have an exclusive license to sell the drug in certain other countries.

     Xalatanis not protected by a basic product patent. However, we have broadly patented ophthalmic formulations containing lantanoprost until 2011.

Genotropinis patented by Novo Nordisk, which has granted us a non-exclusive licenseIn addition to sell the drug in the U.S.

     Theour U.S. basic product patent relating toforNeurontinLipitorexpired in 1994. However, in April 2000, a U.S. patent was granted relating to stable pharmaceutical compositions ofNeurontincontaining low levels of lactam impurity. This patent, which (including the pediatric exclusivity period) expires in 2017. However,Neurontinnow faces competition from generic versionsMarch 2010, we have a patent covering specifically the enantiomeric form of the product launched “at-risk” (beforedrug, which (including the final resolution of legal proceedings challengingpediatric exclusivity period) expires in June 2011.

We marketGenotropinin the generic versions) by generic drug manufacturers during the latter half of 2004. The patent infringement litigations related to this product continue. Following the launches of these generic versions, in October, we launched our own generic version of the product through our Greenstone Ltd. subsidiary.U.S. under a non-exclusive license from Novo-Nordisk.

     Other companiesCompanies have filed applications with the FDA seeking approval of products that we also believe infringe our patents covering, among other products,Lipitor, Norvasc,Celebrex XalatanandDetrol.

     We also have other patent rights covering additional products that have lesser revenues.

     The expiration of a basic product patent or loss of patent protection resulting from a legal challenge normally results in significant competition from generic products against the originally patented product and can result in a significant reduction in sales of that product in a very short period. In some cases, however, we can continue to obtain commercial benefits from product manufacturing trade secrets; patents on uses for products; patents on processes and intermediates for the economical manufacture of the active ingredients; patents for special

9

formulations of the product or delivery mechanisms; and conversion of the active ingredient to OTC products.

     The growth of MCOs has increased pressure on drug prices. A major objective of MCOs is to contain and, where possible, reduce health carehealthcare expenditures. They typically use formularies, volume purchases and long-term contracts to negotiate discounts from pharmaceutical providers. They use their purchasing power to bargain for lower supplier prices. They also emphasize primary and preventive care, out-patient treatment and procedures performed at doctors’ offices and clinics. Hospitalization and surgery, typically the most expensive forms of treatment, are carefully managed. Since the use of certain drugs can prevent the need for hospitalization, professional therapy or even surgery, such drugs can become favored first-line treatments for certain diseases.

     As discussed above inMarketing, MCOs and PBMs typically develop formularies to reduce their cost for medications. Formularies can be based on the prices and therapeutic benefits of the available products. Due to their generally lower cost, generic medicines are often favored. The breadth of the products covered by formularies can vary considerably from one MCO to another and many formularies include alternative and competitive products for treatment of particular medical problems. MCOs use a variety of means to encourage patients’ use of products listed on their formularies.

     Exclusion of a product from a formulary or other restrictions, such as requiring prior authorizations, can lead to its sharply reduced usage in the MCO patient population. Consequently, pharmaceutical companies compete aggressively to have their products included. Whereincluded.Where possible, companies compete for inclusion based upon unique features of their products, such as greater efficacy, better patient ease of use or fewer side effects. A lower overall cost of therapy is also an important factor. Products that demonstrate fewer therapeutic advantages must compete for inclusion based primarily on price. We have been generally, although not universally, successful in having our major products included on most MCO formularies.

     The impact of MCOs on drug prices and volumes may increase as the result of their role in negotiating on behalf of Medicare beneficiaries in connection with the limitednew Medicare out-patient drug benefit underPrescription Drug Benefit, Medicare Part D, effective January 1, 2006. MCOs and PBMs negotiate on behalf of the federal government as discussed below underGovernment Regulation and Price Constraints.Prescription Drug Plans or PDPs. We have been generally, although not universally, successful in having our major products that are used by the senior population included on the formularies of the new Medicare PDPs.

     Another way we addressdemonstrate the interestsvalue of MCOspharmaceuticals in the context of an appropriate approach to the management of healthcare is by developing disease-managementdisease management programs. These programs can be attractive to MCOsimprove patient care by improving patient communications and compliance with dosage directions, which are important for effective disease treatment.directions. They can also help MCOs address various aspects of diseaseshow that a comprehensive approach to healthcare management, such aswhich includes prevention, diagnosis and treatment of certain diseases, includingconditions, and appropriate use of pharmaceutical products. This comprehensive approachpharmaceuticals, can improve the quality of care and lower costly complications of chronic diseases. As noted above inMarketing, one suchin 2005 we were awarded a CMS contract to provide the Green Ribbon Health Initiative, a joint-partnership with the MCO Humana, designed to improve the health and quality of life for beneficiaries with multiple chronic conditions in Central Florida. Additionally, we sponsor a program which is sponsored by us and offered by the State of Florida Agency for Health Care Administration is designed to help manage chronic diseases among Florida’s Medicaid population.

Generic Products

     One of the biggest competitive challenges that we face in the U.S. and that, which is also growing internationally, is from generic pharmaceutical manufacturers. Upon the expiration or loss of

pharmacists to substitute generic drugs that have been rated under government procedures to be therapeutically equivalent to brand-name drugs. The substitution must be made unless the prescribing physician expressly forbids it. As and when appropriate, we will employ ourIn the U.S., Pfizer’s Greenstone Ltd. subsidiary to launch our ownsells generic versions of Pfizer’s pharmaceutical products after we lose market exclusivity.

Raw Materials

     Raw materials essential to our businesses are purchased worldwide in the ordinary course of business from numerous suppliers. In general, these materials are available from multiple sources. No serious shortages or delays were encountered in 2004,2005, and none are expected in 2005.

Government Regulation and Price Constraints

In the United States

     General.Pharmaceutical companies are subject to extensive regulation by national, state and local agencies in the countries in which they do business. Of particular importance is the FDA in the U.S. It has jurisdiction over our human pharmaceutical business and administers requirements covering the testing, safety, effectiveness, manufacturing, labeling, marketing, advertising and post-marketing surveillance of our pharmaceutical products. The FDA also regulates most of our consumer healthcare products and, along with the U.S. Department of Agriculture and the U.S. Environmental Protection Agency, our animal health products.

     In addition, many of our activities are subject to the jurisdiction of various other federal regulatory and enforcement departments and agencies, such as the Department of Health and Human Services, the Federal Trade Commission and the Department of Justice. Individual states, acting through their attorneys general, have become active as well, seeking to regulate the marketing of prescription drugs under state consumer protection and false advertising laws.

     We are subject to possible administrative and legal proceedings and actions by these various regulatory bodies (see Note 1718 to our consolidated financial statements,Legal Proceedings and Contingencies,in our 20042005 Financial Report). Such actions may include product recalls, seizures and other civil and criminal sanctions.

     The FDA is considering changes to its approach to “follow-on biological” products (which are the biological product equivalent to generic pharmaceutical products). Changes that would facilitate the approval of such products could have an adverse impact on the Company’s business.

     Medicare.Medicare. In December 2003, the Medicare Prescription Drug Improvement and Modernization Act of 2003 (the 2003 Medicare Act) was enacted. Under this legislation, Medicare beneficiaries are eligible to obtain a Medicare-endorsed, drug-discount card from an MCO, PBM or other private sector provider through the end of 2005. Beginning in 2006, Medicare beneficiaries will benow eligible to obtain subsidized prescription drug coverage from a private sector provider. It remains difficult to predict the impact of the 2003

regulated by the governments of various foreign countries. In addition to raising safety concerns, such importation could impact pharmaceutical prices in the U.S. While the 2003 Medicare Act maintains the current prohibition on such imports, it would allow importation from Canada if the Secretary of Health and Human Services certifies that such importation is safe and would result in savings to consumers. Before the 2003 Medicare Act, federal law would have permitted importation of medicines into the U.S. from a considerably larger group of developed countries, provided the Secretary of Health and Human Services made the same safety and cost-savings certifications. On December 21, 2004, the Department of Health and Human Services (HHS) and the Department of Commerce issued their reports on drug importation and foreign price controls. The HHS report noted that it would be “extraordinarily difficult to ensure that drugs personally imported by individual consumers” could meet the standards of safety that would support certifying as safe such importation. While the report also concluded that the U.S. could establish a feasible basis for commercial drug importation, such a change in the law would require “new legal authorities, substantial additional resources and significant restrictions on the types of drugs that could be imported.” The report also noted that the total savings to be expected from such a commercial importation regime would be relatively small—small — 1% or 2% of total drug spending in the U.S. The Commerce Department report confirmed that the lower prices in many countries result from governmental price controls, and these price controls adversely affect the amount of funding that is available for the discovery of new drugs.

     Medicaid and Related Matters. Federal law requires us to give rebates to state Medicaid agencies based on each state’s reimbursement of pharmaceutical products under the Medicaid program. In recent years, various proposals have been offered at the federal and state levels that would bring about major changes in the Medicaid program. DrivenA national commission is currently studying changes to the Medicaid program. In the short term, driven by budget concerns, somemany states have implemented restrictive drug lists and other states are considering importationstate supplemental rebate programs price controls or patient-access constraints on medicines under the Medicaid program. These programs require deeper rebate payments by Pfizer in order to have our products listed on formularies in states with such rebate programs. More than 35 states have implemented some form of formulary restrictions in their Medicaid programs. Currently, Pfizer enjoys relatively good formulary access in state Medicaid programs.

     Effective January 1, 2006, federal funds may not be used for reimbursement of erectile dysfunction medications by the Medicaid program. In addition, effective January 1, 2007, changes to treatment of authorized generics for purposes of calculating Medicaid rebates will increase the amount of rebates we are required to pay on brand name drug sales after loss of exclusivity and on authorized generic sales to the Medicaid program.

     If changes are implemented under the Medicaid program that further restrict the access of a significant populationnumber of patients to our innovative medicines,products

individual countries on such issuesmatters across the enlarged E.U.region.

     During 2004, a comprehensive package of reforms was adopted (called New Medicines Legislation) amending E.U. law on the regulation of medicinal products in many areas, including approval procedures and safety reporting. Of particular note, the data exclusivity periods during which innovative companies’ regulatory data are protected willare required to be harmonized in all member states and implementation is underway in most member states, which will facilitate the approval and launch of generic medicines medicines. In addition, these reforms introduced a clear legal basis for the approval of “biosimilar” or “follow-on biological” products in the E.U. Following a positive scientific assessment announced in January 2006, we expect that the first such product, a biosimilar version ofGenotropin,will be facilitatedapproved in several respects. Thethe E.U. this year. This new law, due to takeset of regulations, which took effect byin November 2005, will also shortenshortens certain approval timelines and introduceintroduces fast-track and conditional centralized authorizations.

Environmental Law Compliance

     Most of our operations are affected by federal, state and/or local environmental laws. We have made, and intend to continue to make, necessary expenditures for compliance with applicable laws. We also are cleaning up environmental contamination from past industrial activity at certain sites (see Note 1718 to our consolidated financial statements,Legal Proceedings and Contingencies,in our 20042005 Financial Report). As a result, we incurred capital and operational expenditures in 20042005 for environmental

are advised, however, to consult any further disclosures we make on related subjects in our 10-Q and 8-K reports to the SEC. Also note that we provide the following cautionary discussion of risks, uncertainties and possibly inaccurate assumptions relevant to our businesses. These are factors that, individually or in the aggregate, we think could cause our actual results to differ materially from expected and historical results. We note these factors for investors as permitted by the Private Securities Litigation Reform Act of 1995. You should understand that it is not possible to predict or identify all such factors. Consequently, you should not consider the following to be a complete discussion of all potential risks or uncertainties.

•Government Regulation and Managed Care Trends

     U.S. and foreign governmental regulations mandating price controls and patient-access constraintslimitations on patient access to our products impact our business, and our future results could be adversely affected by changes in such regulations. In the U.S., many of

covering several of our best-selling medicines recently have expired or will expire this year or next year, and patents covering a number of our best-selling medicines are the subject of pending legal challenges. In addition, our revenues could be significantly impacted by the timing and rate of commercial acceptance of key new products, includingLyrica, Exubera, Sutentand the product candidateChampix.

• Final actions relatingUncertainty Relating to COX-2 Medicines

Our goal is to makeCelebrexand/oravailable to increased numbers of patients. However, our ability to increaseBextraCelebrexthatsales may be takenlimited significantly by the FDA and/oruncertainty concerning COX-2 medicines related to the EMEA in connection with their respective reviews of the benefitsregulatory actions involving those medicines that were taken last year.

Research and risks of COX-2-specific inhibitor medicines and related agents could result in a significant loss of sales of one or both of those drugs, which would have a material adverse impact on our results of operations.Development Investment

•     The discovery and development of new products as well as the development of additional uses for existing products is very important to the success of the Company. However, balancing current growth and investment for the future remains a major challenge. Our ongoing investments in new product introductions and in research and development for new products and existing product extensions could exceed corresponding sales growth. This could produce higher costs without a proportional increase in revenues.

•Development, Regulatory Approval and Marketing of Products

     Risks and uncertainties particularly apply with respect to product-related, forward-looking statements. The outcome of the lengthy and complex process of identifying new compounds and developing new products is inherently uncertain. There can be no assurance as to whether or when we will receive regulatory approval for new products or for new indications or dosage forms for existing products. Decisions by regulatory authorities regarding labeling and other matters could adversely affect the availability or commercial potential of our products. There also are many considerations that can affect marketing of pharmaceutical products around the world. Regulatory delays, the inability to successfully complete clinical trials, claims and concerns about safety and efficacy, new discoveries, patent disputes and claims about adverse side effects are a few of the factors that could adversely affect the realization of research and development and product-related, forward-looking statements.

•Research Studies

     Decisions about research studies made early in the development process of a drug candidate can have a substantial impact on the marketing strategy once the drug receives approval. More detailed studies may demonstrate additional benefits that can help in the marketing, but they consume time and resources and can delay submitting the drug candidate for initial approval. We try to plan clinical trials prudently, but there is no guarantee that a proper balance of speed and testing will be made in each case. The quality of our decisions in this area could affect our future results.

• 44%Interest Rate and Foreign Exchange Risk

48% of our 20042005 revenues were derived from international operations, including 6%18% from countries in the euro zone and 7% from Japan. These international-based revenues as well as our substantial international assets expose our revenues and earnings to foreign currency exchange rate changes. In addition, our interest-bearing investments, loans and borrowings are subject to risk from changes in interest rates. These risks and the measures we have taken to help contain them are discussed in the section entitled Financial Risk Management in our 20042005 Financial Report. For additional details, see Note 8-D9-D to our consolidated financial statements,Financial Instruments: Derivative Financial Instruments and Hedging Activities, in our 2004 2005

include, in particular, the impact of the possible sale or spin-off of our Consumer Healthcare business and our ability to integraterealize the projected benefits of our Adapting to Scale multi-year productivity initiative.

Changes in Laws and to obtain the anticipated results and synergies from our acquisition of Pharmacia.Accounting Standards

•     Our future results could be adversely affected by changes in laws and regulations, including changes in accounting standards, taxation requirements (including tax-rate changes, new tax laws and revised tax law interpretations), competition laws and environmental laws in the U.S. and other countries.

•Terrorist Activity

     Our future results could be adversely affected by changes in business, political and economic conditions, including the cost and availability of insurance, due to the threat of future terrorist activity in the U.S. and other parts of the world and related U.S. military action overseas.

•Legal Proceedings

     We and certain of our subsidiaries are involved in various patent, product liability, consumer, commercial, securities, environmental and tax litigations and claims; government investigations; and other legal proceedings that arise from time to time in the ordinary course of our business. We do not believe any of them will have a material adverse effect on our financial position. Litigation is inherently unpredictable, and excessive verdicts do occur. Although we believe we have substantial defenses in these matters, we could in the future incur judgments or enter into settlements of claims that could have a material adverse effect on our results of operations in any particular period.

     Patent claims include challenges to the coverage and/or validity of our patents on various products or processes. Although we believe we have substantial defenses to these challenges with respect to all our material patents, there can be no assurance as to the outcome of these matters, and a loss in any of these cases could result in a loss of patent protection for the drug at issue, which could lead to a significant loss of sales of that drug and could materially affect future results of operations.

ITEM 1B. UNRESOLVED STAFF COMMENTS

Not applicable.

ITEM 2. PROPERTIES

     Our corporate headquarters and the headquarters of our Human Health and Animal Health businesses are located at our world

Pfizer and legacy Pharmacia manufacturing and research and development sitesbe closed in the U.S. and various other countries.next three years as Global Manufacturing continues to optimize its plant network. Studies are underway to further consolidate the distribution network.

     In general, our properties are well maintained, adequate and suitable to their purposes. Note 1011 to our consolidated financial statements,Property, Plant and Equipment,in our 20042005 Financial Report, which discloses amounts invested in land, buildings and equipment, is incorporated by reference. See also the discussion under Note 1516 to our consolidated financial statements,Lease Commitments, in our 20042005 Financial Report, which also is incorporated by reference.

ITEM 3. LEGAL PROCEEDINGS

Certain legal proceedings in which we are involved are discussed in Note 1718 to our consolidated financial statements,Legal Proceedings and Contingencies,in our 20042005 Financial Report, which is incorporated by reference.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     Not applicable.

EXECUTIVE OFFICERS OF THE COMPANY

     The executive officers of the Company are set forth in this table. Each holds the offices indicated until his or her successor is chosen and qualified at the regular meeting of the Board of Directors to be held immediately following the 20052006 Annual Meeting of Shareholders. Each of the executive officers is a member of the Pfizer Leadership Team.

Information concerning Ms. Katen, Mr. Kindler, Dr. LaMattina, Dr. McKinnell and Mr. Shedlarz is incorporated by reference from the discussion under the headingsNominees For DirectorsandNamed Executive Officers Who Are Not Directorsin our 20052006 Proxy Statement.

Charles L. Hardwick

Mr. Hardwick joined us in 1966. He held a number of positions in government and public affairs and in marketing before becoming Vice President — Government and Public Affairs in 1997. He was appointed Senior Vice President — Government Relations and Public Affairs in March 2001. He was elected Vice President of Pfizer Inc.; Senior Vice President — Corporate Affairs in December 2001 and elected Senior Vice President — Corporate Affairs of Pfizer Inc. effective July 2002.

Yvonne R. Jackson

Ms. Jackson joined us in 2002 and was elected Senior Vice President — Human Resources in October 2003. Prior to joining us, she served as Senior Vice President of Human Resources, Organization and Environment at Compaq Computer Corporation from 1999 to 2002.

Peter B. Corr

Dr. Corr joined us in June 2000, upon the merger with Warner-Lambert Company, where he was Vice President, Warner-Lambert and President, Warner-Lambert/Parke-Davis Pharmaceutical Research and Development from 1998 to June 2000. From June 2000 to July 2002, Dr. Corr was Senior Vice President, Pfizer Inc.; Executive Vice President, Pfizer Global Research and Development; and President, Worldwide Development. Dr. Corr was named Senior Vice President — Science and Technology, in July 2002.

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Natale S. Ricciardi

Mr. Ricciardi joined us in 1972. He held a number of positions of increasing responsibility in manufacturing before being named U.S. Area Vice President/Team Leader for Pfizer Global Manufacturing in 1999. He was elected Senior Vice President of Pfizer Inc.; President — Pfizer Global Manufacturing in October 2004.

PART II

ITEM 5. MARKET FOR THE COMPANY’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

     The principal market for our Common Stock is the New York Stock Exchange. Our stock is also is listed on the London, Euronext and Swiss Stock Exchanges and is traded on various United States regional stock exchanges. Additional information required by this item is incorporated by reference from the table captionedQuarterly Consolidated Financial Data (Unaudited)in our 20042005 Financial Report.

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