(~~EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)~~Exact name of registrant as specified in its charter)

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for at least the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, ~~(as defined~~or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange ~~Act).~~Act. (Check one):

~~Yes~~Large Accelerated filer x NoAccelerated filer ¨ Non-accelerated filer ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d)of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.

At September 30, ~~2005,~~2006, there were ~~1,956,520,637~~1,966,728,146 shares outstanding of the Registrant’s $.10 par value Common Stock.

Bristol-Myers Squibb Company ~~(the Company)~~(BMS, the Company or Bristol-Myers Squibb) prepared these unaudited consolidated financial statements following the requirements of the Securities and Exchange Commission (SEC) and U.S. generally accepted accounting principles (GAAP) for interim reporting. Under those rules, certain footnotes and other financial information that are normally required by GAAP for annual financial statements can be condensed or omitted. The Company is responsible for the consolidated financial statements included in this Form 10-Q. These consolidated financial statements include all normal and recurring adjustments necessary for a fair presentation of the Company’s financial position at September 30, ~~2005~~2006 and December 31, ~~2004,~~2005, the results of its operations for the three and nine months ended September 30, 2006 and 2005 and ~~2004 and~~the cash flows for the nine months ended September 30, ~~2005~~2006 and ~~2004.~~2005. These consolidated financial statements and the related notes should be read in conjunction with the consolidated financial statements and the related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2004 (2004~~2005 (2005 Form 10-K). PricewaterhouseCoopers LLP (PwC), an independent registered public accounting firm, has performed a review of the unaudited consolidated financial statements included in this Form 10-Q, and their review report thereon accompanies this Form 10-Q.

Revenues, expenses, assets and liabilities can vary during each quarter of the year. Accordingly, the results and trends in these unaudited consolidated financial statements may not be the same as those for the full year.

The Company recognizes revenue when substantially all the risks and rewards of ownership have transferred to the ~~customer, primarily~~customer. Generally, revenue is recognized at the time of shipment of products. In the case of certain sales made by the Nutritionals and ~~Related Healthcare~~Other Health Care segments and certain non-U.S. businesses within the Pharmaceuticals segment, revenue is recognized on the date of receipt by the purchaser. Revenues are reduced at the time of ~~sale~~recognition to reflect expected returns that are estimated based on historical experience. Additionally, provisions are made at the time of ~~sale~~revenue recognition for all discounts, rebates and estimated sales allowances based on historical experience updated for changes in facts and circumstances, as appropriate. Such provisions are recorded as a reduction of revenue.

In addition, the Company includes alliance revenue in net sales. The Company has agreements to promote pharmaceuticals discovered by other companies. Alliance revenue is based upon a percentage of the Company’s copromotion partners’ net sales and is earned when the copromotion partners ship the related product and title passes to their customer.

The Company accounts for certain costs to obtain internal use software for significant systems projects in accordance with Statement of Position (SOP) 98-1. These costs, including external direct costs, interest costs and internal payroll and related costs for employees who are directly associated with such projects are capitalized and amortized over the estimated useful life of the software, which ranges from three to ten years. Costs to obtain software for projects that are not significant are expensed as incurred.

The preparation of financial statements in conformity with GAAP requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The most significant assumptions are employed in estimates used in determining values of intangible assets, restructuring charges and accruals, sales rebate and return accruals, legal contingencies and tax assets and tax liabilities, stock-based compensation, as well as in estimates used in applying the revenue recognition policy and accounting for retirement and postretirement benefits (including the actuarial assumptions). Actual results ~~could~~may or may not differ from the estimated results.

Certain prior period amounts have been reclassified to conform to the current year presentation.

In ~~May 2005,~~September 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard (SFAS) No. 158,Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans—an amendment of FASB Statements No. 87, 88, 106, and 132(R). This pronouncement requires an employer to recognize the overfunded or underfunded status of a defined benefit postretirement plan (other than a multiemployer plan) as an asset or liability in its statement of financial position and to recognize changes in that funded status in the year in which the changes occur through comprehensive income of a business entity. This pronouncement also requires an employer to measure the funded status of a plan as of the date of its year-end statement of financial position, with limited exceptions. This Statement is effective for fiscal years ending after December 15, 2006. The Company is evaluating the future effect of this pronouncement and is anticipating a significant reduction to stockholders’ equity.

In September 2006, the FASB issued SFAS No. 157,Fair Value Measurements. This pronouncement defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. This Statement is effective for fiscal years beginning after November 15, 2007. The adoption of this accounting pronouncement is not expected to have a material effect on the Company’s consolidated financial statements.

In September 2006, the SEC issued Staff Accounting Bulletin (SAB) No. 108 that expresses the staff’s views regarding the process of quantifying financial statement misstatements. This bulletin is effective for any interim period of the first fiscal year ending after November 15, 2006. The adoption of this bulletin is not expected to have a material effect on the Company’s consolidated financial statements.

Note 1. Basis of Presentation and New Accounting Standards ~~(SFAS)~~(Continued)

In July 2006, the FASB issued FASB Interpretation (FIN) No. 48,Accounting for Uncertainty in Income Taxes. FIN No. 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS No. 109,Accounting for Income Taxes. FIN No. 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN No. 48 is effective for fiscal years beginning after December 15, 2006. The Company is evaluating the future effect of this pronouncement.

In March 2006, the FASB issued SFAS No. 156,Accounting for Servicing of Financial Assets – an amendment of FASB Statement No. 140. This pronouncement relates to the accounting for separately recognized servicing assets and servicing liabilities. This Statement is effective for fiscal years beginning after September 15, 2006. The adoption of this accounting pronouncement is not expected to have a material effect on the Company’s consolidated financial statements.

In February 2006, the FASB issued SFAS No. 155,Accounting for Certain Hybrid Financial Instruments, an amendment of FASB Statements No. 133 and 140. This pronouncement primarily resolves certain issues addressed in the implementation of SFAS No. 133,Accounting for Derivative Instruments and Hedging Activities, concerning beneficial interests in securitized financial assets. The Statement is effective for all financial instruments acquired, issued, or subject to a remeasurement event occurring after the beginning of the 2007 fiscal year. The Company is evaluating any future effect of this pronouncement.

In May 2005, the FASB issued SFAS No. 154,Accounting Changes and Error Corrections, which replaces Accounting Principles Board (APB) Opinion No. 20,Accounting Changes and SFAS No. 3,Reporting Accounting Changes in Interim Financial Statements. This pronouncement applies to all voluntary changes in accounting principle, and revises the requirements for accounting for and reporting a change in accounting principle. SFAS No. 154 requires retrospective application to prior periods’ financial statements of a voluntary change in accounting principle, unless it is impracticable to do so. This pronouncement also requires that a change in the method of depreciation, amortization, or depletion for long-lived, non-financial assets be accounted for as a change in accounting estimate that is ~~effected~~affected by a change in accounting principle. SFAS No. 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The Statement does not change the transition provisions of any existing accounting pronouncements, including those that are in a transition phase as of the effective date of SFAS No. 154. The ~~Company is evaluating~~adoption of this accounting pronouncement did not have a material effect on the ~~impact this statement will have on its~~Company’s consolidated financial ~~position and results of operations.~~statements.

In March 2005, the FASB issued ~~FASB Interpretation~~FIN No. 47,Accounting for Conditional Asset Retirement Obligations ~~(FIN 47)~~. FIN No. 47 clarifies that an entity must record a liability for a conditional asset retirement obligation if the fair value of the obligation can be reasonably estimated. Asset retirement obligations covered by FIN No. 47 are those for which an entity has a legal obligation to perform an asset retirement activity, even if the timing and method of settling the obligation are conditional on a future event that may or may not be within the control of the entity. FIN No. 47 also clarifies when an entity would have sufficient information to reasonably estimate the fair value of an asset retirement obligation. ~~FIN 47 is effective no later than the end of fiscal years ending after December 15, 2005.~~ The Company ~~is evaluating~~adopted the ~~impact~~provisions of FIN No. 47 in the fiscal year ended December 31, 2005 and adoption of this ~~statement will~~accounting pronouncement did not have a material effect on ~~its~~the Company’s consolidated financial ~~position and result of operations.~~statements.

In December 2004, the FASB issued FASB Staff Position (FSP) No. 109-1—Application of SFAS No. 109, Accounting for Income Taxes, to the Tax Deduction on Qualified Production Activities Provided by the American Jobs Creation Act of 2004 (FSP No. 109-1). The FSP provides that theDeduction on Qualified Production Activities will be treated as a “special deduction” as described in SFAS No. 109,Accounting for Income Taxes. Accordingly, the tax effect of this deduction ~~will be~~was reported as a component of the Company’s tax provision and ~~will~~did not have an effect on deferred tax assets and liabilities. ~~The Department of~~On May 24, 2006, the ~~Treasury recently~~Internal Revenue Service (IRS) issued ~~Proposed~~Final Tax Regulations (FTR) with respect to theDeduction on Qualified Production Activities. under Section 199 of the Internal Revenue Code. The final regulations are effective for taxable years beginning on or after June 1, 2006. For taxable years beginning prior to the effective date of the final regulations, a taxpayer may apply either: (1) the final regulations, provided the taxpayer applies all provisions in the final regulations; or (2) subject to certain limitations, the rules provided in Notice 2005-24, as well as the proposed regulations. The Company ~~is evaluating~~does not expect the ~~impact of the Proposed Tax Regulations~~FTR and the FSP to have a material impact on ~~its income tax provision and results of operations.~~the Company’s consolidated financial statements.

In December 2004, the FASB issued SFAS No. 153,Exchanges of Nonmonetary Assets. The provisions of this Statement are effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. The provisions of this Statement should be applied prospectively, and eliminates the exception from fair value measurement for nonmonetary exchanges of similar productive assets in paragraph 21(b) of APB ~~Opinion~~ No. 29,Accounting for Nonmonetary Transactions, and replaces it with an exception for exchanges that do not have commercial substance. The adoption of this accounting pronouncement isdid not ~~expected to~~ have a material effect on the Company’s consolidated financial ~~position and results of operations.~~statements.

In November 2004, the FASB issued SFAS No. 151,Inventory Costs – an Amendment of ARB No. 43, Chapter 4. The standard requires abnormal amounts of idle facility and related expenses to be recognized as current period charges and also requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. SFAS No. 151 is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. The ~~Company is evaluating~~adoption of this accounting pronouncement did not have a material effect on the ~~impact this statement will have on its~~Company’s consolidated financial ~~position~~statements.

Note 1. Basis of Presentation and ~~results of operations.~~New Accounting Standards (Continued)

~~In December 2004, the FASB issued revised~~The Company adopted SFAS No. ~~123R (SFAS No. 123R)~~123 (revised 2004),Share-Based Payment~~. This standard eliminates~~, (SFAS No. 123(R)) which requires the ~~ability~~measurement and recognition of compensation expense for all stock-based payment awards made to ~~account for share-based compensation transactions using~~employees and directors based on estimated fair values. SFAS No. 123(R) supersedes the ~~intrinsic value-based method~~Company’s previous accounting under APB ~~Opinion~~ No. 25,Accounting for Stock Issued to Employees, ~~and requires instead that such transactions be accounted~~ for ~~using a fair-value-based method.~~periods beginning January 1, 2006. In ~~April~~March 2005, the SEC ~~delayed~~issued SAB No. 107 relating to SFAS No. 123(R). The Company has applied the ~~effective date~~provisions of SAB No. 107 in its adoption of SFAS No. ~~123R to~~123(R).

The Company adopted SFAS No. 123(R) using the modified prospective transition method, which requires the application of the accounting standard as of January 1, 2006. The Company’s consolidated financial statements ~~issued~~as of and for the ~~first annual period beginning after June 15, 2005. The Company plans to adopt~~three and ~~comply with~~nine months ended September 30, 2006 reflect the ~~requirements~~impact of SFAS No. ~~123R when it becomes effective January 1, 2006,~~123(R). In accordance with the modified prospective transition method, the Company’s consolidated financial statements for prior periods have not been restated to reflect, and ~~is evaluating~~do not include, the ~~potential~~ impact of this statement, which could have a material impact on the Company’s results of operations. Currently, the Company discloses the pro forma net income and related pro forma income per share information in accordance with SFAS No. ~~123,~~~~Accounting for Stock-Based Compensation~~~~, and SFAS No. 148,~~~~Accounting for Stock-Based Compensation Costs—Transition and Disclosure~~123(R). ~~The following table summarizes the Company’s results on a pro forma basis as if it had recorded~~Stock-based compensation expense ~~based upon the fair value at the grant date for awards under these plans consistent with the methodology prescribed~~recognized under SFAS No. ~~123, Accounting~~123(R) for ~~Stock-Based Compensation,~~the three and nine months ended September 30, 2006 was $20 million and $91 million ($13 million and $59 million, net of tax), respectively. Comparatively, stock-based compensation expense of $9 million and $28 million ($6 million and $19 million, net of tax), respectively, was recognized for the three and nine months ended September 30, 2005 under APB No. 25.

SFAS No. 123(R) requires companies to estimate the fair value of stock-based payment awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods in the Company’s consolidated statement of earnings. Prior to the adoption of SFAS No. 123(R), the Company accounted for stock-based awards to employees and ~~2004:~~directors using the intrinsic value method related to stock options in accordance with APB No. 25 as allowed under SFAS No. 123,Accounting for Stock-Based Compensation. Under the intrinsic value method, no stock-based compensation expense had been recognized in the Company’s consolidated statement of earnings because the exercise price of the Company’s stock options granted to employees and directors equaled the fair market value of the underlying stock at the date of grant.

Stock-based compensation expense recognized during the period is based on the value of the portion of stock-based payment awards that is ultimately expected to vest during the period. Stock-based compensation expense recognized in the Company’s consolidated statement of earnings for the three and nine months ended September 30, 2006 included compensation expense for stock-based payment awards granted prior to, but not yet vested as of January 1, 2006 based on the grant date fair value estimated in accordance with the pro forma provisions of SFAS No. 123(R) and compensation expense for the stock-based payment awards granted subsequent to January 1, 2006 based on the grant date fair value estimated in accordance with the provisions of SFAS No. 123(R).

In conjunction with the adoption of SFAS No. 123(R), the Company changed its method of attributing the value of stock-based compensation expense from the accelerated multiple-option approach to the straight-line single option method. Compensation expense for all stock-based payment awards granted prior to January 1, 2006 will continue to be recognized using the accelerated multiple-option approach while compensation expense for all stock-based payment awards granted on or subsequent to January 1, 2006 is recognized using the straight-line single-option method.

With respect to the accounting treatment of retirement eligibility provisions of employee stock-based compensation awards, the Company has historically followed the nominal vesting period approach. Upon the adoption of SFAS No. ~~123R,~~123(R), the Company ~~will follow~~follows the non-substantive vesting period approach and ~~recognize~~recognizes compensation cost ~~immediately~~over a one year period for awards granted to retirement eligible employees, or over the period from the grant date to the date retirement eligibility is ~~achieved.~~achieved if more than one year, but less than the vesting period. The impact of applying the non-substantive vesting period approach ~~will~~is not material to the Company’s consolidated financial statements.

As stock-based compensation expense recognized in the consolidated statement of earnings for the three months ended September 30, 2006 is based on awards ultimately expected to vest, it has been reduced for estimated forfeitures. SFAS No. 123(R) requires forfeitures to be ~~material.~~estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. In the Company’s pro forma information required under SFAS No. 123 for the periods prior to January 1, 2006, the Company accounted for forfeitures as they occurred.

The Company determines fair value of certain stock-based payment awards on the date of grant using an option-pricing model. This model is affected by the Company’s stock price as well as assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to, the Company’s expected stock price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors.

The Company has agreements with Sanofi-Aventis (Sanofi) for the codevelopment and cocommercialization of AVAPRO*AVALIDE */AVALIDE* (irbesartan), an angiotensin II receptor antagonist indicated for the treatment of hypertension, and PLAVIX* (clopidogrel), a platelet aggregation inhibitor. The worldwide alliance operates under the framework of two geographic territories; one in the Americas (principally the United States, Canada, Puerto Rico and Latin American countries) and Australia and the other in Europe and Asia. Accordingly, two territory partnerships were formed to manage central expenses, such as marketing, research and development and royalties, and to supply finished product to the individual countries. In general, at the country level, agreements either to copromote (whereby a partnership was formed between the parties to sell ~~each~~one brand) or to comarket (whereby the parties operate and sell their brands independently of each other) are in place. The agreements expire on the later of (i) with respect to PLAVIX*, 2013 and, with respect to AVAPRO*/AVALIDE*, 2012 in the Americas and Australia and 2013 in Europe and Asia and (ii) the expiration of all patents and other exclusivity rights in the applicable territory.

The Company acts as the operating partner for the territory covering the Americas and Australia and owns a 50.1% majority controlling interest in ~~the partnership within~~ this territory. Sanofi’s ownership interest in ~~the partnership within~~ this territory is 49.9%. As such, the Company consolidates all country partnership results for this territory and records Sanofi’s share of the results as a minority interest, net of taxes, which was ~~$152~~$82 million and ~~$149~~$152 million for the three months ended September 30, ~~2005~~2006 and ~~2004,~~2005, respectively, and ~~$425~~$414 million and ~~$371~~$425 million for the nine months ended September 30, ~~2005~~2006 and ~~2004,~~2005, respectively. The Company recorded sales in this territory and in comarketing countries outside this territory (Germany, Italy, Spain and Greece) of ~~$1,231~~$906 million and ~~$1,143~~$1,231 million for the three months ended September 30, ~~2005~~2006 and ~~2004,~~2005, respectively, and ~~$3,467~~$3,550 million and ~~$3,039~~$3,467 million for the nine months ended September 30, ~~2005~~2006 and ~~2004,~~2005, respectively.

Cash flows from operating activities of the partnerships in the territory covering the Americas and Australia are recorded as operating activities within the Company’s consolidated statement of cash flows. Distributions of partnership profits to Sanofi and Sanofi’s funding of ongoing partnership operations occur on a routine basis and are also recorded as operating activities within the Company’s consolidated statement of cash flows.

Sanofi acts as the operating partner of the territory covering Europe and Asia and owns a 50.1% majority financial controlling interest ~~in the partnerships~~ within this territory. The Company’s ownership interest in the partnerships within this territory is 49.9%. The Company accounts for the investment in partnership entities in this territory under the equity method and records its share of the results in equity in net income of affiliates in the consolidated statement of earnings. The Company’s share of net income from these partnership entities before taxes was ~~$85~~$112 million and ~~$67~~$85 million for the three months ended September 30, ~~2005~~2006 and ~~2004,~~2005, respectively, and ~~was $251~~$309 million and ~~$201~~$251 million for the nine months ended September 30, ~~2005~~2006 and ~~2004,~~2005, respectively.

The Company routinely receives distributions of profits and provides funding for the ongoing operations of the partnerships in the territory covering Europe and Asia. These transactions are recorded as operating activities within the Company’s consolidated statement of cash flows.

In 2001, the Company and Sanofi formed an alliance for the copromotion of irbesartan, as part of which the Company contributed the irbesartan distribution rights in the United States and Sanofi paid the Company a total of $350 million in the two years ended December 31, 2002. The Company accounted for this transaction as a sale of an interest in a license and deferred and ~~amortized~~is amortizing the $350 million to other income over the expected useful life of the license, which is approximately ~~eleven years.~~11 years from the formation of the irbesartan copromotion alliance. The Company recognized other income of $8 million in each of the three month periods ended September 30, ~~2005~~2006 and ~~2004~~2005 and $24 million in each of the nine month periods ended September 30, ~~2005~~2006 and ~~2004.~~2005. The unamortized portion of the deferred income is recorded in the liabilities section of the consolidated balance sheet and was ~~$224~~$193 million as of September 30, ~~2005~~2006 and ~~$248~~$217 million as of December 31, ~~2004.~~2005.

The Company has a worldwide ~~commercialization~~ agreement with Otsuka Pharmaceutical Co., Ltd. (Otsuka), to codevelop and ~~copromote~~cocommercialize ABILIFY* (aripiprazole), for the treatment of schizophrenia and related psychiatric disorders, except in Japan, China, Taiwan, North Korea, South Korea, the Philippines, Thailand, Indonesia, Pakistan and Egypt. The ~~Company began copromoting the product with Otsuka in the U.S. and Puerto Rico in November 2002. In June 2004, the Company received marketing approval from the European Commission. The~~ product is currently copromoted with Otsuka in the U.S., Puerto Rico, the United Kingdom, Germany, France and Spain. In the U.S., Germany and Spain, and will also be copromoted in France. ABILIFY*where the product is ~~currently distributed exclusively~~sold by ~~the Company in France on a temporary basis until copromotion with~~an Otsuka ~~commences. The~~affiliate as distributor, the Company records alliance revenue for its 65% contractual share of Otsuka’s net sales, ~~in these copromotion countries, excluding the United Kingdom,~~ and records all expenses related to the product. The Company recognizes this alliance revenue when ABILIFY* is shipped and all risks and rewards of ownership have transferred to Otsuka’s customers. In the ~~UK,~~United Kingdom and in France ~~until copromotion with Otsuka commences,~~where the Company is presently the exclusive distributor for the product, the Company records 100% of the net sales and related cost of products sold.

The Company also has an exclusive right to sell ABILIFY* in ~~a number of~~ other countries in Europe, the Americas and a number of countries in Asia. In these countries, the Company records 100% of the net sales and related cost of products sold. Under the terms of the agreement, the Company purchases the product from Otsuka and performs finish manufacturing for sale by the Company to its customers. The agreement expires in November 2012 in the U.S. and Puerto Rico. For the ~~countries in the~~entire European Union, ~~where the Company has an exclusive right to sell ABILIFY*,~~ the agreement expires in June 2014. In each other country where the Company has the exclusive right to sell ABILIFY*, the agreement expires on the later of the tenth anniversary of the first commercial sale in such country or expiration of the applicable patent in such country.

The Company recorded revenue for ABILIFY* of ~~$260~~$313 million and ~~$165~~$260 million for the three months ended September 30, ~~2005~~2006 and ~~2004,~~2005, respectively, and ~~$688~~$920 million and ~~$402~~$688 million for the nine months ended September 30, ~~2005~~2006 and ~~2004,~~2005, respectively. Total milestone payments made to Otsuka under the agreement through September ~~2005~~2006 were $217 million, of which $157 million was expensed as acquired in-process research and ~~development.~~development in 1999. The remaining $60 million was capitalized in other intangible assets and is amortized in cost of products sold over the remaining life of the agreement in the U.S., ranging from ~~eight~~8 to ~~eleven~~11 years. The Company amortized in cost of products sold approximately $2 million ~~and $1 million~~ in each of the three ~~months~~month periods ended September 30, ~~2005~~2006 and ~~2004, respectively,~~2005 and $5 million ~~and $3 million~~ in each of the nine ~~months~~month periods ended September 30, ~~2005~~2006 and ~~2004, respectively.~~2005. The unamortized capitalized payment balance was ~~$42~~$36 million as of September 30, ~~2005~~2006 and ~~$47~~$41 million as of December 31, ~~2004.~~

The Company has a commercialization agreement expiring in September 2018 with ImClone Systems ~~Inc~~Incorporated (ImClone), a biopharmaceutical company focused on developing targeted cancer treatments, for the codevelopment and copromotion of ERBITUX* in the United States. In ~~February~~ 2004, the U.S. Food and Drug Administration (FDA) approved the Biologics License Application ~~(BLA)~~ for ERBITUX* for use in combination with irinotecan in the treatment of patients with Epidermal Growth Factor Receptor (EGFR)-expressing, metastatic colorectal cancer who are refractory to irinotecan-based chemotherapy and for use as a single agent in the treatment of patients with EGFR-expressing, metastatic colorectal cancer who are intolerant to irinotecan-based chemotherapy. In March 2006, the FDA approved ERBITUX* for use in the treatment of squamous cell carcinoma of the head and neck in combination with radiation or as monotherapy. The Company paid ~~ImClone~~ $250 million ~~in March 2004~~ as a milestone payment to ImClone for ~~the initial approval~~each of ~~ERBITUX*. An additional $250 million is payable upon FDA approval for use in treating an additional tumor type. In June 2004,~~ the FDA ~~approved ImClone’s Chemistry, Manufacturing~~approvals in 2004 and Controls supplemental BLA for licensure of its BB36 manufacturing facility. In August 2005, ImClone submitted a supplemental Biologics License Application (sBLA) to the FDA for approval of ERBITUX* in treatment of Squamous Cell Carcinoma of the Head and Neck (SCCHN). The FDA decision is expected by February 2006, and if approved, the Company will pay ImClone the additional $250 million.2006. Under the agreement, ImClone receives a distribution fee based on a flat rate of 39% of product revenues in North America. The Company also has codevelopment and copromotion rights with ImClone in Canada. In September 2005, Health Canada’s Biologics and Genetic Therapies Directorate approved ERBITUX* as a treatment for metastatic colorectal cancer. In addition, the Company has ~~a 50% share of~~ the ~~codevelopment and copromotion rights~~co-exclusive right, shared with ImClone, ~~has with~~to commercialize ERBITUX* in Japan (ImClone having previously granted co-exclusive right to Merck KGaA in ~~Japan to~~Japan). In December 2004, the ~~extent the product is commercialized~~Company, its Japanese affiliate (BMKK), Merck KGaA, Merck Ltd., and ImClone executed a joint development agreement for ERBITUX* in ~~that country.~~

The Company accounts for the ~~$250~~$500 million total approval ~~milestone~~milestones paid in ~~March~~ 2004 and 2006 as a license ~~acquisition~~acquisitions and amortizes the ~~payment~~payments into cost of products sold over the ~~expected useful life~~term or the remaining term of the ~~license,~~agreement which ~~is approximately fourteen years.~~ends in 2018. The Company amortized into cost of products sold $9 million and $4 million for ~~each of~~ the three months ended September 30, 2006 and 2005, respectively, and ~~2004,~~$25 million and $13 ~~million and $10~~ million for the nine months ended September 30, ~~2005~~2006 and ~~2004,~~2005, respectively. The unamortized portion of the approval ~~payment~~payments is recorded in other ~~intangibles, net~~intangible assets, and was ~~$223~~$444 million as of September 30, ~~2005~~2006 and ~~$236~~$219 million as of December 31, ~~2004.~~

The Company accounts for its investment in ImClone under the equity method and records its share of the results in equity in net income of affiliates in the consolidated statement of earnings. The Company’s recorded investment in ImClone common stock ~~as of~~was $97 million and $66 million at September 30, ~~2005~~2006 and December 31, ~~2004 was $66~~2005, respectively. The Company holds 14.4 million ~~and $72 million, respectively,~~shares of ImClone stock, representing approximately 17% of the ImClone shares outstanding ~~respectively.~~at September 30, 2006 and December 31, 2005. On a per share basis, the carrying ~~value~~values of the ImClone investment and the closing market price of the ImClone shares as of September 30, ~~2005~~2006 were ~~$4.56~~$6.71 and ~~$31.45,~~$28.32, respectively, compared to ~~$5.03~~$4.55 and ~~$46.08,~~$34.24, respectively, as of December 31, ~~2004.~~2005.

The Company determines its equity share in ImClone’s net income or loss by eliminating, from ImClone’s results, the milestone revenue ImClone recognizes for the $400 million in pre-approval milestone payments ~~that were recorded~~made by the Company from 2001 through 2003. The Company recorded $80 million of the pre-approval milestone payments as ~~additional~~an equity ~~investment.~~investment and expensed the remaining $320 million as acquired in-process research and development during that period. Milestone revenue recognized by ImClone in excess of $400 million is not eliminated by the Company in determining its equity share in ImClone’s results. For its share of ImClone’s results of operations, the Company recorded ~~net~~equity income of $7 million and zero for the three months ended September 30, 2006 and $42005, respectively, and equity income of $32 million for the nine months ended September 30, 2006 and an equity loss of $6 million for the nine months ended September 30, 2005. The Company recorded net sales for ERBITUX* of $175 million and $107 million for the three months ended September 30, ~~2005~~2006 and ~~2004,~~2005, respectively, and ~~a net loss of $6~~$485 million and ~~net income of $1~~$292 million for the nine months ended September 30, 2006 and 2005, respectively.

In 2004, the Company and ~~2004, respectively.~~Gilead Sciences, Inc. (Gilead) entered into a joint venture to develop and commercialize a fixed-dose combination of the Company’s SUSTIVA (efavirenz) and Gilead’s TRUVADA* (emtricitabine and tenofovir disoproxil fumarate) in the United States and Canada. In July 2006, the FDA granted approval of ATRIPLA* (efavirenz 600 mg/ emtricitabine 200 mg/ tenofovir disoproxil fumarate 300 mg) for the treatment of human immunodeficiency virus (HIV) infection in adults. ATRIPLA* is the first-ever once-daily single tablet regimen for HIV intended as a stand-alone therapy or in combination with other antiretrovirals.

Gilead records 100% of ATRIPLA* revenues and consolidates the results of the joint venture in its operating results. The Company records revenue for the bulk efavirenz component of ATRIPLA* upon sales of ATRIPLA* by the Gilead joint venture to third party customers. For the three months ended September 30, 2006, the Company recorded efavirenz revenues of $21 million related to ATRIPLA* sales. The Company accounts for its participation in the joint venture under the equity method of accounting and records its share of the joint venture results in equity in net income of affiliates in the consolidated statement of earnings. The Company recorded net sales for ERBITUX*an equity loss on the joint venture with Gilead of ~~$107~~$2 million and ~~$84~~$1 million for the three months ended September 30, ~~2005~~2006 and ~~2004,~~2005, respectively, and ~~$292~~an equity loss of $4 million and ~~$173~~$2 million for the nine months ended September 30, ~~2005~~2006 and ~~2004,~~2005, respectively.

~~Merck~~In the third quarter of 2006, the Company recorded pre-tax charges of $7 million related to the termination benefits for workforce reductions and downsizing and streamlining of approximately 240 selling, operating and administrative personnel, primarily in Europe, Asia and North America. These charges were decreased by a $5 million adjustment reflecting changes in estimates for restructuring actions taken in prior periods.

The following table presents a detail of the charges by segment and type for the three months ended September 30, 2006. The Company expects to substantially complete these activities by early 2007.

In ~~April 2004,~~the nine months ended September 30, 2006, the Company ~~entered into~~recorded a ~~collaboration agreement with Merck & Co., Inc. (Merck)~~pre-tax charge of $21 million related to the termination benefits and other exit costs for ~~worldwide codevelopment~~workforce reductions of approximately 520 selling, operating and ~~copromotion~~administrative personnel primarily in North America, Europe, Asia, Latin America and Canada. These charges were decreased by a $15 million adjustment reflecting changes in estimates for ~~PARGLUVA™ (muraglitazar), the Company’s dual PPAR (peroxisome proliferator activated receptor) agonist, currently~~restructuring actions taken in Phase III clinical development for use in treating type 2 diabetes. Under the terms of the agreement, the Company received a $100 million upfront payment in May 2004 and a $55 million milestone payment in January 2005 for submission of theprior periods.

New Drug Application (NDA) and is entitled to receive $220 million in additional payments upon achievement of certain regulatory milestones, including $100 million for FDA approval of muraglitazar. Under the terms of agreement, the Company and Merck agreed to jointly develop the clinical and marketing strategy for muraglitazar, share equally in future development and commercialization costs and copromote the product to physicians onThe following table presents a ~~global basis, with Merck to receive payments based on net sales levels.~~

In December 2004 the Company submitted an NDA to the FDA for regulatory approval of muraglitazar. In September 2005, the Company and Merck announced the FDA’s Endocrinologic and Metabolic Drugs Advisory Committee voted to recommend approval of muraglitazar for the treatment of type 2 diabetes, for use as a monotherapy and in combination with metformin. On October 18, 2005, the FDA issued an approvable letter for muraglitazar requesting additional information from ongoing clinical trials to more fully address the cardiovascular safety profile of muraglitazar. The Company determined that to receive regulatory approval and to achieve commercial success, additional studies may be required because ongoing muraglitazar trials are not designed to answer the questions raised by the FDA. The additional studies may take approximately five years to complete. The Company will continue discussions with the FDA. Merck advised the Company of their intent to terminate the agreement and the Company has agreed to begin discussions to terminate the agreement. The Company is in the process of evaluating a range of options including conducting additional studies or terminating further development of muraglitazar.

~~The upfront and milestone payments of $155 million, which are non-refundable, were deferred and are being amortized to other income over the expected remaining useful life~~detail of the ~~agreement which is approximately sixteen years. The Company recognized $2 million of these payments in other income for each of the three month periods ended September 30, 2005~~charges by segment and ~~September 30, 2004, respectively, and $7 million and $3 million~~type for the nine months ended September 30, ~~2005 and 2004, respectively.~~2006. The ~~unamortized portion of the milestone payment is recorded in other liabilities and was $144 million as of September 30, 2005 and $151 million as of December 31, 2004.~~Company expects to substantially complete these activities by early 2007.

In the third quarter of 2005, the Company recorded pre-tax charges of $2 million related to employee termination benefits and other exit costs for approximately 13 selling and administrative personnel and asset impairment charges ~~which~~primarily in Asia. These charges were ~~offset~~decreased by a $7 million adjustment reflecting a change in estimate for restructuring actions taken in prior periods.

The following table presents a detail of the charges by segment and type for the three months ended September 30, 2005. The Company ~~expects to~~ substantially ~~complete~~completed these activities byin late 2005.

In the nine months ended September 30, 2005, the Company recorded pre-tax charges of $8 million related to the termination benefits and other ~~related~~exit costs for workforce reductions for approximately 122 selling and administrative personnel, and downsizing and streamlining of worldwide operations primarily in Latin America, Europe, Africa and Asia. Of these charges, $6 million related to employee termination benefits and related expenses for approximately 122 selling and administrative personnel, $1 million related to retention bonuses and $1 million related to asset impairments. These charges were ~~offset~~decreased by an $8 million adjustment reflecting changes in estimates for restructuring actions taken in prior periods.

The following table presents a detail of the charges by segment and type for the nine months ended September 30, 2005. The Company ~~expects to~~ substantially ~~complete~~completed these activities byin late 2005.

In the third quarter of 2004, the Company recorded pre-tax charges of $59 million related to the termination benefits and other related costs for workforce reductions and downsizing and streamlining of worldwide operations primarily in the United States, Canada, Europe and Puerto Rico. Of these charges, $58 million related to employee termination benefits and related expenses for approximately 1,060 selling, administrative and manufacturing personnel, and $1 million related to the consolidation of certain research facilities. These charges were partially offset by a $2 million adjustment reflecting changes in estimates for restructuring actions taken in prior periods.

~~The following table presents a detail of the charges by segment and type for the three months ended September 30, 2004. The Company has substantially completed these restructuring activities.~~

In the nine months ended September 30, 2004, the Company recorded pre-tax charges of $82 million related to the termination benefits and other related costs for workforce reductions and downsizing and streamlining of worldwide operations primarily in Israel, the United States, Canada, Europe and Puerto Rico. Of these charges, $75 million related to employee termination benefits and related expenses for approximately 1,270 selling, administrative and manufacturing personnel, $1 million related to asset impairments, $5 million of expense related to the consolidation of certain research facilities and $1 million of retention bonuses. These charges were partially offset by a $7 million adjustment reflecting changes in estimates for restructuring actions taken in prior periods.

~~The following table presents a detail of the charges by segment and type for the nine months ended September 30, 2004. The Company has substantially completed these restructuring activities.~~

Restructuring charges and spending against ~~accrued~~ liabilities associated with prior and current actions are as follows:

In ~~September 2005,~~January 2006, the Company ~~entered into a definitive agreement to sell~~completed the sale of its inventory, trademark, patent and intellectual property rights ~~related to DOVONEX~~ in the United States related to DOVONEX*, a treatment for psoriasis to Warner Chilcott Company, Inc. for $200 million in cash. In addition, the Company will receive a royalty based on 5% of net sales of ~~DOVONEX~~DOVONEX* through the end of 2007. ~~The~~As a result of this transaction, ~~is expected to close~~the Company recognized a pre-tax gain of $200 million ($130 million net of tax) in ~~early 2006, subject to customary regulatory approvals.~~the first quarter of 2006.

In the third quarter of 2005, the Company completed the sale of its U.S. and Canadian Consumer Medicines business and related assets (Consumer Medicines) to Novartis AG (Novartis). Under the terms of the agreement, Novartis acquired the trademarks, patents and intellectual property rights of Consumer Medicines for $661 million in cash, including the impact of a working capital adjustment, of which $15 million is attributable to a post-closing supply arrangement between the Company and Novartis. The related assets include the rights to the U.S. Consumer Medicines brands in Latin America, Europe, the Middle East and Africa. The ~~transaction was accounted for in accordance with SFAS No. 144,~~~~Accounting for the Impairment or Disposal of Long-Lived Assets.~~ ~~The~~ results of operations of Consumer Medicines are included in the Company’s consolidated statement of earnings up to the date of disposal. As a result of this transaction, the Company recorded a pre-tax gain of $569 million ($370 million net of tax) in the third quarter of 2005.

In April 2004, the Company completed the acquisition of Acordis Speciality Fibres (Acordis). The Company purchased all the stock of Acordis for $150 million and incurred $8 million of acquisition costs in connection with the transaction. An additional $10 million payment is contingent on the achievement of future production volumes. The purchase price for the acquisition was allocated to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values at the acquisition date. Of the $158 million, $63 million was allocated to in-process research and development, which was immediately expensed, and $22 million was assigned to identifiable intangible assets, predominantly patents. The excess of the purchase price over the estimated fair values of net assets acquired was recorded as goodwill. This acquisition was accounted for by the purchase method, and, accordingly, results of operations have been included in the accompanying consolidated financial statements from the date of acquisition.

In February 2004, the Company completed the divestiture of its Adult Nutritional business to Novartis for $386 million, including $20 million contingent on the achievement of contractual requirements, which were satisfied, and a $22 million upfront payment for a supply agreement. The Company recorded a total pre-tax gain of $320 million ($198 million net of tax), which included the $20 million contingent payment and a $5 million reduction in Company goodwill associated with the Mead Johnson product lines.

In May 2005, the Company completed the sale of Oncology Therapeutics Network (OTN) to One Equity Partners LLC for cash proceeds of $197 million, including the impact of a preliminary working capital adjustment. The Company recorded a pre-tax gain of $63 million ($13 million net of tax), that was presented as a gain on sale of discontinued operations in the consolidated statement of earnings.

The following amounts related to the OTN business have been segregated from continuing operations and reported as discontinued operations through the date of disposition, and do not reflect the costs of certain services provided to OTN by the Company. Such costs, which were not allocated by the Company to OTN, were for services which included legal counsel, insurance, external audit fees, payroll processing, ~~and~~ certain human resource services and information technology systems support.

The consolidated statement of cash flows includes the OTN business through the date of disposition. The Company uses a centralized approach to the cash management and financing of its operations and accordingly, debt was not allocated to this business. Cash flows ~~from~~used in operating activities and investing activities of discontinued operations ~~consist of outflows of~~were $265 million and ~~inflows of $90 million~~de minimis, respectively, for the nine months ended September 30, ~~2005 and 2004, respectively.~~2005.

The numerator for basic earnings per share is net earnings available to common stockholders. The numerator for diluted earnings per share is net earnings available to common stockholders with interest expense added back for the assumed conversion of the convertible debt into common stock. The denominator for basic earnings per share is the ~~weighted average~~weighted-average number of common stock outstanding during the period. The denominator for diluted earnings per share is ~~weighted average~~weighted-average shares outstanding adjusted for the effect of dilutive stock options and restricted stock and assumed conversion of the convertible debt into common stock. The computations for basic and diluted earnings per common share are as follows:

Weighted-average shares issuable upon the exercise of stock options, which were not included in the diluted earnings per share calculation because they were not dilutive, were 146 million and 139 million for the three month periods ended September 30, 2006 and 2005, respectively, and 135 million and 139 million for the nine month periods ended September 30, 2006 and 2005, ~~and 129 million for the three and nine month periods ended September 30, 2004.~~respectively.

Interest expense was increased by net interest swap losses of $8 million and $14 million for the three and nine months ended September 30, 2006, respectively. Interest expense was reduced by net interest swap gains of $7 million and ~~$39~~$50 million for the three ~~months ended September 30, 2005~~ and ~~2004, respectively, and $50 million and $120 million for the~~ nine months ended September 30, 2005, ~~and 2004,~~ respectively. Interest income relates primarily to cash, cash equivalents and investments in marketable securities. Other income, ~~includes~~net, include income from third-party contract manufacturing, royalty income, gains and losses on disposal of ~~investments and~~ property, plant and equipment, ~~and~~ debt retirement ~~costs.~~

The effective income tax rate on earnings from continuing operations before minority interest and income taxes was ~~31.2% and 20.5%~~31.3% for the three ~~and nine~~ months ended September 30, ~~2005, respectively,~~2006 compared with ~~20.9% and 22.3%~~31.2% for the three ~~and nine~~ months ended September 30, ~~2004, respectively.~~2005. The ~~higher effective~~tax rate for the three months ended September 30, 2006 was unfavorably impacted by lower tax benefits associated with certain restructuring expenses, and a change in estimate related to prior year tax contingency matters. The tax rate for the three months ended September 30, 2005 was ~~due~~ primarily ~~to a~~driven by higher ~~concentration~~taxes on the sale of ~~pre-tax earnings in~~ the U.S. and ~~Canada attributable to the sale of~~Canadian Consumer Medicines business and ~~lower foreign tax credits.~~ related assets.

The ~~lower~~ effective income tax rate on earnings from continuing operations before minority interest and income taxes was 26.6% for the nine months ended September 30, 2006 compared with 20.5% for the nine months ended September 30, 2005. The higher effective tax rate resulted from the 2005 ~~was~~tax rate being lower due ~~primarily~~ to a tax ~~benefit~~benefits associated with the ~~release of contingency reserves resulting from the~~ settlement of ~~examinations by the Internal Revenue Service for the years 1998 through 2001,~~an IRS examination and a ~~change in estimate related~~favorable adjustment to ~~the reduction of a deferred tax provision established in the fourth quarter of 2004 for~~taxes on special dividends under the American Jobs Creation Act of ~~2004 (AJCA), partially offset~~2004. The 2006 tax rate is also unfavorably impacted by ~~higher taxes on~~ the ~~sale of Consumer Medicines, lower foreign tax credits, and the unfavorable treatment of certain litigation reserves.~~

In the fourth quarter of 2004, the Company disclosed that it anticipated repatriating approximately $9 billion in special dividends in 2005 and recorded a $575 million provision for deferred taxes pursuant to the AJCA as enacted and other pending matters. In the first quarter of 2005, the Company repatriated approximately $6.2 billion in special dividends from foreign subsidiaries and anticipates repatriating the remainderexpiration of the ~~$9 billion in the fourth quarter~~U.S. federal research and development tax credit as of December 31, 2005. The Company expects that it will use the special dividends in accordance with requirements established by the AJCA and the U.S. Treasury Department. During the second quarter of 2005, the U.S. Treasury Department issued AJCA related guidance clarifying that the “gross-up” for foreign taxes associated with the special dividends also qualifies for the 5.25% tax rate established by the AJCA. As a result of this guidance, the Company reduced the $575 million provision by recording a benefit of approximately $135 million in its tax provision for the second quarter of 2005. Except for earnings associated with the special dividends discussed above,

U.S. income taxes have not been provided on the ~~balance of unremitted~~ earnings of non-U.S. subsidiaries that are not projected to be distributed this year since the Company has invested or expects to invest such earnings permanently offshore. If in the future these earnings are repatriated to the United States, or if the Company determines such earnings will be remitted in the foreseeable future, additional tax provisions would be required.

The Company has recorded significant deferred tax assets related to U.S. foreign tax credit and research tax credit carryforwards which expire in varying amounts beginning in 2012. Realization of foreign tax credit and research tax credit carryforwards is dependent on generating sufficient domestic-sourced taxable income prior to their expiration. Although realization is not assured, management believes it is more likely than not that these deferred tax assets will be realized. The amount of foreign tax credit and research tax credit carryforwards considered realizable, however, could be reduced in the near term if PLAVIX* is subject to either renewed or additional generic competition. If such events occur, the Company may need to record significant additional valuation allowances against these deferred tax assets. For a discussion of PLAVIX* related matters, see “—Note 18. Legal Proceedings and Contingencies” and “Management’s Discussion and Analysis—Executive Summary – PLAVIX*.”

As previously disclosed, the Company’s 2002 and 2003 U.S. Federal income tax returns are currently under examination by the IRS. The IRS has proposed (1) a significant disallowance of certain litigation settlement expenses and (2) a significant reduction in U.S. foreign tax credits claimed following the Company’s previously disclosed international restructuring. The IRS’ position on this latter matter also affects U.S. foreign tax credits claimed by the Company in 2004, although that year currently is not under examination.

While the Company believes that it has very strong positions with respect to both issues and intends to contest the IRS’ positions, it is not possible to predict the outcome of these issues. The Company has established tax contingency reserves that reflect the best estimate of the probable tax liability for these matters. If the Company were not to prevail in a final, non-appealable determination of these matters the amount of loss in excess of established reserves could have a material adverse effect on the Company��s results of operations, however the Company does not believe that such a determination would have a material adverse effect on its cash flows.

The Company has acquired raw and bulk materials in preparation for the manufacturing of potential products in anticipation of their commercialization. If regulatory approval is not granted or delayed, the value of inventory could be impaired. As of September 30, 2005, the carrying value of these inventories were $125 million and no allowance has been provided. Of the total carrying value of inventories that could be impaired, ORENCIA^®~~, a biologic compound proposed for the treatment of rheumatoid arthritis which the Company has filed a BLA with the FDA and is awaiting FDA’s actions, represents a significant portion of the total.~~

The major categories of property, plant and equipment ~~follow:~~are as follows:

The changes in the carrying amount of goodwill for the year ended December 31, ~~2004~~2005 and the nine months ended September 30, ~~2005~~2006 were as follows:

In 2006, the Company recorded an $8 million adjustment to goodwill upon the satisfaction of a contingent requirement for production volumes related to the acquisition of Acordis Specialty Fibres in 2004.

As of September 30, ~~2005~~2006 and December 31, ~~2004,~~2005, other intangible assets ~~consisted~~are as follows:

In the first quarter of 2006 and for the year 2005, the Company recorded impairment charges of $32 million and $42 million, respectively, resulting from actual and estimated future sales declines of TEQUIN. These charges were recorded in Cost of Products Sold in the Company’s consolidated statement of earnings.

In March 2006, as a result of the ~~following:~~FDA approval of ERBITUX* for use in the treatment of head and neck cancer, the Company made a $250 million milestone payment to ImClone.

In the third quarter of 2006, the Company recorded an impairment charge of $27 million, resulting from the lower than expected sales of EMSAM*. These charges were recorded in Cost of Products Sold in the Company’s consolidated statement of earnings.

Amortization expense for other intangible assets (the majority of which is included in Cost of Products Sold) for the three months ended September 30, 2006 and 2005 ~~and 2004~~ was ~~$84~~$93 million and ~~$83~~$84 million, respectively, and for the nine months ended September 30, 2006 and 2005 was $273 million and ~~2004 was~~ $263 million, ~~and $227 million,~~ respectively.

Expected amortization expense related to the current net carrying amount of other intangible assets ~~is as~~ follows:

Short-term borrowings and long-term debt were ~~$277~~$630 million and $7.8 billion, respectively, at September 30, ~~2005,~~2006, compared ~~with $1,883~~to $231 million and $8.4 billion, respectively, at December 31, ~~2004, primarily as result of the retirement of U.S. commercial paper.~~2005. The ~~balance of commercial paper outstanding at December 31, 2004~~$500 million Term Facility due in August 2007 was ~~$1,665 million, with an average interest rate of 2.3% per annum.~~reclassified from long-term debt to short term borrowings.

Long-term debt was $5,895 million at September 30, 2005 compared to $8,463 million at December 31, 2004. During the second quarter of 2005, the Company repurchased all of its outstanding $2.5 billion aggregate principal amount 4.75% Notes due 2006, and incurred an aggregate pre-tax loss of approximately $69 million in connection with the early redemption of the Notes and termination of related interest rate swaps.

In August 2005 a wholly-owned subsidiary of the Company entered into a new $2.5 billion term loan facility with a syndicate of lenders. Borrowings under this facility will be guaranteed by the Company, the subsidiaries of the borrower and by certain European subsidiaries of the Company. This facility contains a five-year tranche of up to $2.0 billion and a two-year tranche of up to $500 million. The Company is subject to substantially the same covenants as those included in its December 2004 Revolving Credit facility. The Company is also subject to further restrictions, including certain financial covenants. Prior to borrowing any proceeds against the facility, the Company obtained a waiver from the lenders for a covenant default under this facility due to a one-time intercompany distribution.

The accumulated balances related to each component of other comprehensive ~~income~~ income/(loss) are as follows:

The Company ~~has~~is organized in three reportable segments—Pharmaceuticals, Nutritionals and ~~Related Healthcare.~~Other Health Care. The Pharmaceuticals segment is comprised of the global pharmaceutical and international consumer medicines businesses. The Nutritionals segment consists of Mead Johnson, primarily an infant formula and children’s nutritional business. The ~~Related Healthcare~~Other Health Care segment consists of the ConvaTec, Medical Imaging and Consumer Medicines (United States and Canada) businesses. ~~Corporate/Other consists principally of interest income, interest expense, certain administrative expenses and allocations to the business segments for certain programs.~~ In the third quarter of 2005, the Company completed the sale of its Consumer Medicines business. The gain on sale of the Consumer Medicines business in the third quarter of ~~which the gain~~2005 was ~~recorded~~included in Corporate/Other. For additional information on the sale of Consumer Medicines, see “—Note 4. Acquisitions and Divestitures.”

The Company and certain of its subsidiaries have defined benefit pension plans and defined contribution plans for regular full-time employees. The principal pension plan is the Bristol-Myers Squibb Retirement Income Plan. The funding policy is to contribute amounts to provide for current service and to fund past service liability. Plan benefits are based primarily on ~~the participant’s~~ years of credited service and on the participant’s compensation. Plan assets consist principally of equity and fixed-income securities.

The Company also provides comprehensive medical and group life benefits for substantially all U.S. retirees who elect to participate in its comprehensive medical and group life plans. The medical plan is contributory. Contributions are adjusted periodically and vary by date of retirement and the original retiring ~~Company.~~company. The life insurance plan is noncontributory. Plan assets consist principally of equity and fixed-income securities. Similar plans exist for employees in certain countries outside of the United States.

Cost of the Company’s deferred benefits and postretirement benefit plans included the following components for the three and nine months ended September 30, ~~2005~~2006 and ~~2004:~~2005:

For the three and nine months ended September 30, ~~2005,~~2006, there were no cash contributions to the U.S. pension plans, and ~~$49~~$16 million and ~~$87~~$53 million, respectively, were contributed to the international pension plans. Although no minimum contributions will be required, the Company plans to make cash contributions to the U.S. pension plans in 2006. The Company expects contributions to the international pension plans for the year ended December 31, ~~2005~~2006 will be in the range of ~~$90~~$70 million to ~~$110~~$90 million. There was no cash funding for other benefits.

Those cash benefit payments from the Company, which are classified as contributions ~~in the~~under SFAS No. 132, ~~disclosure,~~Employers’ Disclosures about Pensions and Other Postretirement Benefits – an amendment of FASB Statements No. 87, 88 and 106,for the three and nine months ended September 30, 2006, totaled $9 million and $26 million, respectively, for pension benefits and $16 million and $50 million, respectively, for other postretirement benefits.

Under the Company’s 2002 Stock Incentive Plan, executive officers and key employees may be granted options to purchase the Company’s common stock at no less than 100% of the market price on the date the option is granted. Options generally become exercisable in installments of 25% per year on each of the first through the fourth anniversaries of the grant date and have a maximum term of 10 years. Generally, the Company issues shares for the stock option exercise from treasury stock. Additionally, the plan provides for the granting of stock appreciation rights whereby the grantee may surrender exercisable rights and receive common stock and/or cash measured by the excess of the market price of the common stock over the option exercise price.

Under the terms of the 2002 Stock Incentive Plan, authorized shares include 0.9% of the outstanding shares per year through 2007, as well as the number of shares tendered in a prior year to pay the purchase price of options and the number of shares previously utilized to satisfy withholding tax obligations upon exercise. Shares which were available for grant in a prior year but were not granted in such year and shares which were cancelled, forfeited or expired are also available for future grant.

The 2002 Stock Incentive Plan provides for the granting of common stock to key employees, subject to restrictions as to continuous employment. Restrictions generally expire over a four-year period from date of grant. Compensation expense is recognized over the restricted period. At September 30, 2006 and 2005, there were 6.4 million and 4.0 million shares of restricted stock and restricted stock units outstanding under the plan, respectively. For the three months ended September 30, 2006, approximately 55,000 shares of restricted stock and restricted stock units were granted with a weighted average fair value of $23.93 per common share. For the nine months ended September 30, 2006, approximately 3.0 million shares of restricted stock and restricted stock units were granted with a weighted average fair value of $22.81 per common share.

The 2002 Stock Incentive Plan also incorporates the Company’s long-term performance awards. These awards, which are delivered in the form of a target number of performance shares, have a three-year cycle. For 2006 to 2008, the awards will be based 50% on cumulative earnings per share and 50% on cumulative sales, with the ultimate payout modified by the Company’s total stockholder return versus the 11 companies in its proxy peer group. If threshold targets are not met for the performance period, no payment will be made under the long-term performance award plan. Maximum performance for all three measures will result in a maximum payout of 253% of target. At September 30, 2006 and 2005, there were 2.0 million and 1.9 million performance shares outstanding under the plan, respectively. In 2006, 0.6 million performance shares were granted with a fair value of $20.00 per common share.

Under the TeamShare Stock Option Plan which terminated on January 3, 2005, full-time employees, excluding key executives, were granted options to purchase the Company’s common stock at the market price on the date the options were granted. The Company authorized 66 million shares for issuance under the plan. Individual grants generally became exercisable evenly on the third, fourth and fifth anniversary of the grant date and have a maximum term of 10 years. Options on 35.5 million shares have been exercised under the plan as of September 30, 2006.

The Company’s results of operations for the three and nine months ended September 30, 2006 reflect the impact of SFAS No. 123(R) which includes the impact of the expensing of stock options. The results of operations for the three and nine months ended September 30, 2005 ~~totaled~~were not restated to reflect the impact of expensing of stock options and are prepared in accordance with APB No. 25. The following table summarizes stock-based compensation expense, net of tax, related to employee stock options, restricted stock, and long-term performance awards for the three and nine months ended September 30, 2006 and 2005:

The table below reflects pro forma net income and diluted net income per share for the three and nine months ended September 30, 2005:

There were no costs related to stock-based compensation that were capitalized during the period.

The weighted-average grant-date fair value of options granted by the Company during the three months ended September 30, 2006 and 2005 was $5.12 and $5.28 respectively. The total intrinsic value of options exercised for the three month periods ended September 30, 2006 and 2005 was approximately $1 million and $2 million, respectively. During the three months ended September 30, 2006 and 2005, the Company received $7 million and $9 million in cash proceeds from the exercise of its stock options.

The weighted-average grant-date fair value of options granted by the Company during the nine months ended September 30, 2006 and 2005 was $4.29 and $5.51, respectively. The total intrinsic value of options exercised for the nine month periods ended September 30, 2006 and 2005 was $17 million and $69 million, respectively. During the nine months ended September 30, 2006 and 2005, the Company received $163 million and $127 million in cash proceeds from the exercise of its stock options. As of September 30, 2006, there was $113 million of total unrecognized compensation cost related to stock options.

The following table summarizes significant ranges of outstanding and exercisable options as of September 30, 2006 (shares in millions):

The aggregate intrinsic value in the preceding table represents the total pre-tax intrinsic value, based on the Company’s average stock price of $24.84 on September 29, 2006, which would have been received by the option holders had all option holders exercised their options as of that date. The total number of in-the-money options exercisable as of September 30, 2006 was 14 million. As of December 31, 2005, 113 million outstanding options were exercisable, and the weighted-average exercise price was $42.23.

The fair value of stock option stock-based payments are estimated on the date of the grant using the Black-Scholes option pricing model with the following assumptions:

The Company derived the expected volatility assumption required in the Black-Scholes model by calculating a 10-year historical volatility and weighting that equally against the derived implied volatility, consistent with SFAS No. 123(R) and SAB No. 107. Prior to January 1, 2006, the Company had used its historical stock price volatility in accordance with SFAS No. 123 for purposes of its pro forma information. The selection of the blended historical and implied volatility approach was based on the Company’s assessment that this calculation of expected volatility is more representative of future stock price trends than using only historical volatility.

The risk-free interest rate assumption is based upon the U.S. Treasury yield curve in effect at the time of grant. The dividend yield assumption is based on the Company’s history and expectation of dividend payouts.

The expected life of employee stock options represents the weighted-average period the stock options are expected to remain outstanding and is a derived output of the lattice-binomial model. The expected life of employee stock options is impacted by all of the underlying assumptions and calibration of the Company’s model. The lattice-binomial model assumes that employees’ exercise behavior is a function of the option’s remaining vested life and the extent to which the option is in-the-money. The lattice-binomial model estimates the probability of exercise as a function of these two variables based on the entire history of exercises and cancellations on all past option grants made by the Company.

As stock-based compensation expense recognized in the consolidated statement of earnings for the first nine months of 2006 is based on awards ultimately expected to vest, it has been reduced for estimated forfeitures. SFAS No. 123(R) requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Forfeitures were estimated based on historical experience. In the Company’s pro forma information required under SFAS No. 123 for the periods prior to January 1, 2006, the Company accounted for forfeitures as they occurred.

The weighted-average estimated per option value of employee stock options granted in the three and nine months ended September 30, 2005 was $5.28 and $5.51, respectively, using the Black-Scholes model with the following weighted-average assumptions:

Prior to January 1, 2006, the Company used an option-pricing model to indirectly estimate the expected life of the stock options. The expected life and expected volatility of the stock options were based upon historical and other economic data trended into the future. Forfeitures of employee stock options were accounted for on an as-incurred basis.

The fair value of nonvested shares of the Company’s common stock is determined based on the average trading price of the Company’s common stock on the grant date.

A summary of the status of the Company’s nonvested restricted shares and restricted share units as of September 30, 2006, and changes during the nine months ended September 30, 2006, is presented below:

As of September 30, 2006, there was $108 million of total unrecognized compensation cost related to nonvested restricted stock and restricted stock units. That cost is expected to be recognized over a weighted-average period of 3.13 years. The total cost of non-vested shares and share units granted that was recognized as compensation expense during the three and nine months ended September 30, 2006 was $10 million and $27 million, respectively. The total fair value of shares and share units that vested during the three and nine months ended September 30, 2006 was $7 million and $15 million, respectively.

Prior to the adoption of SFAS No. 123(R), compensation expense related to long-term performance awards was determined based on the market price of the Company’s stock at the time of the award applied to the expected number of shares contingently issuable (up to 100%), and was amortized over the three year performance cycle. Upon adoption of SFAS No. 123(R), the fair value of each long-term performance award was estimated on the date of grant using a Monte Carlo simulation model instead of the grant date market price used previously.

The Company changed its valuation technique based on further clarification provided in SFAS No. 123(R) and the fact that long-term performance awards contain a market condition and performance conditions that affect factors other than vesting (i.e., variable number of shares to be awarded), which should be reflected in the grant date fair value of an award. The Monte Carlo simulation model

utilizes multiple input variables that determine the probability of satisfying each market condition stipulated in the award grant and calculates the fair market value for the long-term performance awards. The valuation model used the following assumptions:

Weighted-average expected volatility is based on the three year historical volatility levels on our common stock. Expected dividend yield is based on historical dividend payments. Risk free interest rate reflects the yield on 5-year zero coupon U.S. Treasury bonds, based on the performance shares’ contractual term. The fair value of the 2006 long-term performance awards is amortized over the performance period of the award.

At September 30, 2006, there was $3 million of total unrecognized compensation cost related to the performance share plan which is expected to be recognized over a weighted-average period of 2.03 years.

The Company’s determination of fair value of stock-based payment awards on the date of grant using an option-pricing model is affected by the Company’s stock price as well as assumptions regarding a number of highly complex and ~~$12 million, respectively,~~subjective variables. These variables include, but are not limited to the Company’s expected stock price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors. Option-pricing models were developed for ~~pension benefits,~~use in estimating the value of traded options that have no vesting or hedging restrictions and ~~$16 million~~are fully transferable. Because the Company’s employee stock options have certain characteristics that are significantly different from traded options, and ~~$49 million, respectively, for other benefits.~~because changes in the subjective assumptions can materially affect the estimated value, in management’s opinion, the existing valuation models may not provide an accurate measure of the fair value of the Company’s employee stock options. Although the fair value of employee stock options is determined in accordance with SFAS No. 123(R) and SAB 107 using an option-pricing model, that value may not be indicative of the fair value observed in a willing buyer/willing seller market transaction.

Various lawsuits, claims, proceedings and investigations are pending ~~against~~involving the Company and certain of its subsidiaries. In accordance with SFAS No. 5,Accounting for Contingencies, the Company records accruals for such contingencies when it is probable that a liability will be incurred and the amount of loss can be reasonably estimated. These matters involve antitrust, securities, patent infringement, ~~the Employee Retirement Income Security Act of 1974, as amended (ERISA),~~ pricing, sales and marketing practices, environmental, health and safety matters, product liability and insurance coverage.

The most significant of these matters are described ~~below.~~ in Note 20. Legal Proceedings and Contingencies in the Company’s 2005 Form 10-K and in Note 17. Legal Proceedings and Contingencies in the Company’s 2006 Quarterly Reports on Form 10-Q for the quarters ended March 31, 2006 and June 30, 2006. With a few exceptions, the following discussion is limited to certain recent developments related to these previously described matters, and any new matters that have not previously been described in a prior report. Accordingly, the disclosure below should be read in conjunction with those earlier reports. Unless noted to the contrary, all matters described in those earlier reports remain outstanding and the status is consistent with what has previously been reported.

There can be no assurance that there will not be an increase in the scope of these matters or that any future lawsuits, claims, proceedings or investigations will not be material. Management continues to believe, as previously disclosed, that during the next few years, the aggregate impact, beyond current reserves, of these and other legal matters affecting the Company is reasonably likely to be material to the Company’s results of operations and cash flows, and may be material to its financial condition and liquidity.

The Company’s decision to obtain insurance coverage is dependent on market conditions, including cost and availability, existing at the time such decisions are made. As a result of external factors, the availability of insurance has become more restrictive while the cost has increased significantly. The Company has evaluated its risks and has determined that the cost of obtaining insurance outweighs the benefits of coverage protection against losses and as such, became self-insured for product liabilities effective July 1, 2004. The Company will continue to evaluate these risks and benefits to determine its insurance needs in the future.

PLAVIX* is currently the Company’s largest product ranked by net sales. Net sales of PLAVIX* were approximately ~~$3.3~~$3.8 billion for the year ended December 31, ~~2004.~~2005 and U.S. net sales of PLAVIX* were $3.2 billion. The PLAVIX* patents are subject to a number of challenges in the United States and ~~Canada as described below.~~other less significant markets for the product. It is not possible reasonably to estimate the impact of these lawsuits on the Company. However, loss of market exclusivity of PLAVIX* and sustained generic competition would be material to the Company’s sales of PLAVIX* and results of operations and cash flows, and could be material to the Company’s financial condition and liquidity. The Company and Sanofi intend to vigorously pursue enforcement of their patent rights in PLAVIX*.

As previously reported, on March 21, 2006, the Company expects PLAVIX*and Sanofi (the Companies) announced that they had executed a proposed settlement agreement (the March Agreement) with Apotex Inc. and Apotex Corp. (Apotex) to ~~have market exclusivity~~settle the patent infringement lawsuit pending between the parties in the U.S. District Court for the Southern District of New York. The lawsuit relates to the validity of a composition of a matter patent for clopidogrel bisulfate (the ‘265 Patent), a medicine made available in the United States ~~until 2011. If~~by the ~~composition~~companies as PLAVIX*. In response to concerns expressed by the Federal Trade Commission (FTC) and state attorneys general, the parties modified the March Agreement (the Modified Agreement). Also as previously reported, on July 28, 2006, the Companies announced that the Modified Agreement had failed to receive required antitrust clearance from the state attorneys general. Based on a provision in the Modified Agreement permitting either party to terminate their obligation to pursue the settlement if both required antitrust clearances were not received by July 31, 2006, Apotex delivered a notice to the Companies to terminate their obligations to pursue the settlement effective as of ~~matter patent~~July 31, 2006. The Court held that the Modified Agreement prevented the Companies from seeking immediate relief to prevent Apotex from launching a generic version of clopidogrel bisulfate. On August 8, 2006, Apotex launched a generic version of clopidogrel bisulfate. On August 14, 2006, the Companies filed a motion for ~~PLAVIX* is found~~a preliminary injunction that sought an order (1) precluding Apotex from making further sales of its generic product; and (2) ordering Apotex to recall its generic product from its customers. The trial court held a hearing on the preliminary injunction motion on August 18 and 21, 2006. On August 31, 2006, the trial court issued a preliminary injunction in which it ordered that Apotex and those parties in concert with Apotex could not ~~infringed, invalid and/or unenforceable~~make further sales of generic clopidogrel bisulfate, but the Court did not order Apotex to recall product from its customers. The Companies were also required to post a bond in the amount of $400 million to provide security to Apotex should the Court conclude at the ~~U.S. District Court level,~~end of the ~~FDA could then approve~~patent litigation that the ~~defendants’ ANDAs to sell generic clopidogrel, and generic competition for PLAVIX* could begin before~~injunction was wrongly imposed. On September 1, 2006, the Company and Sanofi each posted $200 million to satisfy the requirement. The Company has ~~exhausted~~pledged to the issuer of the bond collateral for its ~~appeals. Such generic competition would likely result in substantial decreases~~$200 million bond consisting of short-term, high quality securities. This collateral is reported as marketable securities on the consolidated balance sheet at September 30, 2006. Under the terms of the pledge agreement, the Company is entitled to receive the income generated from the marketable securities and to make certain investment decisions, but is restricted from using the $200 million pledged securities for any other purpose until such time the bond is cancelled.

On September 1, 2006, the Court denied Apotex’s motion to stay the preliminary injunction. Apotex filed an appeal of the preliminary injunction to the United States Court of Appeals for the Federal Circuit on September 5, 2006 and also filed a motion for stay of the injunction pending appeal on September 6, 2006, which the Federal Circuit denied on September 21, 2006. The Federal Circuit heard oral argument on Apotex’s appeal of the preliminary injunction on October 31, 2006.

The originally scheduled trial date for the litigation between the Companies and Apotex had been suspended pending possible finalization of the proposed settlement. The Court scheduled trial in the ~~sales~~Apotex matter is set to begin on January 22, 2007.

On September 29, 2006, Apotex filed a motion to supplement its answer and counterclaims to add claims for breach of PLAVIX* in the United States. The statutory stay imposed on the approval of the first-filed ANDA by the filing of the lawsuit on the ‘265 patent under the Hatch-Waxman Act expired May 17, 2005. Accordingly, the company that filed the first ANDA could obtain final approval at any timecontract and ~~decide to launch a generic product at risk assuming the ANDA application meets the regulatory requirements for approval. Thus there is no legal impediment to final approval of an ANDA~~antitrust counterclaims, and ~~a corresponding generic launch at any time assuming the ANDA application meets the regulatory requirements for approval.~~

The Company’s U.S. territory partnership under its alliance with Sanofi is also a plaintiff in ~~four~~three additional pending patent infringement lawsuits instituted in the U.S. District Court for the Southern District of New York ~~entitled Sanofi-Synthelabo, Sanofi-Synthelabo Inc., and Bristol-Myers Squibb Sanofi Pharmaceuticals Holding Partnership v. Apotex~~against Dr. Reddy’s Laboratories, Inc. and ~~Apotex Corp. (Apotex), 02-CV-2255 (SHS); Sanofi-Synthelabo, Sanofi-Synthelabo Inc. and Bristol-Myers Squibb Sanofi Pharmaceuticals Holding Partnership v.~~ Dr. Reddy’s Laboratories, LTD ~~and Dr. Reddy’s Laboratories, Inc.~~(Dr. Reddy’s), ~~02-CV-3672 (SHS); Sanofi-Synthelabo, Sanofi-Synthelabo Inc., and Bristol-Myers Squibb Sanofi Pharmaceuticals Holding Partnership vs.~~ Teva Pharmaceuticals USA, Inc. (Teva) and ~~Teva Pharmaceuticals Industries, Ltd., 04-CV-7458 and Sanofi-Aventis, Sanofi-Synthelabo Inc., and Bristol-Myers Squibb Sanofi Pharmaceuticals Holding Partnership v.~~ Cobalt Pharmaceuticals Inc. (Cobalt), ~~05-CV-8055 (SHS). Teva Pharmaceuticals Industries, Ltd.~~all related to the ‘265 patent. The litigation against Dr. Reddy’s has ~~since~~ been ~~dismissed from~~inactive due to the ~~case. Proceedings involving PLAVIX* also have been instituted outside~~proposed Apotex settlement and this case is the ~~United States.~~

The U.S. suits were filed on March 21, 2002, May 14, 2002, September 23, 2004 and September 16, 2005 respectively, and were based on U.S. Patent No. 4,847,265, a composition of matter patent, which discloses and claims, among other things,subject if the hydrogen sulfate salt of clopidogrel, which is marketed as PLAVIX*. The first two suits were also based on U.S. Patent No. 5,576,328, which discloses and claims, among other things, the use of clopidogrelCompanies’ motion to prevent a secondary ischemic event. The plaintiffs later withdrew Patent No. 5,576,328 from the two lawsuits. Plaintiffs’ infringement position is based on defendants’ filing of their Abbreviated New Drug Applications (ANDA)consolidate with the FDA, seeking approval to sell generic clopidogrel bisulfate prior to the expiration of the composition of matter patent in 2011. The defendants responded by alleging that the patent is invalid and/or unenforceable. Apotex has added antitrust counterclaims. The first two cases were consolidated for discovery. Fact discovery closed on October 15, 2003 and expert discovery was completed in November 2004. The joint pretrial order was submitted May 27, 2005, and the court approved it. The court has scheduled trial in the Apotex matter to begin on April 3, 2006. The Apotex case ~~will be tried without a jury. Plaintiffs~~for trial. A separate trial date has not yet been set. The Companies filed a motion to consolidate the Dr. Reddy’s case with the Apotex case for trial. That motion is pending before the ~~court. In a stipulation approved by the U.S. District Court for the Southern District of New York on April 15, 2005, all parties to the~~Court. The patent infringement ~~litigation~~actions against Teva and Cobalt have ~~agreed that the Teva litigation will be~~been stayed pending resolution of the Apotex ~~and Dr. Reddy’s~~ litigation, and ~~that~~ the parties to ~~the Teva litigation will~~those actions have agreed to be bound by the outcome of the litigation in the District Court against Apotex.

The Company’s U.S. territory partnership under its alliance with Sanofi is also a plaintiff in another pending patent infringement lawsuit instituted in the U.S. District Court of the District of New Jersey against Watson Pharmaceuticals, Inc. and Watson Laboratories, Inc., based on a different patent related to PLAVIX*. This case has also been stayed pending the outcome of the litigation in the District Court against Apotex.

It is not possible at this time reasonably to assess the ultimate outcome of Apotex’s appeal of the preliminary injunction, the underlying patent litigation with Apotex or ~~Dr. Reddy. On April 18, 2005,~~of the ~~Court denied as moot~~other PLAVIX* patent litigation, or the timing of any renewed generic competition for PLAVIX* from Apotex or additional generic competition for PLAVIX* from other third party generic pharmaceutical companies.However, if Apotex were to prevail in its appeal of the preliminary injunction order or in the underlying patent litigation, the Company would expect to face renewed generic competition for PLAVIX* from Apotex promptly thereafter. The full impact of Apotex’s launch of its generic clopidogrel bisulfate product on the Company cannot be reasonably estimated at this time and will depend on a number of factors, including, among others, the amount of generic product sold by Apotex and the pricing of Apotex’s generic product; whether the preliminary injunction is sustained on appeal; when the pending ~~motion~~lawsuit is finally resolved and whether the Companies prevail; even if the preliminary injunction is sustained on appeal and the Companies prevail in the pending patent case, the extent to ~~consolidate~~which the ~~Teva~~launch by Apotex will permanently adversely impact the pricing for PLAVIX*; whether the Companies launch an authorized generic clopidogrel bisulfate product; and, even if the Companies ultimately prevail in the pending lawsuit, the amount of damages, if any, that would be sought and/or recovered by the Companies and Apotex’s ability to pay such damages. The launch had a significant adverse effect on sales in the third quarter, which the Company estimates to be in the range of $525 million to $600 million. In the first, second and third quarters of 2006, U.S. net sales for PLAVIX* were $850 million, $988 million and $474 million, respectively. The Company expects that generic clopidogrel bisulfate that was sold into distribution channels will continue to satisfy a significant majority of prescription demand for the remainder of 2006. In addition, sales of generic clopidogrel bisulfate are expected to have a residual impact on PLAVIX* sales into 2007 – the amount and duration of which will depend on the amount of generic product that Apotex sold into the distribution channels, and the rate at which such product will continue to satisfy overall prescription demand. The Company cannot reliably estimate the 2007 impact at this point in time. As noted above, loss of market exclusivity of PLAVIX* and/or sustained generic competition would be material to the Company’s sales of PLAVIX*, results of operations and cash flows, and could be material to the Company’s financial condition and liquidity.

As previously disclosed, the Company and Sanofi had entered into a proposed settlement with Apotex of the pending PLAVIX* patent litigation, which failed to receive the required antitrust clearances.

As also previously disclosed, the Antitrust Division of the United States Department of Justice is conducting a criminal investigation regarding the proposed settlement. The Company is cooperating fully with the investigation. It is not possible at this time reasonably to assess the outcome of the investigation or its impact on the Company.

As previously disclosed, the Company entered into a Deferred Prosecution Agreement (DPA) with the U.S. Attorney’s Office for the District of New Jersey (USAO) on June 15, 2005. Pursuant to the DPA, the USAO filed a criminal complaint against the Company alleging conspiracy to commit securities fraud, but deferred prosecution of the Company and will dismiss the complaint after two years if the Company satisfies all the requirements of the DPA. Under the terms of the DPA, the USAO, in its discretion, may prosecute the Company for the matters that were the subject of the criminal complaint filed by the USAO against the Company in connection with the DPA should the USAO make a determination that the Company committed any criminal conduct. Under the DPA, “criminal conduct” is defined as any crime related to the Company’s business activities committed by one or more executive officers or director; securities fraud, accounting fraud, financial fraud or other business fraud materially affecting the books and records of publicly filed reports of the Company; and obstruction of justice. It is not possible at this time reasonably to assess the impact, if any, of the pending criminal investigation by the Department of Justice may have on the Company’s compliance with the DPA. Additional information with respect to the DPA is included in “Management’s Discussion and Analysis—SEC Consent Order and Deferred Prosecution Agreement”.

On September 12, 2006, the Board of Directors (the Board) announced that the Company’s then current chief executive officer and general counsel would be leaving their respective positions effective immediately. The announcement took place after the Board received and considered reports from the Company’s outside counsel on issues relating to the PLAVIX* patent litigation with ~~the litigation against~~ Apotex and ~~Dr. Reddy’s, as~~ a ~~result~~preliminary recommendation from the Independent Advisor under the DPA (Monitor) to terminate the employment of such individuals. The Monitor’s recommendation followed an investigation initiated by the USAO investigation that is being conducted by the Monitor and the USAO into corporate governance issues relating to the Company’s negotiations on a proposed settlement with Apotex. The Company has been advised by the Monitor and the USAO that the investigation does not involve matters that are the subject of the ~~Court’s approval~~ongoing investigation by the Antitrust Division of the ~~stipulation. A similar stipulation~~Department of Justice into the PLAVIX* settlement agreement. At the time the Monitor made his preliminary recommendation, the Monitor and the USAO also advised the Company that they had not found a violation of the DPA or any unlawful conduct by the Company or its employees. The investigation is ongoing and has been expanded to include a review of whether there was ~~submitted~~any violation of Federal securities laws in connection with the proposed settlement with Apotex under the terms of the SEC Consent. The Monitor and USAO may make additional findings and recommendations in connection with the Monitor’s final report on the investigation. It is not possible at the time reasonably to assess the ~~court for approval in~~outcome of the ~~Cobalt case~~investigation or its impact on ~~October 12, 2005.~~the Company.

On April 20, 2005, Apotex filed a complaint for declaratory judgment against ~~Sanofi-Aventis,~~Sanofi, Sanofi-Aventis, Inc., and Bristol-Myers Squibb Sanofi Pharmaceuticals Holding Partnership. The complaint seeks a declaratory judgment that the ‘265 patent is unenforceable due to alleged inequitable conduct committed during the prosecution of the patent. The defendants responded by submitting a motion to dismiss, which the court granted on September 12, 2005. Apotex ~~has~~ filed an appeal to the United States Court of Appeals for the Federal Circuit. On March 24, 2006, the appellate court affirmed the Court’s dismissal of the complaint. Apotex did not pursue any further appeals and the time to do so has expired. Thus the Court’s decision is now final.

Four new lawsuits have been filed against the Company in U.S. District Court, Southern District of Ohio, Western Division, bringing to eighteen the number of lawsuits filed by various plaintiffs, including pharmacy chains (individually and as assignees, in whole or in part, of certain wholesalers), various health and welfare benefit plans/funds and individual residents of various states, since the announcement of the March agreement with Apotex in March 2006. These new lawsuits make essentially the same allegations as the prior fourteen suits, alleging, among other things, that the Apotex settlement violates the Sherman Act and related laws; however, three of the new cases include additional allegations regarding the criminal investigation by the USAO. Plaintiffs are seeking, among other things, permanent injunctive relief barring the Apotex settlement and/or monetary damages. The ~~Company’s U.S. territory partnership~~Company and Sanofi are named as defendants in each of the new lawsuits and Apotex is named as a defendant in three of these lawsuits and as an unnamed party in one lawsuit. The new cases are filed as purported class actions on behalf of direct purchasers and have been or are expected to be consolidated under ~~its alliance~~the caption: In re: Plavix Direct Purchaser Antitrust Litigation. It is not possible at this time reasonably to assess the outcome of these lawsuits or their impact on the Company.

On September 1, 2006, certain members of the Board of Directors, current and former officers, and the Company were named in a derivative complaint,Steven W. Sampson v. Peter R. Dolan, et al., (06-CO-3104), filed in New York State Supreme Court. On September 14, 2006, certain members of the Board of Directors, current and former officers, and the Company were named in a derivative complaint,Americo Marchese v. Peter R. Dolan et al., (06-CV-7081), filed in the U.S District Court for the Southern District of New York. The complaints allege, among other things, breaches of fiduciary duty and claims for contribution and indemnification in relation to negotiations with Apotex regarding the PLAVIX* patent litigation. Among other things, the complaints seek money damages, injunctive remedies and other forms of equitable relief. It is not possible at this time reasonably to assess the outcome of these lawsuits or their impact on the Company.

On October 17, 2006, the Company and Sanofi iswere named in a ~~plaintiff in another pending patent infringement lawsuit instituted~~class action complaint, Skilstaf, Inc. v. Bristol-Myers Squibb, Sanofi-Aventis and Sanofi-Synthelabo, Inc. (06-CV-04965), filed in the U.S. District Court, ~~for the~~ District of New ~~Jersey entitled Sanofi-Synthelabo, Sanofi-Synthelabo Inc.~~Jersey. The complaint alleges, among other things, that third party payors were misled into paying for their insureds’ prescriptions of PLAVIX*, despite PLAVIX* providing only minimal benefit to a certain set of patients, and ~~Bristol-Myers Squibb Sanofi Pharmaceuticals Holding Partnership v. Watson Pharmaceuticals, Inc.~~more importantly, posing a serious risk of heart attack, stroke, serious blood disorders or death to people who were prescribed it prophylactically.

Among other things, the complaint seeks money damages and ~~Watson Laboratories, Inc. 2:04-CV-4926. The suit was filed October 7, 2004 and was based~~disgorgement. It is not possible at this time reasonably to assess the outcome of this lawsuit or to estimate the impact on ~~U.S. patent 6,429,210, which discloses and claims a particular crystalline or polymorph form of~~ the ~~hydrogen sulfate salt of clopidogrel, which is marketed as PLAVIX*. The case is in the discovery phase. Fact discovery is scheduled to close on January 16, 2006.~~

As previously reported, Sanofi-Synthelabo and Sanofi-Synthelabo Canada Inc. instituted a prohibition action in the Federal Court of Canada against Apotex Inc. ~~(Apotex)~~ and the Minister of Health in response to a Notice of Allegation (NOA) from Apotex Inc. directed against Canadian Patent 1,336,777 (the ‘777 patent) covering clopidogrel bisulfate. Apotex’s ~~Notice of Allegation (NOA)~~NOA indicated that it had filed an Abbreviated New Drug Submission (ANDS) for clopidogrel bisulfate tablets and that it sought approval (a Notice of Compliance) of that ANDS before the expiration of ~~Canadian Patent 1,336,777,~~the ‘777 patent, which ~~expires~~is scheduled for August 12, 2012. Apotex’s NOA further alleged that the ‘777 patent was invalid or not infringed. A hearing was held from February 21 to February 25, 2005. OnAlso as previously reported, on March 21, 2005, the Canadian Federal Court of Ottawa rejected Apotex’s challenge to the Canadian PLAVIX* patent and held that the asserted claims are novel, not obvious and infringed, and granted Sanofi’s application for an order of prohibition against the Minister of Health and Apotex Inc. That order of prohibition ~~will preclude~~precludes approval of Apotex’s ANDS until the patent expires in 2012, unless the Federal Court’s decision is reversed on appeal. Apotex has filed an ~~appeal.~~appeal, which is scheduled to be heard on December 12-13, 2006.

~~Sanofi-Synthelabo~~As previously disclosed, in June of this year the Korean Intellectual Property Tribunal (IPT) invalidated all claims of Sanofi’s Korean Patent 103,094, including claims directed to clopidogrel and ~~Sanofi-Synthelabo Canada Inc. also instituted a prohibition action in the Federal Court of Canada against Apotex~~pharmaceutically acceptable salts and ~~the Minister of Health in response~~ to a NOA directed against Canadian Patent 2,334,870 covering the form 2 polymorph of clopidogrel bisulfate. Apotex seeks approval of its ANDS before expiration of the ‘870 patent in 2019. Apotex alleges in its NOA that it does not infringe the ‘870 patent and that it is invalid. That action was discontinued.

Sanofi-Aventis and Sanofi-Synthelabo Canada Inc. instituted a prohibition action in the Federal Court of Canada against Novopharm Limited (Novopharm) and the Minister of Health in response to a Notice of Allegation from Novopharm directed against Canadian Patent 1,336,777 covering clopidogrel bisulfate. Novopharm’s NOA indicated that it had filed an ANDS for clopidogrel bisulfate, ~~tablets~~ and ~~that it sought approval (a Notice~~Sanofi has appealed. Sanofi has also commenced infringement actions against three generic pharmaceutical companies, one of ~~Compliance)~~which has launched a generic clopidogrel bisulfate product in Korea. The companies are evaluating the scope and potential impact of that ANDS before the expiration of Canadian Patent 1,336,777, which expires August 12, 2012. Novopharm’s NOA further alleged that the ‘777 patent was invalid. Novopharm has since withdrawn its NOA and agreed to be bound by the result in the Apotex proceeding. The prohibition action has therefore been discontinued.

Sanofi-Aventis and Sanofi-Synthelabo Canada instituted a prohibition action in the Federal Court of Canada against Cobalt Pharmaceuticals Inc. and the Minister of Health in response to a Notice of Allegation from Cobalt directed against Canadian patents 1,336,777 and 2,334,870. Cobalt’s NOA indicated that it has filed an ANDS for clopidogrel bisulfate tablets and that it sought a Notice of Compliance for that ANDS before the expiration of the ‘777 and ‘870 patents. Cobalt alleged that the ‘777 patent was invalid and that the ‘870 patent was invalid and not infringed. The proceeding is in its early stages.

In December 2004, Aircoat Limited (Aircoat) filed a nullity petition in the Court of Session in Glasgow, Scotland. By its nullity petition, Aircoat seeks revocation of European Patent 0 281 459, which has been registered in the United Kingdom. European Patent 0 281 459 covers,~~inter alia~~, clopidogrel bisulfate, the active ingredient in PLAVIX*. Aircoat specifically alleges that the claims of European Patent 0 281 459 are invalid and the UK patent should be revoked on the grounds of lack of novelty and/or lack of inventive step. Aircoat withdrew its nullity petition and the court dismissed the action on August 4, 2005. Aircoat has no right to appeal the dismissal of the action.

~~Although the plaintiffs intend to vigorously pursue enforcement of their patent rights in PLAVIX*, it~~launch. It is not possible at this time to reasonably to assess ~~the outcome of these lawsuits, or, if the Company were not to prevail in these lawsuits, the timing of potential generic competition for PLAVIX*. It also is not possible reasonably to estimate~~ the impact of these ~~lawsuits~~matters on the Company.

However, loss of market exclusivity of PLAVIX* and the subsequent development of generic competition would be material to the Company’s sales of PLAVIX* and results of operations and cash flows, and could be material to its financial condition and liquidity.

TEQUIN. ~~The~~As previously reported, the Company and Kyorin Pharmaceuticals Co., Ltd. (Kyorin) commenced a patent infringement action on March 23, 2004, against Teva Pharmaceuticals USA, Inc. and Teva Pharmaceuticals Industries, Ltd. in the United States District Court for the Southern District of New York, relating to the antibiotic gatifloxacin, for which Kyorin holds the composition of matter patent and which the Company sells as TEQUIN. Teva Pharmaceuticals Industries, Ltd. has since been dismissed from the case. This action relates to Teva’s filing of an ~~ANDA~~Abbreviated New Drug Application (aNDA) for a generic version of gatifloxacin tablets with a certification that the composition of matter patent, which expires in December 2007 but which has been granted a patent term extension until December 2009, is invalid or not infringed. ~~The filing~~On August 22, 2006, the court approved a stipulation of dismissal jointly submitted by the parties. Under the stipulation, plaintiffs’ claims against Teva were dismissed without prejudice, Teva’s

counterclaims concerning claim 4 of the ~~suit places a stay on the approval of~~‘470 patent were dismissed with prejudice, and Teva’s ~~generic product until June 2007, unless there is a court decision adverse to the Company and Kyorin before that date. Trial in this matter~~remaining counterclaims were dismissed without prejudice. The case, accordingly, has been ~~scheduled to begin on May 1, 2006.~~

dismissed. The Company has discontinued the commercialization of TEQUIN for commercial reasons.

TEQUIN (injectable form).~~. The~~As previously reported, the Company and Kyorin commenced patent infringement actions on March 8, 2005, against Apotex, ~~Inc. and Apotex Corp.,~~ and against Sicor Pharmaceuticals, Inc., Sicor Inc., Sicor Pharmaceuticals Sales Inc., Teva Pharmaceuticals USA, Inc., and Teva Pharmaceutical Industries Ltd. in the United States District Court for the Southern District of New York, relating to injectable forms of the antibiotic gatifloxacin, for which Kyorin holds the composition of matter patent and which the Company sells as TEQUIN. The action related to Apotex’s and Sicor’s filing of ~~ANDAs~~aNDAs for generic versions of injectable gatifloxacin with p(IV) certifications that the composition of the matter patent, which expires December 2007 but which was granted a patent term extension until December 2009, is invalid. ~~The~~Also as previously reported, the filing of the lawsuits ~~places~~placed stays on the approvals of both Apotex’s and Sicor’s generic products until July/August 2007, unless there is a court decision adverse to the Company and Kyorin before that date. The Sicor case was consolidated with the above proceeding. In a stipulation approved by the U.S. District Court for the Southern District of New York on August 22, 2005, the parties agreed that the Apotex case will be stayed pending resolution of the Teva and Sicor cases, and that the parties will be bound by the outcome of the above litigation. The stipulation of dismissal of August 22, 2006, discussed in the previous paragraph also applied to the action against Sicor. The Apotex case remains pending.

ERBITUX*.On As previously reported, in October ~~28,~~ 2003, ~~a complaint was filed by~~ Yeda Research and Development Company Ltd. (Yeda) filed suit against ImClone and Aventis Pharmaceuticals, Inc. in ~~the U.S. District Court for the Southern District of New York. This action alleges and seeks~~federal court claiming that three individuals associated with Yeda should ~~also~~ be named as ~~co-inventors on~~inventors of U.S. Patent No. 6,217,866, which covers the therapeutic combination of any ~~EGFR-specific~~EGFR – specific monoclonal antibody and anti-neoplastic agents, such as chemotherapeutic agents, for use in ~~the~~ treatment of cancer. ~~If Yeda’s~~Trial on the matter was completed in early July 2006. On September 18, 2006, the Court issued an opinion and order in which it held that three researchers at Yeda were the sole inventors of the subject matter of the ‘866 patent, and giving complete ownership of the patent to Yeda. ImClone has filed an appeal of the Court’s decision. ImClone also filed a declaratory judgment action ~~were successful,~~in the United States District Court for the Southern District of New York. The complaint alleges that if the Yeda ~~could be in a position to practice, or to license others to practice,~~researchers remain sole inventors of the ~~invention. This could result in product competition for ERBITUX* that might not otherwise occur.~~‘866 patent, the patent is invalid. The Company, which is not a party to this action, is unable to predict the outcome of these proceedings.

As a result of the Court’s decision, Yeda may seek damages for infringement with respect to past ERBITUX* sales and royalties on future ERBITUX* sales. Yeda also has the right to license the patent to others. Yeda’s license of the patent to third parties could result in product competition for ERBITUX* that might not otherwise occur. It is too early to assess whether and to what extent any such competitive impact will occur or to quantify any such impact. However, Yeda has announced that it has licensed the patent to Amgen Inc. (Amgen). Amgen recently received FDA approval to market an EGFR product that competes with ERBITUX*. Under its commercial agreement with ImClone, the Company pays a royalty to ImClone on sales of ERBITUX* that is not impacted by the Court’s decision.

The agreement between ImClone and the Company also includes provisions pursuant to which certain financial consequences to the Company resulting from the decision would be the responsibility of ImClone. In addition, the Company owns 14.4 million shares of ImClone common stock, which the Company accounts for under the equity method of accounting and has a carrying value of $97 million, or $6.71 per share at ~~this stage~~September 30, 2006. The market value of ImClone common stock at September 30, 2006 was $28.32. There can be no assurance that the Company will be able to realize fully the benefits of the contractual protections in its commercial agreement with ImClone or that there will not be any other financial consequences to the Company as a result of the Court’s decision.

ORENCIA.As previously reported, on January 6, 2006, Repligen and the Regents of the University of Michigan filed a complaint against the Company in the ~~proceedings.~~

United States District Court for the Eastern District of Texas, Marshall Division. ORENCIA was launched in February 2006. The complaint alleges that the Company’s then-anticipated sales of ORENCIA will infringe U.S. Patent 6,685,541. On ~~May 5, 2004, RepliGen Corporation (Repligen) and Massachusetts Institute of Technology (MIT)~~August 14, 2006, Zymogenetics, Inc. filed a ~~lawsuit~~complaint against the Company in the United States District Court for the District of ~~Massachusetts against ImClone claiming~~Delaware. The complaint alleges that ~~ImClone’s~~the Company’s manufacture and ~~sale of ERBITUX* infringes a patent which generally covers a process for protein production in mammalian cells. Repligen and MIT seek damages based on~~ sales of ~~ERBITUX* which commenced in February 2004. The patent expired on May 5, 2004, although Repligen~~ORENCIA infringe U.S. Patents 5,843,725 and ~~MIT are seeking extension of the patent. The Company, which is not a party to this action, is unable to predict the outcome at this stage in the proceedings.~~

~~ABILIFY~~*. On August 11, 2004, Otsuka filed with the United States Patent and Trademark Office (USPTO) a Request for Reexamination of U.S. composition of matter patent covering ABILIFY*, an antipsychotic agent used for the treatment of schizophrenia and related psychiatric disorders (U.S. Patent Number No. 5,006,528, the “528 Patent”) that expires in 2009, and may be extended until 2014 if pending supplemental protection extensions are granted. Otsuka has determined that the original ‘528 Patent application contained an error in that the description of a prior art reference was identified by the wrong patent number. In addition, Otsuka has taken the opportunity to bring other information to the attention of the USPTO. The USPTO has granted the Request for Reexamination and the reexamination proceeding is ongoing. The reexamination proceeding will allow the USPTO to consider the patentability of the patent claims in light of the corrected patent number and newly cited information. The USPTO is expected to make a final decision on the reexamination before the end of 2006.

The Company and Otsuka believe that the invention claimed in the ‘528 Patent is patentable over the prior art and expect that the USPTO will reconfirm that in the reexamination. However, there can be no guarantee as to the outcome. If the patentability of the ‘528 Patent were not reconfirmed following a reexamination, there may be sooner than expected loss of market exclusivity of ABILIFY* and the subsequent development of generic competition which would be material to the Company.

In April, May and June 2000, the Company, its former chairman of the board and chief executive officer, Charles A. Heimbold, Jr., and its former chief scientific officer, Peter S. Ringrose, Ph.D., were named as defendants in a number of class action lawsuits alleging violations of federal securities laws and regulations. These actions have been consolidated into one action in the U.S. District Court for the District of New Jersey. The plaintiff claims that the defendants disseminated materially false and misleading statements and/or failed to disclose material information concerning the safety, efficacy and commercial viability of, VANLEV, a drug in development, during the period November 8, 1999 through April 19, 2000.

In May 2002, the plaintiff submitted an amended complaint adding allegations that the Company, its former chairman of the board and current chief executive officer, Peter R. Dolan, its former chairman of the board and chief executive officer, Charles A. Heimbold, Jr., and its former chief scientific officer, Peter S. Ringrose, Ph.D., disseminated materially false and misleading statements and/or failed to disclose material information concerning the safety, efficacy, and commercial viability of VANLEV during the period April 19, 2000 through March 20, 2002. A number of related class actions, making essentially the same allegations, were also filed in the U.S. District Court for the Southern District of New York. These actions have been transferred to the U.S. District Court for the District of New Jersey.

The Company filed a motion for partial judgment in its favor based upon the pleadings. The plaintiff opposed the motion, in part by seeking again to amend its complaint. The court granted in part and denied in part the Company’s motion and ruled that the plaintiff may amend its complaint to challenge certain alleged misstatements.

The court certified two separate classes: a class relating to the period from November 8, 1999 to April 19, 2000 (the “First Class Period”) and a class relating to the period from March 22, 2001 to March 20, 2002 (the “Second Class Period”). The First Class Period involves claims related to VANLEV’s efficacy, safety and/or potential to be a blockbuster drug. The Second Class Period involves claims related to VANLEV’s potential to be a blockbuster drug. The class certifications are without prejudice to defendants’ rights to fully contest the merits of plaintiff’s claims. The plaintiff seeks compensatory damages, costs and expenses on behalf of shareholders with respect to the two class periods.

On December 17, 2004, the Company and the other defendants made a motion for summary judgment as to all of plaintiff’s claims. In January 2005, the plaintiff moved for leave to file a third amended complaint, seeking to combine the two class periods into one expanded class period from October 19, 1999 through March 19, 2002 and to add further allegations that the Company, Peter R. Dolan, Charles A. Heimbold, Jr., and Peter S. Ringrose, Ph.D. disseminated materially false and misleading statements and or failed to disclose material information concerning the safety, efficacy and commercial viability of VANLEV. The Magistrate Judge denied the plaintiff’s motion. Plaintiff appealed to the District Court.

On August 17, 2005, the Court granted in part and denied in part the summary judgment motion and also affirmed the Magistrate Judge’s denial of plaintiff’s motion for leave to amend their complaint. The Court also dismissed two of the three individual defendants, Peter R. Dolan and Peter S. Ringrose, from the case.

On October 18, 2005 the parties participated in a court-ordered mediation of the litigation. The parties are required to respond to the mediator’s proposed number to settle the litigation on November 15, 2005. A settlement of the matter could be material to results of operations.

6,018,026. It is not possible at this time reasonably to assess the ~~final~~ outcome of ~~this litigation~~these lawsuits or ~~reasonably to estimate~~their impact on the ~~possible loss or range of loss with respect to this litigation. If the Company were not to prevail~~Company.

As previously reported, in ~~final, non-appealable determinations of this litigation, the impact could be material to results of operations.~~

~~In 2002, the Company and~~September 2005, certain of ~~its~~the Company’s current and former officers were named ~~as defendants~~ in a ~~number of securities~~purported class ~~actions, which were consolidated~~action,Starkman v. Bristol-Myers Squibb et al, filed in New York State Supreme Court alleging factual claims similar to the now resolved federal class action in the ~~United States District Court for the~~U.S. Southern District of New ~~York. In 2003, the plaintiffs filed a consolidated amended class action complaint alleging~~York related to alleged violations of federal securities laws and regulations in connection with sales incentives and wholesaler inventory levels, and ~~ImClone, and ImClone’s product, ERBITUX*. In 2004, the Court certified the action as a class action, approved a settlement of the action, and dismissed the case with prejudice.~~

Approximately 58 million shares were excluded from this class action settlement pursuant to requests for exclusion. Of those, plaintiffs purporting to hold approximately 44.5 million shares brought four suits in New York State Supreme Court. Those four actions have been settled and dismissed with prejudice.

Also in 2002 and 2003, certain of the Company’s current and former officers and directors were named as defendants in a number of derivative suits, which were consolidated in the United States District Court for the Southern District of New York. Plaintiffs filed a consolidated, amended, derivative complaint against certain members of the board of directors, current and former officers, PwC and the Company. That complaint alleged, among other things, violations of federal securities laws and breaches of fiduciary duty by certain individual defendants in connection with the Company’s conduct concerning, among other things: safety, efficacy and commercial viability of VANLEV (as discussed above); the Company’s sales incentives to certain wholesalers and the inventory levels of those wholesalers; the Company’s investment in and relations with ImClone and ImClone’s product ERBITUX*; and alleged anticompetitive behavior in connection with BUSPAR and TAXOL^®. The lawsuit also alleged malpractice (negligent misrepresentation and negligence) by PwC. The parties reached a settlement of the action, under which the Company agreed to adopt certain corporate governance enhancements and not to oppose plaintiffs’ attorneys’ request for up to $4.75 million in fees. On May 13, 2005, the District Court approved the settlement and dismissed the action with prejudice. In July 2005, the Court awarded plaintiffs $3.5 million in attorneys fees, which were paid from directors’ and officers’ liability insurance proceeds. On June 8, 2005, a shareholder filed a notice of appeal with the Second Circuit. On August 17, 2005, that appeal was dismissed. Two similar actions which were pending in New York State court have been dismissed with respect to the Company and its current and former officers and directors.

On August 4, 2004, the Company entered into a final settlement with the SEC, concluding an investigation concerning certain wholesaler inventory and accounting matters. The Company agreed, without admitting or denying any liability, not to violate certain provisions of the securities laws. The Company also agreed to establish a $150 million fund, which will be distributed to certain Company shareholders under a plan of distribution established by the SEC.

The settlement does not resolve the ongoing investigation by the SEC of the activities of certain current and former members of the Company’s management in connection with the wholesaler inventory issues and other accounting matters. The Company is continuing to cooperate with this investigation.

On June 15, 2005, the United States Attorney’s Office for the District of New Jersey (the Office) filed a criminal complaint charging the Company with conspiracy to commit securities fraud in connection with a previously disclosed investigation by that Office, concerning the inventory and various accounting matters covered by the Company’s settlement with the SEC. In connection with the filing of that complaint, the Company and the Office entered into a Deferred Prosecution Agreement. Pursuant to that Agreement, the Company agreed to maintain and continue to implement remedial measures pursuant to the settlement with the SEC, take certain additional remedial actions and continue to cooperate with the U.S. Attorney’s Office, including with respect to the ongoing investigation regarding individual current and former employees of the Company, as well as to make an additional payment of $300 million into the fund for shareholders established pursuant to the Company’s settlement with the SEC. If the Company fulfills its obligations under the Deferred Prosecution Agreement, the Office will dismiss the criminal complaint two years from the date of its filing.

The Company and a number of the Company’s current and former officers were named as defendants in a purported class action filed in 2004 in the Circuit Court of Cook County, Illinois. The complaint made factual allegations similar to those made in the settled federal class action in the Southern District of New York and assertedasserting common law fraud and breach of fiduciary duty claims on behalf of ~~stockholders who purchased~~certain of the Company’s ~~stock before~~stockholders. In October 19, 1999 and held their stock through March 10, 2003. The Company removed the action to the United States District Court for the Northern District of Illinois and on July 1, 2005, the District Court dismissed the case with prejudice. On September 21, 2005, a similar case was filed in New York State Supreme Court. On October 7, 2005, the Company removed ~~that~~the case to the United States District Court for the Southern District of New York.

On In November ~~18, 2004, a~~2005, the plaintiff moved to remand the matter to state court. The matter was stayed until the Supreme Court, in March 2006, entered its decision in another case which held that holder class ~~action complaint was filed in~~actions asserting securities fraud claims under state law, likeStarkman, are preempted under federal law. Following oral argument, the ~~United States District~~ Court for the Eastern District of Missouri against the Company, D&K Healthcare Resources, Inc. (D&K) and several current and former D&K directors and officers on behalf of purchasers of D&K stock between August 10, 2000 and September 16, 2002. The complaint alleges that the Company participated in fraudulently inflating the value of D&K stock by allegedly engaging in improper “channel-stuffing” agreements with D&K. BMS filed adenied plaintiff’s motion to dismiss this case on January 28, 2005. That motion is under consideration by the court. Under the Private Securities Litigation Reform Act, discovery is automatically stayed pending the outcome of the motion to dismiss. The plaintiff has moved to partially lift the automatic stay. The court is considering that motion.remand in an order dated September 27, 2006.

In December 2002 and the first quarter of 2003, the Company and others were named as defendants in five class actions brought under the Employee Retirement Income Security Act (ERISA) in the U.S. District Courts for the Southern District of New York and the District of New Jersey. These actions have been consolidated in the Southern District of New York under the caption~~In re Bristol-Myers Squibb Co. ERISA Litigation~~, 02 CV 10129 (LAP). An Amended Consolidated Complaint was served on August 18, 2003. A Second Amended Consolidated Complaint was filed on May 27, 2005 on behalf of four named plaintiffs and a putative class consisting of all participants in, or beneficiaries of, the Bristol-Myers Squibb Company Savings and Investment Program (Savings Plan) at any time between January 1, 1999 and March 10, 2003 whose accounts included investment in Company stock. The named defendants are the Company, the Bristol-Myers Squibb Company Savings Plan Committee (Committee), thirteen individuals who presently serve on the Committee or who served on the Committee in the recent past, Charles A. Heimbold, Jr. and Peter R. Dolan (the past and present Chief Executive Officers, respectively, and the Company). The Second Amended Consolidated Complaint generally alleges that the defendants breached their fiduciary duties under ERISA during the class period by, among other things, imprudently investing assets of the Savings Plan in Company stock; misrepresenting and failing to disclose truthful and adequate information about Company stock as a Savings Plan investment; and operating under conflicts of interest. In addition, all defendants except Heimbold and Dolan were alleged to have failed to monitor the other Savings Plan fiduciaries. These ERISA claims are predicated upon factual allegations similar to those raised in “Other Securities Matters” above, concerning, among other things: the safety, efficacy and commercial viability of VANLEV; the Company’s sales incentives to certain wholesalers and the inventory levels of those wholesalers; and alleged anticompetitive behavior in connection with BUSPAR and TAXOL^®.

On June 6, 2005, counsel for plaintiffs and the Company entered into a Stipulation and Agreement of Settlement (Settlement). The Settlement provides, among other things, that the Company pay to the BMS Savings Plan Master Trust approximately $41 million less plaintiffs’ attorneys’ fees, costs and certain expenses (including notice costs). Additionally, the Company agreed to certain structural changes relating to plan administration and participant education. The Settlement provides for certification, for Settlement purposes only, of a class consisting of all persons who were participants in, or beneficiaries of, (i) the Bristol-Myers Squibb Company Savings and Investment Program; (ii) the Bristol-Myers Squibb Puerto Rico, Inc. Savings and Investment Program; and (iii) the Bristol-Myers Squibb Company Employee Incentive Thrift Plan, at any time between January 1, 1999 and March 10, 2003 and whose accounts in such plans included investments in the Bristol-Myers Squibb Company Stock Fund (excluding the individual defendants). The U.S. District Court for the Southern District of New York preliminarily approved the Settlement on June 22, 2005. Notice of the Settlement was completed by August 22, 2005. On October 12, 2005, the Court conducted a fairness hearing, issued final approval of the Settlement and awarded attorneys’ fees.

~~The~~As previously disclosed, the Company, together with a number of defendants, is a defendant in a number of private civil matters relating to its pricing practices. In addition, the Company, together with a number of other pharmaceutical manufacturers, is a defendant in several private class actions and in actions brought by the Nevada, Montana, Pennsylvania, Wisconsin, Kentucky, Illinois, Alabama and California Attorneys General, the City of New York and several New York counties that are pending in federal and state courts relating to the pricing of certain Company products. The federal cases, and some related state court cases that were removed to federal courts, have been consolidated for pre-trial purposes under the caption~~In re Pharmaceutical Industry Average Wholesale Price Litigation~~, MDL No. 1456, Civ. Action No. 01-CV-12257-PBS, before United States District Court Judge Patti B. Saris in the United States District Court for the District of Massachusetts (AWP Multidistrict Litigation). The Amended Master Complaint contains two sets of allegations against the Company. First, it alleges that the Company’s and many other pharmaceutical manufacturers’ reporting of prices for certain drug products (20 listed drugs in the Company’s case) had the effect of falsely overstating the Average Wholesale Price (AWP) published in industry compendia, which in turn improperly inflated the reimbursement paid to medical providers, pharmacists, and others who prescribed, administered or sold those products to consumers. Second, it alleges that the Company and certain other defendant pharmaceutical manufacturers conspired with one another in a program called the “Together Rx Card Program” to fix AWPs for certain drugs made available to consumers through the Program. The Amended Master Complaint asserts claims under the federal RICO and antitrust statutes and state consumer protection and fair trade statutes.

The Amended Master Complaint is brought on behalf of two main proposed classes, whose definitions have been subject to further amendment as the case has progressed. As of December 17, 2004, those proposed classes may be summarized as: (1) all persons or entities who, from 1991 forward, paid or reimbursed all or part of a listed drug under Medicare Part B or under a private contract that expressly used AWP as a pricing standard and (2) all persons or entities who, from 2002 forward, paid or reimbursed any portion of the purchase price of a drug covered by the Together Rx Card Program based in whole or in part on AWP. The first class is further divided into several proposed subclasses depending on whether the listed drug in question is physician-administered, self-administered, sold through a pharmacy benefits manager or specialty pharmacy, or is a brand-name or generic drug. On September 3, 2004, plaintiffs in the AWP Multidistrict Litigation moved for certification of a proposed plaintiff class. The parties briefed that motion, as it related to the amended proposed definition of the first main class and sub-classes discussed above, and motion was heard by the Court on February 10, 2005.

In a Memorandum and Order dated August 16, 2005, the Court declined to certify any proposed classes as to pharmacy-dispensed drugs. It did, however, certify a class under the Massachusetts consumer fraud statute for persons and entities that paid for certain physician-administered drugs based on AWPs. The Court indicated that it would also certify a nationwide class of individual Medicare Part B beneficiaries who made an AWP-based co-payment for physician-administered drugs if plaintiffs were able to find suitable class representatives. Defendants have petitioned the United States Court of Appeals for the First Circuit for permission to appeal the certification of the Massachusetts-based classes. That petition is pending.

Discovery in the AWP Multidistrict Litigation closed as to the Company and four other defendant manufacturers on August 31, 2005. The current schedule calls for identification of proposed class representatives for the Medicare Part B class, challenges to those proposed representatives, expert reports, expert depositions and summary judgment briefing on liability issues during the second half of 2005 into early 2006.

The cases commenced by the Nevada, Montana, Pennsylvania, Wisconsin, Kentucky, Illinois, Alabama, and California Attorneys General (the Attorneys General AWP Cases) and the cases commenced by New York City and several New York counties (the New York City & County AWP Cases) include fraud and consumer protection claims, or in the case of California, state False Claims Act claims, similar to those in the Amended Master Complaint. Certain of the states, city and counties also have made additional allegations that defendants, including the Company, have violated state Medicaid statutes by, among other things, failing to provide the states with adequate rebates required under federal law.

In a series of decisions in June, September, and October 2004, affecting the Montana Attorney General’s case and the New York City & County AWP Cases which are proceeding in the AWP Multidistrict Litigation in coordination with the private class actions, the Court declined to find that the Medicaid rebate claims were preempted by federal law, but nevertheless dismissed many of the claims relating to “rebate” payments made by several drug manufacturers, including those claims relating to the Company as insufficiently pled. The Court allowed to proceed the state law claims that allege that the Company misreported AWPs. The Company has filed its answer to the claims remaining in the Montana Attorney General’s complaint. On June 15, 2005, New York City and all of the Counties that have sued thus far (except Suffolk, Nassau and Erie Counties, which continue to proceed separately) served the Company and other manufacturers with a Consolidated Complaint. The Consolidated Complaint contains claims similar to those in the prior, individual complaints of the City and Counties. Defendants anticipate moving to dismiss the Consolidated Complaint.

~~The Company also joined with other defendants in a motion to dismiss the Pennsylvania Attorney General’s action~~.In a decision filed February 1, 2005, the Pennsylvania Commonwealth Court granted the motion to dismiss on the ground that the plaintiff had failed to plead the complaint with the requisite particularity. The Attorney General has since served an Amended Complaint to which defendants have objected. Defendants’ objections to the Pennsylvania Complaint have been fully briefed and were heard by the Commonwealth Court on June 8, 2005. On July 16, 2004, the Nevada court denied the Company’s and other defendants’ motions to dismiss the complaint except as to the state RICO claim and granted the Attorney General leave to replead, in an opinion that was based on the prior rulings of the AWP Multidistrict Litigation Court. The Nevada court subsequently entered an order coordinating all discovery in that case with that in the AWP Multidistrict Litigation. The Company and other defendants also have made motions to dismiss in the other Attorneys General AWP Cases, with the exception of the California case which was not unsealed as to the Company until August 2005. Those motions to dismiss are currently pending.

The Company is also one of a number of defendants in a private class action making AWP based claims in Arizona state court and New Jersey state court. The Arizona case is currently stayed. The New Jersey case has been removed to the AWP Multidistrict Litigation Court where a motion is pending that will determine whether the case remains for pre-trial purposes in that Court or is remanded to New Jersey state court.

On or about October 8, 2004, the Company was added as a defendant in a putative class action previously commenced against other drug manufacturers in federal court in Alabama. The case was brought by two health care providers that are allegedly entitled under a federal statute, Section 340B of the Public Health Service Act, to discounted prices on prescription drugs dispensed to the poor in the

providers’ local areas. The plaintiff health care providers contend that they and an alleged class of other providers authorized to obtain discounted prices under the statute may in fact not have received the level of discounts to which they are entitled. The Amended Complaint against the Company and the other manufacturers asserts claims directly under the federal statute, as well as under state law for unjust enrichment and for an accounting. The Company joined in a motion to dismiss the Complaint that was filed by the original manufacturer defendants and that, with the court’s approval, was made applicable to the Amended Complaint. By order dated September 30, 2005, the Alabama federal court denied the motion to dismiss. Accordingly, the Company anticipates filing an answer to the Amended Complaint in the Alabama Section 340B case. In August 2005, the Company was among several drug manufacturers named as a defendant in a similar case involving Section 340B of the Public Health Service Act filed in California state court by the County of Santa Clara. The defendants have removed that case to federal court in California.

These cases are at a very preliminary stage, and the Company is unable to assess the outcome and any possible effects on its business and profitability, or reasonably estimate possible loss or range of loss with respect to these cases. If the Company were not to prevail in final, non-appealable determinations of these litigations and investigations, the impact could be material.

~~The Company, together with a number of other pharmaceutical manufacturers, also~~ has received subpoenas and other document requests from various government agencies seeking records relating to its pricing, sales ~~and~~ marketing practices and ~~“Best Price”~~best price reporting, ~~for drugs covered~~including ongoing investigations by Medicare and/or Medicaid. The requests for records have come from the U.S. Attorneys’ Offices for the District of Massachusetts, the Eastern District of Pennsylvania, and the Northern District of Texas, the Civil Division of the Department of Justice, the Offices of the Inspector General of the Department of Health and Human Services and the Office of Personnel Management (each in conjunction with the Civil Division of the Department of Justice), and several states. In addition, requests for information have come from the House Committee on Energy & Commerce and the Senate Finance Committee in connection with investigations that the committees are currently conducting into Medicaid Best Price issues and the use of educational grants by pharmaceutical companies.

As previously disclosed, in mid-2003, the Company initiated an internal review of certain of its sales and marketing practices, focusing on whether these practices comply with applicable anti-kickback laws and analyzing these practices with respect to compliance with (1) Best Price reporting and rebate requirements under the Medicaid program and certain other U.S. governmental programs, which reference the Medicaid rebate program and (2) applicable FDA requirements. The Company has met with representatives of the U.S. Attorney’s Office for the District of Massachusetts and the Civil Division of the Department of Justice. The Company continues to ~~discuss~~cooperate with these investigations.

With respect to the review and has received related subpoenas from that U.S. Attorney’s Office, including a subpoena received on May 5, 2005 for documents relating to possible off label promotion of ABILIFY*. The Company’s internal review is expected to continue until resolution of pending governmental investigations, ~~of related matters.~~

~~The~~the Company is producing documents and actively cooperating in the investigations, which could result in the assertion of civil and/or criminal claims. The Company has reserves for liabilities in relation to pharmaceutical pricing and sales and marketing practices of ~~$134~~$146 million. It is not possible at this time to reasonably assess the final outcome of these matters. However, the Company is in active discussions with the Boston U.S. Attorney’s Office and those discussions potentially could lead to an agreement in principal to resolve some or all of those matters as early as the fourth quarter of 2006. There can be no assurance when or whether such a settlement may be reached or, as to its terms. In accordance with GAAP, the Company has determined that the above amount represents minimum expected probable ~~losses~~loss with respect to these matters, which ~~losses~~loss could include the imposition of fines, penalties, administrative remedies and/or liability for additional rebate amounts. ~~Eventual~~There is a significant possibility that eventual losses related to these matters may exceed ~~these~~the reserves, and the further impact could be material. The Company does not believe that the ~~top–end~~top-end of the range for these losses can be estimated. If the Company were not to prevail in final, ~~non–appealable~~non-appealable determinations of these ~~litigations and~~ investigations, the impact could be material.

As previously disclosed, in 2004 the Company undertook an analysis of its methods and processes for calculating prices for reporting under governmental rebate and pricing programs related to its U.S. Pharmaceuticals business. The analysis was completed in early 2005. Based on the analysis, the Company identified the need for revisionsWith respect to the ~~methodology and processes used for calculating~~private civil matters, as previously reported, ~~pricing and related rebate amounts and implemented these revised methodologies and processes beginning with its reporting to~~ the Federal government agency with primary responsibility for these rebate and price reporting obligations, the Centers for Medicare and Medicaid Services (CMS) in the first quarter of 2005. In addition, using the revised methodologies and processes, the Company also has recalculated the “Best Price and “Average Manufacturer’s Price” required to be reported under the Company’s federal Medicaid rebate agreement and certain state agreements, and the corresponding revised rebate liability amounts under those programs for the three-year period 2002 to 2004. Upon completion of the analysis in early 2005, the Company determined that the estimated rebate liability for those programs for the three-year period 2002 to 2004 was actually less than the rebates that had been paid by the Company for such period. Accordingly, in the fourth quarter of 2004, the Company recorded a reduction to the rebate liability in the amount of the estimated overpayment. The Company’s proposed revisions and an updated estimate have been submitted for review to CMS. The Department of Justice (DOJ) has informed the Company that it also is reviewing the submission in conjunction with the previously disclosed subpoena received by the Company from the DOJ relating to, among other things, “Best Price” reporting for drugs covered by Medicaid as discussed in more detail above, and has requested the Company to provide additional information regarding the proposed revisions and estimate. These agencies may take the position that further revisions to the Company’s methodologies and calculations are required. Upon completion of governmental review, the Company will determine whether any further recalculation of the liability from the Company under the identified programs for any period or under any other similar programs is necessary or appropriate. The Company believes, based on current information, that any such recalculation is not likely to result in material rebate liability. However, due to the uncertainty surrounding the recoverability of the Company’s estimated overpayment arising from the review process described above, the Company recorded a reserve in an amount equal to the estimated overpayment.

~~The~~ Company, together with a number of other pharmaceutical manufacturers, ~~has been named as~~is a defendant in ~~an action filed~~private class actions, as well as suits brought by the attorneys general of several states and by numerous New York counties and the City of New York, which are pending in ~~California State Superior~~federal and state courts. In these actions, plaintiffs allege defendants caused the Average Wholesale Prices (AWPs) of their products to be inflated, thereby injuring government programs, entities and persons who reimbursed prescription drugs based on AWPs. The federal cases and several of the state attorneys general actions and suits of New York Counties and the City of New York have been consolidated for pre-trial purposes in the U.S. District Court for the District of Massachusetts (AWP MDL). The Court in ~~Oakland,~~~~James Clayworth et al. v. Bristol-Myers Squibb Company, et al.,~~ ~~alleging that~~ the ~~defendants have conspired to fix~~AWP MDL has certified three classes of persons and entities who paid for or reimbursed for seven of the ~~prices~~Company’s physician-administered drugs. The trial for Classes 2 and 3 (insurance companies and health and welfare funds in Massachusetts) will commence on November 6, 2006 and will be a non-jury trial. A trial date for the claims of pharmaceuticals by agreeing to charge more for their drugs in the United States than they charge outside the United States, particularly Canada, and asserting claims under California’s Cartwright Act and unfair competition law. The plaintiffs seek treble damages for any damages they have sustained; restitution of any profit obtained by defendants through charging artificially higher prices to plaintiffs; an injunction barring the defendants from charging the plaintiffs higher prices offered to other customers; an award of reasonable attorneys’ fees and costs; and any other relief the Court deems proper.

~~This case~~Class 1 (Medicare Part B beneficiaries nationwide) has not yet been set. It is not possible at ~~a preliminary stage, and the Company is unable~~this time reasonably to assess the outcome ~~and any possible effect~~of these lawsuits or their impact on ~~its business and profitability, or reasonably estimate possible loss or range of loss with respect to this case. If~~the Company.

As also previously reported, the Company ~~were not to prevail~~is one of many defendants in ~~a final, non-appealable determination of this litigation, the impact could be material.~~

The Company also has been named as a defendant, along with many other pharmaceutical companies, in an action brought by the Utility Consumers Action Network, a consumer advocacy organization which focuses on privacy issues. The lawsuit,two putative class actions, filed in federal courts in California ~~State Superior Court, San Diego County,~~ and ~~entitled Utility Consumers Action Network~~Alabama, respectively, allegedly on behalf of entities entitled to discounted pricing pursuant to Section 340B of the ~~Privacy Rights Clearinghouse, et al. v. Bristol-Myers Squibb Co., et al,~~Public Health Services Act, which requires prescription drug manufacturers to offer discounts to qualified medical providers – generally those who disproportionately service poor people. In September, 2006, an order was ~~originally directed only at retail drug stores but was amended in July, 2004 to add~~entered dismissing the Company and the other pharmaceutical companies as defendants. Another lawsuit, Rowan Klein, a Representative Action on Behalf of Similarly Situated Persons and the Consuming Public, v. Walgreen’s, et al., was filed in February 2005, also in California State Superior Court, San Diego County, against retail pharmacies, the Company and other pharmaceutical companies, and is substantially the same as the Utility Consumers Action Network lawsuit (jointly referred to as “the Complaints”). The Complaints seek equitable relief, monetary damages and attorneys’ fees based upon allegedly unfair business practices and untrue and misleading advertising under various California statutes, including the California Confidentiality of Medical Information Act. Specifically, the Complaints allege that through the “Drug Marketing Program”, retail stores are selling consumers’ confidential medical information to companies. The Complaints further allege that the companies are using consumers’ medical information for direct marketing that increase the sale of targeted drugs.

Both cases are at a very preliminary stage, and the Company is unable to assess the outcome and any possible effect on its business and profitability, or reasonably estimate possible loss or range of loss with respect to this case. If the Company were not to prevail in a final, non-appealable determination of these two lawsuits, the impact could be material.

The Company is a party to product liability lawsuits. As previously reported, these lawsuits ~~involving allegations of injury caused by the Company’s pharmaceutical and over-the-counter medications. These lawsuits involve~~include certain over-the-counter medications containing phenylpropanolamine, ~~(PPA),~~ while others involve hormone replacement therapy (HRT) products, polyurethane-covered breast implants and smooth-walled breast implants and the Company’s SERZONE ~~and STADOL NS~~ prescription ~~drugs.~~drug. In addition to lawsuits, the Company also faces unfiled claims involving ~~the same~~these and other products.

~~PPA~~SERZONE.~~. The Company remains a defendant~~ As previously reported, the plaintiffs in 14 lawsuits filed on behalf of 14 plaintiffs alleging damages for personal injuries resulting from the ingestion of PPA-containing products. The Company has established reserves with respect to the PPA product liability litigation. The Company believes that the remaining matters will be resolved within the amounts reserved.

~~SERZONE~~. SERZONE (nefazodone hydrochloride) is an antidepressant that was launched by the Company in May 1994 in Canada and in March 1995 in the United States. In December 2001, the Company added a black box warning to its SERZONE label warning of the potential risk of severe hepatic events including possible liver failure and the need for transplantation and risk of death. Within several months of the black box warning being added to the package insert for SERZONE, a number of lawsuits, including several class actions, were filed against the Company. Plaintiffsthis mass-tort litigation allege, among other things, that the Company knew or should have known about the hepatic risks posed by SERZONE and failed to adequately warn physicians and users of the risks. ~~They seek compensatory and punitive damages, medical monitoring, and refunds for the costs of purchasing SERZONE. In May 2004,~~On August 14, 2006, the Company ~~announced that, following an evaluation of~~agreed to proceed with the ~~commercial potential of the product after generic entry into the marketplace~~MDL settlement and ~~rapidly declining brand sales, it had decided to discontinue the manufacture and sale of the product in the U.S. effective June 14, 2004.~~

At present, the Company has approximately 217 lawsuits, on behalf of approximately 2,631 plaintiffs, pending against it in federal and state courts throughout the United States. Twenty-seven of these cases are pending in New York State Court and have been consolidated for pretrial discovery. In addition, there are approximately 654 alleged, but unfiled, claims of injury associated with SERZONE. In August 2002, the federal cases were transferred to the U.S. District Court for the Southern District of West Virginia,In

~~re Serzone Products Liability Litigation~~, MDL 1477. In June 2003, the District Court dismissed the class claims in all but two of the class action complaints. A purported class action has also been filed in Illinois. In addition to the cases filed in the United States, there are four national class actions filed in Canada.

not exercise its back-end opt-out right. Without admitting any wrongdoing or liability, on or around ~~October 15, 2004,~~September 19, 2006, the Company ~~entered into a settlement~~reached an agreement in principle with respect to all claims in ~~the United States and its territories~~Canada regarding SERZONE. The settlement agreement embodies a schedule of payments dependent upon whether the class member has developed a qualifying medical condition, whether he or she can demonstrate that they purchased or took SERZONE, and whether certain other criteria apply. Pursuant to the settlement agreement, plaintiffs’ class counsel filed a class action complaint seeking relief for the settlement class. Pursuant to the terms of the proposed settlement, all claims will be dismissed, the litigation will be terminated, the defendants will receive releases and the Company ~~commits~~committed to paying at least ~~$70~~$1 million tointo funds for class members. Class Counsel has petitioned the court for an award of reasonable attorneys’ fees and expenses; the fees will be paid by the Company and will not reduce the amount of money paid to class members as part of the settlement. The Company may terminate the settlement based upon the number of claims submitted or the number of purported class members who opt not to participate in the settlement and instead pursue individual claims. On November 18, 2004, the District Court conditionally certified the temporary settlement class and preliminarily approved the settlement. The opt-out period ended on April 8, 2005. Potential class members could have entered the settlement up to and including May 13, 2005. The fairness hearing occurred on June 29, 2005. On September 2, 2005, the Court issued an opinion granting final approval of the settlement; the order approving the settlement was entered on September 9, 2005.

In the second quarter of 2004, the Company established reserves for liabilities for these lawsuits of $75 million, including reasonable attorney’s fees and expenses. It is not possible at this time to reasonably assess the final outcome of these lawsuits due to a number of contingencies that could affect the settlement. In accordance with GAAP, the Company has determined that the above amounts represent minimum expected probable losses with respect to these lawsuits. Eventual losses related to these lawsuits may exceed these reserves, and the further impact could be material. The Company does not believe that the top-end of the range for these losses can be estimated.

~~STADOL NS~~. The Company remains a defendant in 8 lawsuits filed on behalf of 27 plaintiffs alleging damages for personal injuries resulting from the use of STADOL NS; the Company is finalizing the settlement of 7 of those lawsuits involving 26 plaintiffs. The Company has established reserves with respect to the STADOL NS product liability litigation. The Company believes that the remaining matters will be resolved within the amounts reserved.

~~The Company entered into agreements in 2004 and 2005, totaling $113 million, to settle coverage disputes with its various insurers with respect to the STADOL NS and SERZONE cases as discussed above.~~

~~BREAST IMPLANT~~HRT LITIGATION. The Company, together with its subsidiary Medical Engineering Corporation (MEC) and certain other companies, remains a defendant in a few lawsuits alleging damages for personal injuries of various types resulting from polyurethane-covered breast implants and smooth-walled breast implants formerly manufactured by MEC or a related company. The vast majority of similar lawsuits were resolved through settlements or trial.

~~The Company remains subject to~~As previously reported, the terms of a nationwide class action settlement approved by the Federal District Court in Birmingham, Alabama (Revised Settlement) that will run through 2010. The Company has established reserves in respect of breast implant product liability litigation. The Company believes that any possible loss in addition to the amounts reserved will not be material.

~~HORMONE REPLACEMENT THERAPY (HRT) LITIGATION.~~In 1991, The National Institute of Health (NIH) launched the Women’s Health Initiative (WHI) clinical trials involving Prempro (estrogen and progestin) and Premarin (estrogen), both of which are manufactured by Wyeth. A July 2002, article in the Journal of the American Medical Association reported that among the Prempro subjects, there were increased risks of breast cancer, heart attacks, blood clots and strokes, and decreased risks of hip fractures and colorectal cancer. The Prempro phase of the study was stopped on July 9, 2002. The Premarin phase continued, only to be stopped on March 1, 2004 when the NIH informed study participants that they should stop study medications in the trial of conjugated equine estrogens (Premarin, Estrogen-alone) versus placebo. Women will continue to be followed for several more years, including ascertainment of outcomes and mammogram reports. The first legal complaints were filed against Wyeth shortly after WHI was halted in July 2002. In July 2003, the Company was served with its first HRT lawsuit. The Company products involvedplaintiffs in this mass-tort litigation ~~are:~~

~~ESTRACE~~^® ~~(an estrogen-only tablet); ESTRADIOL (generic estrogen-only tablet); DELESTROGEN~~^® ~~(an injectable estrogen); and OVCON~~^® ~~(an oral contraceptive containing both estrogen and progestin). All of these products were sold to other companies between January 2000 and August 2001, but the Company maintains the ESTRACE~~^{^®} ~~ANDA, and continues to manufacture some of the products under a supply agreement.~~

The Company currently is a defendant in approximately 640 lawsuits involving the above-mentioned products, filed on behalf of approximately 1,242 plaintiffs, in federal and state courts throughout the United States. All of these lawsuits involve multiple defendants. The Company expects to be dismissed from many cases in which its products were never used. Plaintiffs allege, among other things, that ~~these~~various hormone therapy products, including hormone therapy products formerly manufactured by the Company (ESTRACE*, Estradiol, DELESTROGEN* and OVCON*) cause breast cancer, stroke, blood clots, cardiac and other injuries in women, that the defendants were aware of these risks and failed to warn consumers. ~~The~~As of September 30, 2006, the Company was a defendant in 389 lawsuits filed on behalf of approximately 1,734 plaintiffs in federal ~~cases are being transferred to~~and state courts throughout the ~~U.S. District Court for the Eastern District of Arkansas,~~~~In re Prempro (Wyeth) Products Liability Litigation,~~~~MDL No., 1507.~~United States.

The following discussion describes (1) environmental proceedings with a governmental authority which may involve potential monetary sanctions of $100,000 or more (the threshold prescribed by specific SEC rule), (2) a civil action or an environmental claim that could result in significant liabilities, (3) updates of ongoing matters, or the resolution of other matters, disclosed in recent public filings and (4) a summary of environmental remediation costs.

The U.S. Environmental Protection Agency (EPA) is investigating industrial and commercial facilities throughout the U.S. that use refrigeration equipment containing ozone-depleting substances (ODS) and enforcing compliance with regulations governing the prevention, service and repair of leaks (ODS requirements). In 2004, the Company performed a voluntary corporate-wide audit at its facilities in the U.S. and Puerto Rico that use ODS-containing refrigeration equipment. The Company submitted an audit report to the EPA in November 2004, identifying potential violations of the ODS requirements at several of its facilities. In addition to the matters covered in the Company’s audit report letter to the EPA, the EPAAs previously sent the Company’s wholly owned subsidiary, Mead Johnson, a request for information regarding compliance with ODS requirements at its facility in Evansville, Indiana. The Company responded to the request in June 2004, and, as a result, identified potential violations at the Evansville facility. The company currently is in discussions with EPA to resolve both the potential violations discovered during the audit and those identified as a result of the EPA request for information to the Evansville facility. If the EPA determines that the Evansville facility, or any other facilities, was, or is, in violation of applicable ODS requirements, the Company could be subject to penalties and/or be required to convert or replace refrigeration equipment to use non-ODS approved substitutes.

In March 2005, the Company commenced a voluntary environmental audit of the Barceloneta and Humacao facilities to determine their compliance with EPA’s regulations regarding the maximum achievable control technology requirements for emissions of hazardous air pollutants from pharmaceuticals production (Pharmaceutical MACT). In May 2005, the Company disclosed potential violations of the Pharmaceutical MACT requirements at both facilities and is currently in the process of analyzing the potential violations to provide more details to EPA. To date, the Company has not been contacted by EPA with respect to these potential violations; however, if EPA determines that the Barceloneta and Humacao facilities violated the Pharmaceutical MACT requirements, the Company could be subject to civil penalties and/or be required to make investments in the facilities to ensure their compliance with the Pharmaceutical MACT.

In October 2003, the Company was contacted by counsel representing the North Brunswick, NJ Board of Education regarding a site where waste materials from E.R. Squibb and Sons, a wholly owned subsidiary of the Company, may have been disposed from the 1940’s through the 1960’s. Fill material containing industrial waste and heavy metals in excess of residential standards was discovered in Fall 2003 during an expansion project at the North Brunswick Township High School, as well as at a number of neighboring residential properties and adjacent public park areas. In January 2004, the New Jersey Department of Environmental Protection (NJDEP) sent the Company and approximately five other companies an information request letter about possible waste disposal at the site, to which the Company responded in March 2004. The school board and the Township, who are the current owners of school property and the park, are conducting and jointly financing soil remediation work under a work plan approved by the NJDEP, and are evaluating the need to conduct response actions to remediate or contain potentially impacted ground water. In addition, the school board reportedly is facing unexpected project cost increases due to contractor claims that discovery of the waste material has delayed and complicated performance of site work. The site owner entities have asked the Company to contribute to the cost of remediation, and to contribute funds on an interim basis to assure uninterrupted performance of necessary site work in the face of unbudgeted cost increases. The Company is actively monitoring the clean-up project, including its costs, and has offered to negotiate with the school board and Township on the terms of a cooperative funding agreement and allocation process. Municipal records indicate the Township operated a municipal landfill at the site in the 1940’s through the 1960’s, andreported, the Company is ~~actively investigating the historic use of the site,~~a party to several environmental proceedings and other matters, and is responsible under various state, federal and foreign laws, including ~~the Company’s possible connection. To date, no claims have been asserted against the Company.~~

In September 2003, the NJDEP issued an administrative enforcement Directive and Notice under the New Jersey Spill Compensation and Control Act requiring the Company and approximately 65 other companies to perform an assessment of natural resource damages and to implement unspecified interim remedial measures to restore conditions in the Lower Passaic River. The Directive alleges that the Company is liable because it historically sent bulk waste to the former Inland Chemical Company facility in Newark, N.J. (now owned by McKesson Corp.) for reprocessing, and that releases of hazardous substances from this facility have migrated into Newark Bay and continue to have an adverse impact on the Lower Passaic River watershed. Subsequently, the EPA also issued a notice letter under the Comprehensive Environmental Response, Compensation and Liability Act, (CERCLA) to numerous parties—but not including the Company—seeking their cooperation in a study of conditions in substantially the same stretch of the Passaic River that is the subject of the NJDEP’s Directive. A group of these other parties entered into a consent agreement with EPA in 2004 to finance a portion of that study. The EPA estimates this study will cost $20 million, of which roughly half will be financed by this private party group. This study may also lead to clean-up actions, directed by the EPA and the Army Corps of Engineers. The Company is working cooperatively with a group of the parties that received the NJDEP Directive and/or the EPA notice to explore potential resolutions of the Directive and to address the risk of collateral claims. Although the Company does not believe it has caused or contributed to any contamination in the Lower Passaic River watershed, the Company has informed the NJDEP that it is willing to discuss NJDEP’s allegations against the Company. In the Directive and in more recent communications to the cooperating group, NJDEP has stated that if the responsible parties do not cooperate, the NJDEP may perform the damage assessment and restoration and take civil action to recover its remedial costs, and treble damages for administrative costs and penalties. Also, in late 2004, a group of federal agencies designated as trustees of natural resources affected by contamination in the Passaic River watershed approached the cooperating group about funding a cooperative study of possible natural resources damages (NRD) in the area. This study presumably would dovetail with the ongoing EPA study, and ideally would be joined by the NJDEP, to coordinate actions NJDEP may seek under the Directive. Discussions with the federal trustees are ongoing. In early 2005, McKesson asserted that the Company is obligated to reimburse a fixed percentage of costs that McKesson ultimately may face in this matter by operation of a 1993 cost-sharing agreement governing performance of an on-site remedy at the former Inland facility. The Company has denied the obligation but has proposed to enter an agreement to toll the running of any limitations bars on any claims McKesson may have to allow consideration of such claims in the larger context of facts and claims that may develop with respect to the NJDEP Directive and/or the EPA remedial process. The extent of any liability the Company may face, under either the Directive, the EPA’s notice letter, or with respect to future NRD actions or claims by the federal trustees, or in contribution to McKesson or other responsible parties, cannot yet be determined.

On October 16, 2003, the Michigan Department of Environmental Quality (MDEQ) sent the Company a Letter of Violation (LOV) alleging that, over an unspecified period of time, emissions from certain digestion tanks at Mead Johnson’s Zeeland, Michigan facility exceeded an applicable limit in the facility’s renewable operating air permit. The LOV requires the Company to take corrective action and to submit a compliance program report. The MDEQ has not demanded fines or penalties, and has not taken further enforcement action. The Company and the MDEQ completed revisions to the Company’s air use permit which appear to have resolved the matter.

On December 1, 2003, the Company and the NJDEP entered an Administrative Consent Order (ACO) concerning alleged violations of the New Jersey Air Pollution Control Act and its implementing regulations at the Company’s New Brunswick facility. Pursuant to the ACO, the Company agreed to submit a permit application creating a facility-wide emissions cap and to pay an administrative fine of approximately $28,000. Both of these obligations were satisfied in early 2004. Subsequently, on February 15, 2005, the ACO was amended to provide that the Company would install a new cogeneration turbine at its New Brunswick facility by December 31, 2006, and would obtain air permits, including those required for the cogeneration turbine, by December 31, 2005. The estimated cost of the new cogeneration turbine is approximately $5 million.

The Company is one of several defendants, including most of the major U.S. pharmaceutical companies, in a purported class action suit filed in superior court in Puerto Rico in February 2000 by residents of three wards from the Municipality of Barceloneta, alleging that air emissions from a government owned and operated wastewater treatment facility in the Municipality have caused respiratory and other ailments, violated local air rules and adversely impacted property values. The Company believes its wastewater discharges to the treatment facility are in material compliance with the terms of the Company’s permit. Discovery in the case is ongoing, and the plaintiffs’ motion to certify the class is pending at this time. In September 2005 the parties stipulated to the dismissal (with prejudice) of all claims for property damage and personal injury, leaving only claims related to nuisance remaining in the case. The court had scheduled a hearing on the class certification motion for September 30, 2005, but that hearing was adjourned on account of ongoing settlement discussions and problems with the plaintiffs’ expert report, which was rejected by the court. The Company believes that this litigation will be resolved for an immaterial amount, which may bring the matter to resolution. However, in the event of an adverse judgment, the Company’s ultimate financial liability could be greater than anticipated.

~~In August 2005, the Company received a notice letter from the U.S. Department of Justice (DOJ)~~, on behalf of the U.S. Environmental Protection Agency (EPA) alleging that waste materials from the Company’s Calgon Vestal Laboratories (CVL) facility were among those found at the Sauget Area Two Superfund Site in suburban St. Louis, Illinois. EPA reportedly has incurred over $3 million in initial site response actions, and currently is conducting a comprehensive site characterization study designed to

allow EPA to develop and select a final site remedy. As a result, remaining site costs cannot be estimated at this time. Inquiries are underway within the cooperating potentially responsible parties (PRP) group and with EPA to learn more about the nature and extent of CVL’s possible transactional connection to this site. However, initial research indicates this type of liability is among those retained by the Company’s predecessor (Merck), from whom the Company acquired CVL pursuant to a 1994 sales agreement. Merck has been put on notice of this claim, and discussions are underway to determine if Merck should assume responsibility for this claim.

In September 2005, the Company received a notice letter from a PRP Group cooperating in the clean-up of the former Philip Services Corp. incinerator and disposal site in South Carolina, alleging a nexus from the former E.R. Squibb facility in Kenly, North Carolina. The Group is performing site investigation work under a consent agreement with the South Carolina Department of Health and Environmental Control; as a result, no information is available on potential site costs. The Group has invited the Company to join the group in lieu of litigation; that offer currently is being evaluated, which, among other things, would allow the Company access to the Group’s compilation of site records documenting the transactional connection of the Company and others. Internal investigation also is underway, including whether other Company facilities may have used the site. At this time, no estimate can be made of the Company’s potential liability at the site.

~~The Company is also responsible under various state, federal and foreign laws, including CERCLA,~~ for certain costs of investigating and/or remediating contamination resulting from past industrial activity at the Company’s current or former sites or at waste disposal or reprocessing facilities operated by third parties. ~~The~~

With respect to the latter matters for which the Company is responsible under various state, federal and foreign laws, the Company typically estimates ~~these~~potential costs based on information obtained from the ~~EPA,~~Environmental Protection Agency, or counterpart state agency and/or studies prepared by independent consultants, including the total estimated costs for the site and the expected cost-sharing, if any, with other ~~PRP. The~~“potentially responsible parties”, and the Company accrues liabilities when they are probable and reasonably estimable. As of September 30, ~~2005,~~2006, the Company estimated its share of the total future costs for these sites to be approximately ~~$58~~$70 million, recorded as other liabilities, which represents the sum of best estimates or, where no simple estimate can reasonably be made, estimates of the minimal probable amount among a range of such costs (without taking into account any potential recoveries from other parties, which are not currently expected). The Company has paid less than $4 million (excluding legal fees) in each of the last five years for investigation and remediation of such matters, including liabilities under CERCLA and for other on-site remedial obligations. ~~Although it is not possible~~

On December 1, 2003, the Company and the New Jersey Department of Environmental Protection entered an Administrative Consent Order (ACO) concerning alleged violations of the New Jersey Air Pollution Control Act and its implementing regulations at the Company’s New Brunswick facility. Pursuant to ~~predict with certainty~~ the ~~outcome~~ACO, the Company agreed to submit a permit application creating a facility-wide emissions cap and to pay a small administrative fine. Both of these ~~environmental proceedings or~~obligations were satisfied in early 2004. Subsequently, on February 15, 2005, the ~~ultimate costs of remediation, the Company does not believe that any reasonably possible expenditures~~ACO was amended to provide that the Company ~~may incur~~would install a new cogeneration turbine at its New Brunswick facility by December 31, 2006, and would obtain applicable air permits by December 31, 2005. The Company obtained the required Operating Permit on September 19, 2006, purchased the new cogeneration turbine at a cost of approximately $5 million and has begun installing the turbine.

As previously reported, the Company is one of several defendants, including many of the major U.S. pharmaceutical companies, in ~~excess~~a purported class action suit filed in Superior Court in Puerto Rico in February 2000 relating to air emissions from a government owned and operated wastewater treatment facility. In April 2006, the Company executed an individual settlement with the plaintiffs in the amount of ~~existing reserves~~$460,000, subject to certain conditions, including that the Court would decide to certify the case as a class action. The Court deferred decision on class certification pending its review of forthcoming expert reports on the facility’s current operations. The Court considered the expert reports at a hearing on October 31, 2006 and will conduct the class certification hearing in December 2006. Because the settlement conditions have not yet been met and the Company remains a ~~material adverse effect on its business,~~party to the case, the Company’s ultimate financial ~~position, or results of operations.~~

On October 25, 2004, the SEC notified the Company that it is conducting an informal inquiry into the activities of certain of the Company’s German pharmaceutical subsidiaries and its employees and/or agents. On October 4, 2006, the SEC informed the Company that its inquiry is now formal. The ~~Company believes the~~ SEC’s ~~informal~~ inquiry ~~may encompass~~encompasses matters currently under investigation by the ~~Staatsanwaltin~~German prosecutor in Munich, Germany. ~~Although, uncertain at this time, the~~The Company ~~believes~~understands the inquiry and investigation ~~may~~ concern potential violations of the Foreign Corrupt Practices Act ~~and/or~~and German ~~law.~~law, respectively. The Company is cooperating with both the SEC and the German authorities. The Company has established an accrual which represents minimum expected probable losses with respect to the investigation by the ~~Staatsanwaltin~~German prosecutor.

~~Indemnification~~ It is not possible at this time reasonably to assess the outcome of ~~Officers and Directors~~

The Company’s corporate by-laws require that, to the extent permitted by law, the Company shall indemnify its officers and directors against judgments, fines, penalties and amounts paid in settlement, including legal fees and all appeals, incurred in connection with civilthese lawsuits or ~~criminal actions or proceedings, as it relates to~~ their ~~services to the Company and its subsidiaries. The by-laws provide no limit~~impact on the amount of indemnification. Indemnification is not permitted in the case of willful misconduct, knowing violation of criminal law, or improper personal benefit. As permitted under the laws of the state of Delaware, the Company has for many years purchased directors and officers insurance coverage to cover claims made against the directors and officers. The amounts and types of coverage have varied from period to period as dictated by market conditions.

The litigation matters and regulatory actions described above involve certain of the Company’s current and former directors and officers, all of whom are covered by the aforementioned indemnity and if applicable, certain prior period insurance policies. However, certain indemnification payments may not be covered under the Company’s directors and officers’ insurance coverage. The Company cannot predict with certainty the extent to which the Company will recover from its insurers the indemnification payments made in connection with the litigation matters and regulatory actions described above.

On July 31, 2003, one of the Company’s insurers, Federal Insurance Company (Federal), filed a lawsuit in the New York Supreme Court against the Company and several current and former officers and members of the board of directors, seeking rescission, or in the alternative, declarations allowing Federal to avoid payment under certain Directors and Officers insurance policies and certainCompany.

Fiduciary Liability insurance policies with respect to potential liability arising in connection with the matters described under the “—VANLEV Litigation,” “—Other Securities Matters” and “—ERISA Litigation” sections above. The parties negotiated a settlement of these disputes. Pursuant to the settlement, the Company received substantially all of the $203 million in insurance proceeds which were reflected in its financial statements.

In October 2005, the Company borrowed, through its subsidiary, $2.0 billion against its existing $2.5 billion term loan facility. For additional information, see “—Note 13. Short-term Borrowings and Long-term Debt.”

The Company previously disclosed that it anticipated to repatriate approximately $9.0 billion in special dividends in 2005 pursuant to the AJCA, of which approximately $6.2 billion was repatriated in the first quarter of 2005. In November 2005, the Company will repatriate a substantial portion of the remaining special dividends, and anticipates completing the repatriation of special dividends in the fourth quarter of 2005. For additional information on the AJCA, see “—Note 8. Income Taxes.”

On October 18, 2005, the FDA issued an approvable letter for muraglitazar requesting additional information from ongoing clinical trials to more fully address the cardiovascular safety profile of muraglitazar. On October 27, 2005, Merck advised the Company of their intent to terminate the collaborative agreement and the Company has agreed to begin discussions to terminate the agreement. For additional information related to the approvable letter, see “—Note 2. Alliances and Investments.”

We have reviewed the accompanying consolidated balance sheet of Bristol-Myers Squibb Company and its subsidiaries as of September 30, 2005, and the related consolidated statements of earnings and comprehensive income for each of the three-month and nine-month periods ended September 30, 2005 and 2004 and the consolidated statements of retained earnings and cash flows for the nine-month periods ended September 30, 2005 and 2004. These interim financial statements are the responsibility of the Company’s management.

We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should be made to the accompanying consolidated interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet as of December 31, 2004, and the related consolidated statements of earnings, comprehensive income and retained earnings and of cash flows for the year then ended, management’s assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2004 and the effectiveness of the Company’s internal control over financial reporting as of December 31, 2004; and in our report dated March 3, 2005, we expressed unqualified opinions thereon. The consolidated financial statements and management’s assessment of the effectiveness of internal control over financial reporting referred to above are not presented herein. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 2004, is fairly stated in all material respects in relation to the consolidated balance sheet from which it has been derived.

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Bristol-Myers Squibb Company (BMS, the Company or Bristol-Myers Squibb) is a worldwide pharmaceutical and related ~~healthcare~~health care products company whose mission is to extend and enhance human ~~life.~~life by providing the highest quality pharmaceutical and related health care products. The Company is engaged in the discovery, development, licensing, manufacturing, marketing, distribution and sale of pharmaceuticals and ~~other healthcare~~ related health care products.

The Company ~~continues to execute its strategy~~has previously disclosed certain developments in the pending PLAVIX* (clopidogrel bisulfate) patent litigation with Apotex Corp. and Apotex Inc. (Apotex) and the announcement on August 8, 2006 by Apotex that it had launched a generic clopidogrel bisulfate product that competes with PLAVIX*.

The at-risk launch of ~~serving specialists and high-value primary care physicians by transitioning its product portfolio to focus~~generic clopidogrel bisulfate had a significant adverse effect on ~~disease areas of significant unmet need, where innovative medicines can help patients with serious illnesses.~~

~~During~~sales in the third quarter, ~~of 2005, among the Company’s full-development programs, ORENCIA~~^®, a potential therapy for rheumatoid arthritis was recommended for approval by the U.S. Food and Drug Administration (FDA) Arthritis Advisory Committee and saxagliptin, the Company’s DPP4 inhibitor for the potential treatment of diabetes transitioned to Phase III.

On October 18, 2005, as previously disclosed, the FDA issued an approvable letter for PARGLUVA™ (muraglitazar), the Company’s investigational oral medicine for the treatment of type 2 diabetes. The FDA has requested additional information from ongoing clinical trials to more fully address the cardiovascular safety profile of muraglitazar. The Company determined that to receive regulatory approval and to achieve commercial success, additional studies may be required because ongoing muraglitazar trials are not designed to answer the questions raised by the FDA. The additional studies may take approximately five years to complete. The Company will continue discussions with the FDA. Merck advisedwhich the Company ~~of their intent~~estimates to ~~terminate the collaborative agreement and the Company has agreed to begin discussions to terminate the agreement. The Company is~~be in the ~~process of evaluating a~~ range of ~~options including conducting additional studies or terminating further development~~$525 million to $600 million. In the first, second and third quarters of ~~muraglitazar.~~

~~The Company invested $669~~2006, U.S. net sales for PLAVIX* were $850 million, ~~in research~~$988 million and ~~development~~$474 million, respectively. Estimated total U.S. prescription demand for clopidogrel bisulfate (branded and generic) increased by 14% in the third quarter of ~~2005, a 9% increase over 2004. For the quarter, research and development dedicated to pharmaceutical products, was $616 million and as a percentage of Pharmaceutical sales was 16.3%~~2006 compared to ~~$566 million and 14.7%~~2005, while estimated total U.S. prescription demand for branded PLAVIX* decreased by 32% in ~~2004.~~

~~For~~ the ~~third quarter~~same period. As a result of ~~2005,~~ the ~~Company reported global sales from continuing operations~~lower demand for branded PLAVIX*, the number of ~~$4.8 billion. Sales remained constant from~~months of PLAVIX* inventory in the ~~prior year level due~~U.S. wholesaler distribution channel increased to ~~the favorable impact from foreign exchange rate fluctuations, an increase in average selling prices, which were offset by a decrease in volume. U.S. sales remained constant~~1.5 months on hand at ~~$2.7 billion in both 2005 and 2004, while international sales decreased 1% to $2.1 billion, including a 2% favorable foreign exchange impact.~~

The Company expects that generic clopidogrel bisulfate that was sold into distribution channels will continue to satisfy a significant majority of prescription demand for the remainder of 2006. In addition, sales of generic clopidogrel bisulfate are expected to have a residual impact on PLAVIX* sales into 2007—the amount and duration of which will depend on the amount of generic product that Apotex sold into the distribution channels, and the rate at which such product will continue to satisfy overall prescription demand. The Company cannot reliably estimate this impact at this point in time.

On August 31, 2006, the U.S. District Court for the Southern District of New York (the Court) granted the motion by the Company and its ~~subsidiaries~~product partner, Sanofi-Aventis (Sanofi), for a preliminary injunction to halt further sales of Apotex’s generic clopidogrel bisulfate product. The Court did not order Apotex to recall products sold or shipped. Apotex has appealed the Court’s preliminary injunction order. A hearing on that appeal was held on October 31, 2006. As previously disclosed, the composition of matter patent for PLAVIX* which expires in 2011, is subject to litigation in the U.S. with Apotex. The trial in the underlying patent litigation has been set for January 22, 2007. If Apotex were to prevail in its appeal of the preliminary injunction order or at the trial in the underlying patent litigation, the Company would expect to face renewed generic competition for PLAVIX* promptly thereafter. There are other pending PLAVIX* patent litigations in the ~~subject of a number of~~United States and in other less significant ~~pending lawsuits, claims, proceedings~~markets for the product. The Company continues to believe that the PLAVIX* patents are valid and ~~investigations.~~ infringed, and with Sanofi, is vigorously pursuing these cases.

It is not possible at this time reasonably to assess the ~~final~~ultimate outcome of ~~these investigations~~Apotex’s appeal of the preliminary injunction, the underlying patent litigation with Apotex or ~~litigations. Management continues to believe, as previously disclosed, that during~~of the ~~next few years,~~other PLAVIX* patent litigation or the ~~aggregate~~timing of any renewed generic competition for PLAVIX* from Apotex or additional generic competition for PLAVIX* from other third party generic pharmaceutical companies. The full impact ~~beyond current reserves,~~ of ~~these and other legal matters affecting~~Apotex’s launch of its generic clopidogrel bisulfate product on the Company cannot be reasonably estimated at this time and will depend on a number of factors, including, among others, the amount of generic product sold by Apotex and the pricing of Apotex’s generic product; whether the preliminary injunction is ~~reasonably likely~~sustained on appeal; when the pending lawsuit is finally resolved and whether the Companies prevail; even if the preliminary injunction is sustained on appeal and the Companies prevail in the pending patent case, the extent to which the launch by Apotex will permanently adversely impact the pricing of PLAVIX*; whether the Companies launch an authorized generic clopidogrel bisulfate product; and even if the Companies ultimately prevail in the pending lawsuit, the amount of damages, if any, that would be sought and/or recovered by the Companies and Apotex’s ability to pay such damages. Loss of market exclusivity of PLAVIX* and/or the development of sustained generic competition would be material to the Company’s sales of PLAVIX*, results of operations and cash flows, and ~~may~~could be material to ~~its~~the Company’s financial condition and liquidity. PLAVIX* is the Company’s largest product by net sales, and U.S. net sales for PLAVIX* in 2005 were $3.2 billion.

As previously disclosed, the Antitrust Division of the United States Department of Justice is conducting a criminal investigation regarding the proposed settlement of the pending patent PLAVIX* litigation with Apotex. The Company is cooperating fully with the investigation. It is not possible at this time reasonably to assess the outcome of the investigation or its impact on the Company. It is also not possible at this time reasonably to assess the impact of the investigation, if any, on the Company’s compliance with the Deferred Prosecution Agreement (DPA) with the United States Attorney’s Office for the District of New Jersey (USAO). Also as previously disclosed, the USAO initiated an investigation that is being conducted by the Independent Advisor under the DPA (Monitor) and the USAO into corporate governance issues relating to the Company’s negotiations of the proposed settlement with Apotex. This investigation has been expanded to include a review of whether there was any violation of Federal securities laws in connection with the proposed settlement with Apotex under the terms of the previously disclosed Consent Order the Company entered into with the U.S. Securities and Exchange Commission in August 2004 (SEC Consent). It is not possible at this time reasonably to assess the outcome of the investigation or its impact on the Company.

For additional discussion of ~~this matter,~~legal matters, including the PLAVIX* patent litigation, the Antitrust Division investigation related to the proposed settlement with Apotex and the terms of the DPA and SEC Consent, see “Item 1. Financial Statements—Note ~~17.~~18. Legal Proceedings and ~~Contingencies.”~~Contingencies” and “—SEC Consent Order and Deferred Prosecution Agreement” below.

In September 2006, the Committee for Medicinal Products for Human Use of the European Medicines Agency (EMEA) recommended a marketing authorization for SPRYCEL (dasatinib) for the treatment of adults with chronic, accelerated, or myeloid or lymphoid blast phase chronic myeloid leukemia with resistance or intolerance to prior therapy, including GLEEVEC* (imatinib mesylate) or Philadelphia chromosome-positive acute lymphoblastic leukemia with resistance or intolerance to prior therapy. The Company received approval for SPRYCEL from the U.S. Food and Drug Administration (FDA) in June 2006.

In September 2006, the Company and Gilead Sciences, Inc. (Gilead) submitted ATRIPLA* (efavirenz 600 mg/ emtricitabine 200 mg / tenofovir disoproxil fumarate 300 mg) for regulatory approval in Canada. In addition, the Company, Gilead and Merck & Co., Inc. submitted a Marketing Authorization Application for ATRIPLA* to the EMEA in October 2006. ATRIPLA*, the first-ever once-daily single tablet three-drug regimen for human immunodeficiency virus (HIV) intended as a stand-alone therapy or in combination with other antiretrovirals, received approval from the FDA in July 2006.

The Company and Otsuka Pharmaceutical Co., Ltd. (Otsuka) received approval from the FDA in September 2006 and the EMEA in October 2006 for ABILIFY* Injection, the first ready-to-use single-dose vial of an atypical antipsychotic to control agitation in adults with schizophrenia and bipolar mania.

In October 2006, the Company received FDA approval of a new once-daily 300 mg single capsule formulation of REYATAZ for the treatment of HIV-1 infection in adults as part of combination therapy, which can replace two REYATAZ 150 mg capsules in appropriate patients. The Company now has one-pill, once-daily HIV medicine options available in three drug classes as part of combination therapy.

The Company launched BARACLUDE for the treatment of chronic hepatitis B virus infection in several new markets during the third quarter of 2006, including Germany, France, the United Kingdom and Japan. BARACLUDE is currently approved in more than 50 countries worldwide, including the U.S. and China.

In August 2006, the Company and Sanofi received approval from both the FDA and the EMEA for an additional indication for PLAVIX* to reduce the rate of death from any cause and the rate of a combined endpoint of re-infarction, stroke or death in patients with acute ST-segment elevation myocardial infarction (STEMI). An estimated 300,000 Americans suffer STEMI events each year, and survivors are at high risk of suffering another atherothrombotic event. PLAVIX* has now received indications to reduce the risk of atherothrombotic events across the entire spectrum of acute coronary syndrome (ACS), which affects more than 2.8 million people in the U.S. and Europe. The STEMI indication was based on large-scale clinical trials involving more than 40,000 patients, highlighting the importance of intellectual property protection, which is essential to explore the full potential of medicines.

In October 2006, the Company moved its investigational anti-thrombosis compound apixaban into Phase III development. Apixaban is an oral direct factor Xa inhibitor. Apixaban has potential prophylactic and therapeutic value in a broad range of thrombotic conditions, including prevention and treatment of venous thromboembolism (including deep vein thrombosis and pulmonary embolism (PE)), prevention of stroke associated with atrial fibrillation (AF), and prevention of the arterial thromboembolic events associated with ACS. AF is the most common heart beat abnormality (arrhythmia) in the U.S., with more than 2 million people diagnosed and living with this disorder – a number which is expected to double in the next 20 years. An estimated one in four people will be diagnosed with AF during their lifetime and AF is responsible for one out of every six strokes.

The following ~~discussion~~discussions of the Company’s ~~three~~three-month and nine-month results of continuing operations ~~excludes~~exclude the results related to the Oncology Therapeutics Network (OTN) business, which ~~were~~was previously presented as a separate segment, and ~~has~~have been segregated from continuing operations and reflected as discontinued operations for all periods presented. See “—Discontinued Operations” below.

As previously discussed above, the at-risk launch of generic clopidogrel bisulfate had a significant negative impact on PLAVIX* sales for the third quarter, which the Company estimates to be in the range of $525 million to $600 million. U.S. sales for PLAVIX* in 2005 were $3.2 billion. In the first, second and third quarters of 2006, U.S. sales for PLAVIX* were $850 million, $988 million and $474 million, respectively.

~~Net~~Third quarter 2006 net sales from continuing operations decreased 13%, including a 1% favorable foreign exchange impact to $4.2 billion compared to the same period in 2005. U.S. net sales decreased 18% to $2.2 billion in 2006 for the ~~third~~ quarter compared to 2005, driven by the impact of ~~2005 remained constant at $4,767~~generic clopidogrel bisulfate and the loss of exclusivity of PRAVACHOL in ~~2005~~the U.S. in April 2006, partially offset by strong performance of the remaining pharmaceutical growth drivers and ~~$4,778 million in 2004. U.S. sales remained constant at $2,638 million in 2005 and $2,633 million in 2004, while international~~new products. International net sales decreased 1%7%, including a 2% favorable foreign exchange impact, to ~~$2,129 million~~$2.0 billion primarily due to an increase in ~~2005 from $2,145 million in 2004.~~

The composition of the ~~net increase/(decrease)~~change in sales is as follows:

In general, the Company’s business is not seasonal. For information on U.S. pharmaceuticals prescriber demand, reference is made to the table within Business Segments under the Pharmaceuticals section below, which sets forth a comparison of changes in net sales to the estimated total prescription growth (for both retail and mail order customers) for certain of the Company’s top 15 pharmaceutical ~~products.~~

products and products that the Company views as current and future growth drivers sold by the U.S. Pharmaceuticals business.

The Company operates in three reportable segments—Pharmaceuticals, Nutritionals and ~~Related Healthcare.~~Other Health Care. In May 2005, the Company completed the sale of OTN, which was previously presented as a separate segment. As such, the results of operations for OTN are presented as part of the Company’s results from discontinued operations in accordance with Statement of Financial Accounting Standards (SFAS) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” ~~Accordingly, OTN results of operations in prior periods have been reclassified to discontinued operations to conform with current year presentations.~~ The percent of the Company’s net sales by segment were as follows:

The Company recognizes revenue net of various sales adjustments to arrive at net sales as reported on the Consolidated Statement of Earnings. These adjustments are referred to as gross-to-net sales adjustments. The following table sets forth the reconciliation of the Company’s gross sales to net sales by each significant category of gross-to-net sales adjustments:


	Three Months Ended September 30,
(Dollars in Millions)	2006			2005
Gross Sales	$	4,859		$	5,674

Gross-to-Net Sales Adjustments
Prime Vendor Charge-Backs		(177	)		(241	)
Women, Infants and Children (WIC) Rebates		(228	)		(212	)
Managed Health Care Rebates and Other Contract Discounts		(81	)		(129	)
Medicaid Rebates		(36	)		(143	)
Cash Discounts		(53	)		(67	)
Sales Returns		(45	)		(46	)
Other Adjustments		(85	)		(69	)

Total Gross-to-Net Sales Adjustments		(705	)		(907	)

Net Sales	$	4,154		$	4,767

The decrease in gross-to-net adjustments for the three months ended September 30, 2006 compared to the same period in 2005 was affected by a number of factors, including customer mix and a portfolio shift, in each case towards products that required lower rebates, as well as changes in contract status. The decrease in prime vendor charge-backs ~~in 2005~~ was primarily the result of volume erosion on highly rebated PARAPLATIN and TAXOL^{^®} (paclitaxel) due to ~~lower relative sales volume~~generic competition as well as the impact from the discontinued commercialization of TEQUIN. Managed health care rebates decreased as a result of exclusivity loss of PRAVACHOL, which also reduced Medicaid rebates. In addition, the shift in ~~this segment due~~patient enrollment, from Medicaid to ~~product mix. The~~Medicare under Medicare Part D, resulted in a decrease in Medicaid rebate accruals, partially offset by a corresponding increase in managed healthcare rebates was primarily attributable to lower sales volume through managed healthcare companies. The decrease in other adjustments was due to lower sales discounts in the international businesses.

The composition of the ~~net decrease~~change in pharmaceutical sales is as follows:

~~For the three months ended September 30, 2005, worldwide Pharmaceuticals~~Worldwide Pharmaceutical sales decreased 2%17%, including a 1% favorable foreign exchange impact, to ~~$3,778 million. Domestic pharmaceutical sales decreased 3% to $2,082 million from $2,154~~$3,154 million in ~~2004, primarily due~~the third quarter of 2006 compared to the ~~continued impact of exclusivity losses for PARAPLATIN and VIDEX EC, increased competition for PRAVACHOL, partially offset by~~same period in 2005. The products the ~~continued~~Company views as growth ofdrivers - PLAVIX*, AVAPRO*/AVALIDE*, ABILIFY*, REYATAZ and ERBITUX*. - decreased by 8% in the third quarter of 2006 as compared to the same period in 2005. Excluding all PLAVIX* sales, worldwide sales of the other growth drivers increased by 26% as compared to the same period in 2005.

U.S. pharmaceutical sales decreased 22% to $1,619 million in the third quarter of 2006 compared to the same period in 2005, primarily due to the at-risk launch of generic clopidogrel bisulfate in August 2006 and loss of exclusivity of PRAVACHOL; offset by continued growth of ERBITUX*, ABILIFY*, the SUSTIVA franchise, REYATAZ and AVAPRO*/AVALIDE* and sales of new products ORENCIA, BARACLUDE and SPRYCEL. In aggregate, estimated U.S. wholesaler inventory levels of the Company’s key pharmaceutical products sold by the U.S. Pharmaceutical business at the end of the third quarter ~~were down from~~increased to approximately three weeks as compared to slightly over two weeks at the end of the second quarter, primarily due to the lower demand for PLAVIX* resulting from the impact of ~~2005, by approximately one-tenth~~the at-risk launch of ~~a month to two-and-a-half weeks. Individually, estimated wholesaler inventory levels of major brands such as PLAVIX*, PRAVACHOL and AVAPRO*/AVALIDE* decreased to approximately two weeks.~~

International pharmaceutical sales ~~remained unchanged,~~decreased 9%, including a 2% favorable foreign exchange impact, ~~at $1,696~~to $1,535 million infor the third quarter of ~~2005~~2006 compared to ~~2004.~~the same period in 2005. The ~~sales~~ decrease ~~excluding the favorable impact of foreign exchange~~ was ~~primarily~~mainly due to a decline in PRAVACHOL and TAXOL^{^®} ~~and PRAVACHOL sales~~ (paclitaxel) resulting from increased generic competition in Europe, partially offset by increased sales of newer products including REYATAZ, ABILIFY* and ABILIFY*BARACLUDE. The Company’s reported international sales do not include copromotion sales reported by its alliance partner, Sanofi, for PLAVIX* and AVAPRO*/AVALIDE*, ~~as well as~~which continued to show growth in the third quarter of ~~PLAVIX*.~~2006.

Key pharmaceutical products and their sales, representing ~~81%~~77% of total pharmaceutical sales in the third quarter of ~~both~~2006 and 2005, ~~and 2004,~~ are as follows:

Sales of PLAVIX*, a platelet aggregation inhibitor ~~increased 9%~~that is part of the Company’s alliance with Sanofi, decreased 36%, including a 1% favorable foreign exchange impact, to $630 million in the third quarter of 2006 from $980 million in the same period in 2005. Sales of PLAVIX* decreased 43% in the U.S. in the third quarter of 2006 to $474 million from ~~$902~~$833 million in ~~2004. Domestic sales increased 7% to $833 million from $781 million in 2004, primarily due to increased demand, partially offset by a reduction in U.S. wholesaler inventory levels~~the same period in 2005. ~~Estimated~~For further information on U.S. ~~prescription demand grew approximately 12% compared to 2004.~~ PLAVIX* ~~is a cardiovascular product that was launched from the alliance between the Company and Sanofi-Aventis (Sanofi). Market~~sales, see discussion under “— PLAVIX*” above. While market exclusivity for PLAVIX* is expected to expire in 2011 in the U.S. and 2013 in the major European ~~Union (EU). Statements on exclusivity are~~markets, the composition of matter patent for PLAVIX* is the subject of litigation, including the litigation with Apotex noted above. Apotex has appealed the court’s grant of a preliminary injunction, and trial in the underlying patent case is scheduled for January 22, 2007. If Apotex were to ~~any adverse determination that may occur with respect to~~prevail in its appeal of the preliminary injunction order, or at trial in the underlying patent litigation or if there is additional competition for PLAVIX* ~~patent litigation.~~from third party generic pharmaceutical companies, PLAVIX* would face renewed generic competition. For additional information on the PLAVIX* patent litigation, see “Item 1. Financial Statements—Note ~~17.~~18. Legal Proceedings and ~~Contingencies.~~Contingencies” and “—PLAVIX*” above.

Sales of PRAVACHOL, an HMG Co-A reductase inhibitor, decreased 12% to $527 million from $598 million in 2004. Domestic sales decreased 7% to $297 million in 2005, primarily due to lower demand resulting from increased competition and the related reduction in wholesaler inventory levels, partially offset by lower managed healthcare rebate costs in 2005. Estimated U.S. prescriptions declined by 18% compared to 2004. International sales decreased 18%64%, including a 1% favorable foreign exchange impact, to ~~$230~~$192 million ~~reflecting~~in the third quarter of 2006 from $527 million in the same period in 2005, due to market exclusivity expiration in the U.S. in April 2006 resulting in generic competition for most strengths and generic competition in key European ~~markets. Market exclusivity protection for PRAVACHOL is expected~~markets, including France, in July 2006. Estimated total U.S. prescription demand decreased approximately 82% compared to ~~expire in April 2006 in the U.S.~~2005. Market exclusivity in the ~~EU expired~~European Union (EU) ended in 2004, with the exception of ~~France and~~ Sweden, ~~for which~~where expiration ~~will occur~~occurred in ~~August and~~ March 2006, ~~respectively, and in~~ Italy, ~~for which~~where expiration will occur in January ~~2008.~~2008, and France, where generic competition that was not authorized by the Company commenced in July 2006. As previously disclosed, the Company authorized Watson Pharmaceutical, Inc. (Watson) to distribute pravastatin sodium tablets in the U.S.

Sales of AVAPRO*/AVALIDE*, an angiotensin II receptor blocker for the treatment of hypertension that is also part of the Sanofi alliance, increased 4%10%, including a 2% favorable foreign exchange impact, to $277 million in the third quarter of 2006 from $251 million ~~from $241~~in the same period in 2005. U.S. sales increased 8% to $159 million in ~~2004. Domestic sales decreased 1% to~~the third quarter of 2006 from $147 million ~~from $148 million~~ in ~~2004,~~the same period in 2005, primarily due to ~~a reduction in wholesaler inventory levels in 2005, partially offset by increased~~higher average net selling prices and higher demand. Estimated total U.S. prescription ~~growth~~demand increased approximately ~~11%~~3% compared to ~~2004.~~2005. International sales increased ~~12%~~13%, including a 4% favorable foreign exchange impact, to $118 million compared to $104 million ~~from $93 million in 2004, primarily due to increased sales in Canada and Australia. Market exclusivity for AVAPRO*/AVALIDE* (known~~ in the ~~EU as APROVEL*/KARVEA*) is expected to expire~~same period in ~~2011 in the U.S. and 2012 in countries in the EU;~~

2005. Market exclusivity for AVAPRO*/AVALIDE* (known in the EU as APROVEL*/KARVEA*) is expected to expire in 2011 in the U.S. and 2012 in major European markets; AVAPRO*/AVALIDE* is not currently marketed in Japan.

Sales of COUMADIN, an oral anti-coagulant used predominantly in patients with AF or deep venous thrombosis/PE, decreased 7%, including a 1% favorable foreign exchange impact, to $53 million in the third quarter of 2006 compared to $57 million in the same period in 2005, primarily due to lower demand driven by continued competition, partially offset by higher average net selling prices. Estimated total U.S. prescription demand decreased approximately 19% compared to 2005. Market exclusivity for COUMADIN expired in the U.S. in 1997.

Sales of MONOPRIL, a second generation ~~angiotesin~~angiotensin converting enzyme ~~(ACE)~~ inhibitor for the treatment of hypertension, decreased ~~29%~~31%, including a 2%1% favorable foreign exchange impact, to $34 million in the third quarter of 2006 from $49 million in the same period of 2005, primarily due to ~~increased generic competition in key European markets.~~product supply issues. Market exclusivity protection for MONOPRIL expired in 2003 in the U.S. and has expired ~~or is expected to expire between 2001 and 2008~~ in countries in the ~~EU.~~EU except France and Italy where it will expire in 2008. MONOPRIL is not currently marketed in Japan.

Sales of ~~COUMADIN, an oral anti-coagulant used predominately in patients with atrial fibrillation or deep venous thrombosis/pulmonary embolism, decreased 12%~~REYATAZ, a protease inhibitor for the treatment of HIV, increased 32%, including a 1%2% favorable foreign exchange impact, to ~~$57~~$233 million in the third quarter of 2006 from $176 million in the same period in 2005, primarily due to increased demand in the U.S, Europe and Latin America. Estimated total U.S. prescription demand increased approximately 15% compared to ~~$65~~2005. International sales increased 46%, including a 4% favorable foreign exchange impact, to $104 million in ~~2004 due to continued competition. Estimated U.S. prescriptions declined by approximately 22% compared to 2004.~~the third quarter of 2006 from $71 million in the same period in 2005. Market exclusivity for ~~COUMADIN expired~~REYATAZ is expected to expire in 2017 in the U.S. ~~in 1997.~~, Japan and major European markets.

~~Sales of~~Total revenue for the SUSTIVA franchise, a non-nucleoside reverse transcriptase inhibitor for the treatment of HIV, increased 8%18%, including a 2% favorable foreign exchange impact, to ~~$170~~$201 million in ~~2005 from $157 million in 2004, primarily due to an estimated U.S. prescription growth of approximately 6% for~~ the third quarter of 2006 from $170 million in the same period in 2005. Estimated total U.S. prescription demand for the SUSTIVA franchise increased approximately 12% compared to 2005. Total revenue for the SUSTIVA franchise include sales of SUSTIVA as well as revenue from bulk efavirenz included in the combination therapy, ATRIPLA*, which is sold through a joint venture with Gilead. The Company records revenue for the bulk efavirenz component of ATRIPLA* upon sales of ATRIPLA* by the Gilead joint venture to third party customers. Market exclusivity ~~protection~~ for SUSTIVA is expected to expire in 2013 in the U.S. and in countries in the EU; the Company does not, but others do, market SUSTIVA in Japan.

~~Sales~~ For additional information on revenue recognition of REYATAZ, a protease inhibitor for the treatment of HIV, increased 66%, including a 1% favorable foreign exchange impact, to $176 million in 2005 compared to $106 million in 2004 primarily due to increased demand. REYATAZ has achieved an estimated monthly new prescription share of the U.S. protease inhibitors market of approximately 31%. European sales increased 152% to $53 million in the third quarter of 2005 from $21 million in 2004. Market exclusivity for REYATAZ is expected to expire in 2017 in the U.S., in countries in the EUSUSTIVA, see “Item 1. Financial Statements—Note 2. Alliances and ~~Japan.~~Investments.”

Sales of ZERIT, an antiretroviral agent used in the treatment of HIV, decreased ~~26%~~25%, including a 1% favorable foreign exchange impact, to $38 million in 2006 from $51 million in 2005, ~~from $69 million~~primarily as a result of lower demand in ~~2004, primarily resulting from a decrease in estimated~~both the U.S. and Europe. U.S. prescriptions ofdecreased by approximately ~~31%~~30% compared to ~~2004.~~2005. Market exclusivity ~~protection~~ for ZERIT is expected to expire in 2008 in the U.S., ~~between 2007~~Japan, Finland, Italy and ~~2011~~the United Kingdom and in ~~countries~~2009 in ~~the EU and 2008 in Japan.~~Austria.

Sales of ~~VIDEX/VIDEX EC,~~BARACLUDE, an ~~antiretroviral~~oral antiviral agent ~~used in~~for the treatment of ~~HIV, decreased 39%~~chronic hepatitis B, were $22 million for the third quarter of 2006 compared to ~~$41~~$2 million in ~~2005 from $67 million~~the same period of 2005. BARACLUDE was launched in ~~2004, primarily as a result of generic competition~~Germany, France, the United Kingdom and Japan in ~~the U.S. which began in the fourth quarter of 2004.~~September 2006. The Company has a ~~licensing agreement with the U.S. Government for VIDEX/VIDEX EC, which by its terms became non-exclusive in 2001. The U.S. Government’s method~~composition of ~~use~~matter patent that expires ~~in 2007~~ in the U.S. ~~(which includes an earned pediatric extension)~~in 2010 and in ~~Japan,~~Germany, France and ~~between 2006 and 2009~~the United Kingdom in countries in the EU. The license to the Company is non-exclusive, which has allowed another company to obtain a license from the U.S. Government and receive approval for marketing. With respect to VIDEX/VIDEX EC, the Company has patents covering the reduced mass formulation of VIDEX/VIDEX EC that expire in 2012 in the U.S., the EU and Japan. However, these patents apply only to the type of reduced mass formulation specified in the patent. Other reduced mass formulations may exist. There is currently no issued patent covering the VIDEX EC formulation.2011.

Sales of CEFZIL, an antibiotic for the treatment of mild to moderately severe bacterial infections, decreased ~~11%, including a 1% favorable foreign exchange impact,~~63% to $18 million in 2006 from $48 million in 2005, ~~from $54 million in 2004~~primarily due to ~~lower demand.~~generic competition in the U.S. Market exclusivity ~~is expected to expire~~for CEFZIL expired in December 2005 in the U.S. and is expected to expire between 2007 and 2009 in countries in the EU.

BARACLUDE™, the Company’s internally developed oral antiviral agent for the treatment of chronic hepatitis B, was approved by the FDA in March 2005, and generated domestic sales of $7 million since its U.S. launch in April 2005. BARACLUDE™ received approvals from international authorities in Brazil, Indonesia and Argentina during the third quarter of 2005. The Company has a composition of matter patent that expires in the U.S. in 2010.

Sales of ERBITUX*, ~~used to treat refractory metastatic colorectal cancer,~~ which is sold by the Company almost exclusively in the U.S., increased ~~27%~~64% to $175 million in the third quarter of 2006 from $107 million in the same period in 2005, ~~compared to $84 million~~driven by increased demand for usage in ~~2004.~~the treatment of both head and neck cancer and colorectal cancer. ERBITUX* is marketed by the Company under a distribution and copromotion agreement with ImClone Systems Incorporated (ImClone). A use patent relating to combination therapy with ERBITUX*cytotoxic treatments expires in 2017. There is no patent covering monotherapy. Currently, generic versions of biological products cannot be approved under U.S. law. However, the law could change in the future. Even in the absence of new legislation, the FDA is taking steps toward allowing generic versions of certain biologics. Competitors seeking approval of biological products must file their own safety and efficacy data, and address the challenges of biologics manufacturing, which involves more complex processes and are more costly than those of traditional pharmaceutical operations. The Company’s right to market ERBITUX* in North America and Japan under its agreement with ImClone expires in September 2018. The Company does not, but others do, market ERBITUX* in countries in the EU. As previously disclosed, ImClone and Yeda Research and Development Company Ltd. (Yeda) have been in litigation over the ownership of the use patent for combination therapy with cytotoxic treatments relating to ERBITUX*. In September 2006, the court

granted Yeda the complete ownership of that patent. ImClone has appealed the court’s decision. For further information pertaining to legal proceedings involving Yeda, see “Item 1. Financial Statements—Note 18. Legal Proceedings and Contingencies,” and “Item 1. Financial Statements—Note 2. Alliances and Investments.”

~~Sales~~SPRYCEL, an oral inhibitor of ~~PARAPLATIN, an anticancer agent, decreased 76%~~multiple tyrosine kinases, for the treatment of adults with chronic, accelerated, or myeloid or lymphoid blast phase chronic myloid leukemia with resistance or intolerance to $42 million in 2005 from $177 million in 2004 due to increased generic competition. Domestic sales decreased 94% to $9 million in 2005 from $145 million in 2004. Market exclusivity protection for PARAPLATIN expired in October 2004prior therapy, including GLEEVEC* (imatinib meslylate), was launched in the U.S., in ~~2000~~July 2006. Sales for the third quarter of 2006 were $11 million. Market exclusivity for SPRYCEL is expected to expire in 2020 in the ~~EU and in 1998 in Japan.~~U.S.

Total revenue for ABILIFY* increased 58% to $260 million in 2005 from $165 million in 2004, primarily due to strong growth in domestic demand and the continued growth in Europe, which achieved sales of $40 million in the third quarter of 2005. Estimated U.S. wholesale inventory levels at the end of the third quarter increased to nine-tenths of a month. Estimated U.S. prescription demand grew approximately 38% compared to 2004. ABILIFY* is, an antipsychotic agent for the treatment of schizophrenia, acute bipolar mania and ~~Bipolar I Disorder.~~bipolar disorder, increased 20%, including a 1% favorable foreign exchange impact, to $313 million in the third quarter of 2006 from $260 million in the same period in 2005. U.S. sales increased 21% to $260 million in the third quarter of 2006 from $214 million in the same period in 2005, primarily due to higher demand. Estimated total U.S. prescription demand increased approximately 18% compared to the same period last year. Total revenue for ABILIFY* primarily consists of alliance revenue ~~for~~representing the Company’s 65% share of net sales in ~~copromotion~~ countries where it copromotes with Otsuka ~~Pharmaceutical Co., Ltd. (Otsuka). Market~~and the product is sold by an Otsuka affiliate as a distributor. Otsuka’s market exclusivity protection for ABILIFY* is expected to expire in ~~2009~~2014 in the U.S. ~~(and may be extended until 2014 if a pending~~(including the granted patent term ~~extension is granted)~~extension). The Company also has the right to copromote ABILIFY* in several European countries (the United Kingdom, France, Germany and Spain) and to act as exclusive distributor for the product in the rest of the EU. Market exclusivity protection for ABILIFY* is expected to expire in 2009 for countries in the EU (and may be extended until 2014 if pending supplemental protection certificates are granted). The Company’s contractual right to market ABILIFY* expires in November 2012 in the U.S. and Puerto Rico and, for the countries in the EU where the Company has the exclusive right to market ABILIFY* until June 2014. Statements on exclusivity are subject to any adverse determination that may occur with respect to the ABILIFY* patent reexamination. For additional information on this matter, see “Item 1. Financial Statements – Note 17. Legal Proceedings and Contingencies.” For additional information on revenue recognition of ABILIFY*, see “Item 1. Financial Statements—Note 2. Alliances and Investments.”

~~GLUCOPHAGE* franchise~~EMSAM*, a transdermal patch for the delivery of a monoamine oxidase inhibitor for the treatment of major depressive disorder in adults, was launched in the U.S. in April 2006. Sales for the third quarter of 2006 were $3 million. In the third quarter of 2006, as a result of lower than expected sales ~~remained constant at $43~~for EMSAM*, the Company recorded a $27 million ~~in 2005 compared to 2004. Market exclusivity protection expired in March 2000~~impairment charge for ~~GLUCOPHAGE* IR, in October 2003 for GLUCOPHAGE* XR (Extended Release)~~EMSAM* related assets. EMSAM* was developed by Somerset Pharmaceuticals, Inc., a joint venture between Mylan Laboratories, Inc. and ~~in January 2004 for GLUCOVANCE*.~~Watson. The Company ~~does not, but others do, market these products~~has obtained exclusive distribution rights to commercialize EMSAM* in the EUU.S. and ~~Japan.~~Canada and markets EMSAM* in the U.S. through its existing neuroscience sales force. As a new drug formulation, EMSAM* received three years of Hatch-Waxman data exclusivity, which expires in 2009 in the U.S.

ORENCIA, a fusion protein indicated for adult patients with moderate to severe rheumatoid arthritis who have had an inadequate response to one or more currently available treatments, such as methotrexate or anti-tumor necrosis factor therapy, was launched in the U.S. in February 2006. Sales for the third quarter of 2006 were $34 million. The Company has a composition of matter patent that expires in the U.S. in 2016 and the patent may be eligible for patent term restoration, which could possibly extend the term. As noted above, generic versions of biological products cannot be approved under U.S. law, but the law could change in the future.

Sales of EFFERALGAN, a formulation of acetaminophen for pain relief, ~~acetaminophen, increased 8%~~sold principally in Europe decreased 6%, including a 4% favorable foreign exchange impact, to $62 million in the third quarter of 2006 from $66 million in the same period in 2005, ~~from $61 million in 2004~~primarily due to ~~product back-orders~~the timing of orders in ~~the second quarter~~2005 as a result of ~~2005 which were resolved~~a price decrease in ~~the third quarter.~~a key market in Europe.

The estimated U.S. prescription ~~and prescription growth~~change data provided above includes information only from the retail and mail order channels and dodoes not reflect information from other channels, such as hospitals, institutions and long-term care, among others. The estimated prescription and prescription ~~growth~~change data are based on National Prescription Audit (NPA) data provided by IMS Health (IMS), a supplier of market research for the pharmaceutical industry, as described below.

In most instances, the basic exclusivity loss date indicated above is the expiration date of the patent that claims the active ingredient of the drug or the method of using the drug for the approved indication. In some instances, the basic exclusivity loss date indicated is the

expiration date of the data exclusivity period. In situations where there is only data exclusivity without patent protection, a competitor could seek regulatory approval prior to the expiration of the data exclusivity period by submitting its own clinical trial data to obtain marketing approval. The Company assesses the market exclusivity period for each of its products on a case-by-case basis. The length of market exclusivity for any of the Company’s products is difficult to predict with certainty because of the complex interaction between patent and regulatory forms of exclusivity and other factors. There can be no assurance that a particular product will enjoy market exclusivity for the full period of time that the Company currently anticipates. The estimates of market exclusivities reported above are for business planning purposes only and are not intended to reflect the Company’s legal opinion regarding the strength or weakness of any particular patent or other legal position.

The following ~~table sets~~tables set forth for each of the Company’s top 15 pharmaceutical products (based on 2005 annual net sales) and other products that the Company views as current and future growth drivers sold by the U.S. Pharmaceuticals business, ~~(based on 2004 annual net sales),~~ for the three months ended September 30, ~~2005 and 2004~~2006 compared to the same periods in the prior year: (a) changes in reported U.S. net sales for the period; (b) estimated total U.S. prescription growth for the retail and mail order channels and the estimated U.S. therapeutic category share of the applicable product, calculated by the Company based on NPA data provided by ~~IMS, a supplier of market research for the pharmaceutical industry;~~IMS; and (c) estimated total U.S. prescription ~~growth~~change for the retail and mail order channels and the estimated U.S. therapeutic category share of the applicable product, calculated by the Company based on Next-Generation Prescription Services (NGPS) data provided by IMS.

The Company has historically reported estimated total U.S. prescription ~~growth~~change and estimated therapeutic category share based on NPA data, which IMS makes available to the public on a subscription basis, and a simple average of the estimated number of prescriptions in the retail and mail order channels. ~~For~~In the third quarter of 2005, the Company isbegan disclosing estimated total U.S. prescription ~~growth~~change and estimated therapeutic category share based on both NPA and NGPS data. NGPS

data is collected by IMS under a new, revised methodology and has been released by IMS on a limited basis through a pilot program. IMS has ~~publicly~~ announced it expects to make NGPS data available to the public on a subscription basis in 2007. The Company believes that the NGPS data provided by IMS provides a superior estimate of prescription data for the Company’s products in the retail and mail order channels. The Company has calculated the estimated total U.S. prescription ~~growth~~change and ~~the~~ estimated therapeutic category share based on NGPS data on a ~~weighted average~~weighted-average basis to reflect the fact that mail order prescriptions include a greater volume of product supplied compared with retail prescriptions. The Company believes that calculation of the estimated total U.S. prescription ~~growth~~change and ~~the~~ estimated therapeutic category share based on the NGPS data and the ~~weighted average~~weighted-average approach with respect to the retail and mail order channels provides a superior estimate of total prescription demand. The Company now uses this methodology for its internal demand forecasts.

The estimated prescription ~~growth~~change data and estimated therapeutic category share provided above only include information from the retail and mail order channels and do not reflect information from other channels, such as hospitals, institutions and long-term care, among others. The data provided by IMS isare a product of ~~IMS’s~~IMS’ own record-keeping processes and ~~is itself an estimate~~are themselves estimates based on sampling procedures, subject to the inherent limitations of estimates based on sampling. In addition, the NGPS data isare part of a pilot program ~~which~~that is still being refined by IMS.

The Company continuously seeks to improve the quality of its estimates of prescription ~~growth~~change amounts, ~~and the estimated~~ therapeutic category share percentages and ultimate patient/consumer demand through review of its methodologies and processes for calculation of these estimates and review and analysis of its own and third parties’ data used in such calculations. The Company expects that it will continue to review and refine its methodologies and processes for calculation of these estimates and will continue to review and analyze its own and third parties’ data used in such calculations.

The following table sets forth for each of the Company’s key pharmaceutical products and other growth drivers sold by the Company’s International Pharmaceuticals reporting segment, including the top 15 pharmaceutical products sold in the Company’s major non-U.S. countries (based on 2005 net sales), and for each of the key products sold by the other reporting segments listed below, the percentage change in the Company’s estimated ultimate patient/consumer demand for the month of June 2006 compared to the month of June 2005. The Company commenced collecting the estimated ultimate patient/consumer demand for these reporting segments with the March 2005 period. The Company believes the year-to-year comparison below provides a more meaningful comparison to changes in sales for the quarter than the quarter-to-prior quarter comparisons previously provided.

The following tables set forth for each of the Company’s top 15 pharmaceutical products (based on 2005 annual net sales) and other products that the Company views as current and future growth drivers sold by the Company’s U.S. Pharmaceuticals business, ~~(based on 2004 annual net sales),~~ the U.S. Pharmaceuticals net sales ~~of the applicable product for each of the five quarters ended September 30, 2004 through September 30, 2005,~~ and the estimated number of months on hand of the applicable product in the U.S. wholesaler distribution channel for the quarters ended September 30, 2006 and 2005 and June 30, 2006 and 2005.

At September 30, 2006 and June 30, 2006 the estimated value of CEFZIL inventory in the U.S. wholesaler distribution channel exceeded one month on hand by approximately $11.8 million and $12.4 million, respectively. The demand for CEFZIL decreased significantly in 2006 due to generic competition that began in the U.S. in December 2005. The Company continues to monitor CEFZIL sales with the objective to work down wholesaler inventory levels to one month on hand or less.

SPRYCEL was launched in the U.S. in July 2006. Consistent with standard practice at the time of a new product launch, the Company’s U.S. wholesalers built inventories of the ~~end~~product to meet expected demand and at September 30, 2006, the estimated value of ~~each~~SPRYCEL inventory in the U.S. wholesaler distribution channel exceeded one month on hand by approximately $0.6 million. The Company expects to work down the inventory in the U.S. wholesaler distribution channel in the fourth quarter of 2006.

The estimated value of TEQUIN inventory in the U.S. wholesaler distribution channel exceeded one month on hand was de minimis at September 30, 2006 and was approximately $1.4 million at June 30, 2006. In the first quarter of 2006, the Company made the decision to discontinue commercialization of TEQUIN for commercial reasons. The Company stopped shipping product to U.S. wholesalers in June 2006 and established an accrual for the return of TEQUIN inventory. In early July 2006, the Company notified the U.S. wholesaler and retail distribution channels that it would allow for return of the ~~five~~product regardless of expiry dates. The Company expects most of the TEQUIN inventory in all U.S. channels to be returned by the fourth quarter of 2006.

BARACLUDE was launched in the U.S. in April 2005. In anticipation of the launch, the Company’s U.S. wholesalers built inventories of the product to meet expected demand and at September 30, 2005 and June 30, 2005, BARACLUDE inventory in the U.S. wholesaler distribution channel exceeded one month on hand. The estimated value of BARACLUDE inventory in the U.S. wholesaler distribution channel had been worked down to less than one month on hand in subsequent quarters.

   December 31, 2004
   September 30, 2004

Net Sales
(dollar in millions)

Months
on Hand

Net Sales
(dollar in millions)
   Months
on Hand
ABILIFY* (total revenue)
   $ 170 0.9    $ 152    0.6
AVAPRO*/AVALIDE*
   154 0.9    148    0.6
CEFZIL
   60 1.1    30    0.6
COUMADIN
   69 1.0    58    0.9
DOVONEX
   40 0.9    34    0.7
ERBITUX*
   88 0.2    83    0.2
GLUCOPHAGE* Franchise
   48 1.1    39    1.0
PARAPLATIN
   (12 ) 1.2    145    1.2
PLAVIX*
   816 0.9    781    0.6
PRAVACHOL
   433 1.0    318    0.6
REYATAZ
   99 0.9    75    0.6
SUSTIVA
   103 0.8    95    0.7
TEQUIN
   39 0.9    31    0.7
VIDEX/VIDEX EC
   25 0.9    27    0.6
ZERIT
   31 0.9    34    0.7

For all products other than ERBITUX*, the Company determines the above months on hand estimates by dividing the estimated amount of the product in the U.S. wholesaler distribution channel by the estimated amount of out-movement of the product from the U.S. wholesaler distribution channel over a period of ~~thirty-one~~31 days, all calculated as described below. Factors that may influence the Company’s estimates include generic competition, seasonality of products, wholesaler purchases in light of increases in wholesaler list prices, new product launches, new warehouse openings by wholesalers and new customer stockings by wholesalers. In addition, such estimates are calculated using third party data, ~~from third parties~~ which ~~data are a product of the third parties’~~represent their own record-keeping processes and as such, ~~third-party data~~may also ~~may~~ reflect estimates.

At December 31, 2004, the estimated value of CEFZIL inventory in the U.S. wholesaler distribution channel exceeded one month on hand by approximately $1.6 million. Prescriptions for CEFZIL, an antibiotic product, are typically higher in the winter months in the U.S. As a result, the Company’s U.S. wholesalers build higher inventories of the product in the fourth quarter to meet that expected higher demand. At March 31, 2005, the Company had worked down U.S. wholesaler inventory levels of CEFZIL to less than one month on hand, and remained at less than one month on hand in subsequent quarters.

At December 31, 2004, the estimated value of GLUCOPHAGE* Franchise products inventory (GLUCOPHAGE* XR, GLUCOPHAGE* IR, GLUCOVANCE* and METAGLIP*) in the U.S. wholesaler distribution channel exceeded one month on hand by approximately $1.6 million. As with all products, the months on hand estimate for the GLUCOPHAGE* Franchise products is an average of months on hand for all stock-keeping units (SKUs) of the product group. The increase in months on hand of the GLUCOPHAGE* Franchise products at the end of the fourth quarter to above one month on hand resulted primarily from the purchase by wholesalers of certain SKUs. After giving effect to these purchases, the increased months on hand for these SKUs were less than one month on hand. However, when the increased months on hand for these SKUs were averaged with all SKUs for the GLUCOPHAGE* Franchise products, the aggregate estimated months on hand exceeded one month. At March 31, 2005, the estimated value of GLUCOPHAGE* Franchise products inventory in the U.S. wholesaler distribution channel had been worked down to approximately one month on hand, and has been worked down to less than one month on hand at June 30 and September 30, 2005.

In October 2004, the U.S. patent for PARAPLATIN (carboplatin) expired, and the product lost exclusivity. The resulting generic competition for PARAPLATIN led to a significant decrease in demand for PARAPLATIN, which in turn led to the months on hand of the product in the U.S. wholesaler distribution channel exceeding one month at September 30, 2004, December 31, 2004 and September 30, 2005. The estimated value of PARAPLATIN inventory in the U.S. wholesaler distribution channel over one month on hand was approximately $6.6 million at September 30, 2004, $6.0 million at December 31, 2004 and $0.7 million at September 30, 2005. The Company plans to continue to monitor PARAPLATIN sales with the intention of working down wholesaler inventory levels to less than one month on hand.

At March 31 and September 30, 2005, the estimated value of VIDEX/VIDEX EC inventory in the U.S. wholesaler distribution channel exceeded one month on hand by approximately $1.1 million and $0.2 million, respectively. As a result of generic competition in the U.S. commencing in the fourth quarter of 2004, demand for VIDEX EC decreased significantly. The Company plans to continue to monitor VIDEX/VIDEX EC sales with the intention of working down wholesaler inventory levels to less than one month on hand.

The Company maintains inventory management agreements (IMAs) with most of its U.S. pharmaceutical wholesalers, which account for nearly 100% of total gross sales of U.S. pharmaceutical products. Under the current terms of the IMAs, the Company’s three largest wholesaler customers provide the Company with weekly information with respect to inventory levels of product on hand and the amount of out-movement of products. These three wholesalers ~~currently account~~accounted for ~~over~~approximately 90% of total gross sales of U.S. pharmaceutical ~~products.~~products in the third quarter of 2006. The inventory information received from these wholesalers excludes inventory held by intermediaries to whom they sell, such as retailers and hospitals, and excludes goods in transit to such wholesalers. The Company uses the information provided by these three wholesalers as of the Friday closest to quarter end to calculate the amount of inventory on hand for these wholesalers at the applicable quarter end. This amount is then increased by the Company’s estimate of goods in transit to these wholesalers as of the applicable Friday, which have not been reflected in the weekly data provided by the wholesalers. Under the Company’s revenue recognition policy, sales are recorded when substantially all the risks and rewards of ownership are transferred, which in the U.S. Pharmaceutical business is generally when product is shipped. In such cases, goods in transit to a wholesaler are owned by the applicable wholesaler and, accordingly, are reflected in the calculation of inventories in the wholesaler distribution channel. The Company estimates the amount of goods in transit by using information provided by these wholesalers with respect to their open orders as of the applicable Friday and the Company’s records of sales to these wholesalers with respect to such open orders. The Company determines the out-movement of a product from these wholesalers over a period of ~~thirty-one~~31 days by using the most recent four weeks of out-movement of a product as provided by these wholesalers and extrapolating such amount to

a ~~thirty-one~~31 day basis. The Company estimates inventory levels on hand and out-movements for its U.S. Pharmaceutical ~~business’s~~business’ wholesaler customers other than the three largest wholesalers for each product based on the assumption that such amounts bear the same relationship to the three largest wholesalers’ inventory levels and out-movements for such product as the percentage of aggregate sales for all products to these other wholesalers in the applicable quarter bears to aggregate sales for all products to the Company’s three largest wholesalers in such quarter. Finally, the Company considers whether any adjustments are necessary to these extrapolated amounts based on such factors as historical sales of individual products made to such other wholesalers and third-party market research data related to prescription trends and patient demand. In addition, the Company receives inventory information from these other wholesalers on a selective basis for certain key products.

The Company’s U.S. ~~pharmaceuticals~~Pharmaceuticals business through the IMAs discussed above, has arrangements with substantially all of its direct wholesaler customers ~~that allow the Company to monitor U.S. wholesaler inventory levels~~ and require those wholesalers to maintain inventory at levels ~~at approximately~~that are no more than one month ~~or less~~ of their demand.

In response to the at-risk launch of generic clopidogrel bisulfate on August 8, 2006 , the Company offered certain U.S. managed care organizations incremental rebates from wholesaler list price for PLAVIX* under certain conditions through March 31, 2007. A small number of managed care organizations accepted the offer. All other offers were rejected, or were terminated prior to or at the time of issuance of the preliminary injunction on August 31, 2006, and no further such offers have been made since. The Company also provided a temporary price reduction below the federal supply schedule for PLAVIX* to the Veterans Administration for a limited period in August and September 2006. Primarily as a result of very limited participation in the rebate offer, the Company estimates that the impact of the two programs on PLAVIX* net sales in the third quarter ~~of 2005,~~was de minimis.

ORENCIA was launched in February 2006. From launch through the second quarter, the Company ~~negotiated amendments~~distributed ORENCIA through an exclusive distribution arrangement with a single distributor. Following approval of the supplemental Biologics License Application (sBLA) that allows a third party to manufacture ORENCIA at an additional site, that arrangement recently terminated and the Company expanded its ~~IMAs with its three largest wholesalers. The amendments extended the original agreements through December 31, 2005 and established lower limits than the original agreements~~distribution network for ~~inventory levels of Company pharmaceutical products held by the wholesalers. The Company is in discussions~~ORENCIA to ~~extend the agreements for periods beyond 2005.~~

To help maintain the product quality of the Company’s biologic oncology product, ERBITUX*, the product iswas previously shipped only to end-users and not to other intermediaries (such as wholesalers) to hold for later sales. During 2004 and through May 2005, one of the Company’s wholesalers provided warehousing, packing and shipping services for ERBITUX*. Such wholesaler held ERBITUX* inventory on consignment and, under the Company’s revenue recognition policy, the Company recognized revenue when such inventory was shipped by the wholesaler to the end-user. Upon the divestiture of OTN in May 2005, the Company discontinued the consignment arrangement with the wholesaler and thereafter did not have ERBITUX* consignment inventory. Following the divestiture, the Company sold ERBITUX* to intermediaries (such as specialty oncology distributors) and shipped ERBITUX* directly to the end-users of the product who are the customers of those intermediaries. Beginning in the third quarter 2006, the Company expanded its distribution model to one of the Company’s wholesalers who then held ERBITUX* inventory at September 30, 2006. The Company recognizes revenue upon such shipment consistent with its revenue recognition policy. The above ~~estimates~~estimate of months on hand for the three months ended ~~March 31, 2005, were~~September 30, 2006 was calculated by dividing the inventories of ERBITUX* held by the wholesaler for its own account as reported by the wholesaler as of the end of the quarter by the Company’s net sales for the last calendar month of the quarter. The inventory levels reported by the wholesaler are a product of the wholesaler’s own record-keeping process. Upon the divestiture of OTN in May 2005, the Company discontinued the consignment arrangement with the wholesaler and thereafter did not have ERBITUX* consignment inventory. Following the divestiture, the Company sells ERBITUX* to intermediaries (such as specialty oncology distributors) and ships ERBITUX* directly to the end users of the product who are the customers of those intermediaries. The Company recognizes revenue upon such shipment consistent with its revenue recognition policy. Accordingly, subsequent to June 30, 2005, there was no ERBITUX* inventory held by wholesalers.

As previously disclosed, for the Company’s ~~pharmaceuticals~~Pharmaceuticals business outside of the United States, ~~nutritionals~~Nutritionals and ~~related healthcare~~Other Health Care business units around the world, the Company has significantly more direct customers, limited information on direct customer product level inventory and corresponding ~~out movement~~out-movement information and the reliability of third party demand information, where available, varies widely. Accordingly, the Company relies on a variety of methods to estimate direct customer product level inventory and to calculate months on hand for these business units. As such, the information required to estimate months on hand in the direct customer distribution channel for non-U.S. Pharmaceuticals business for the quarter ended September 30, ~~2005~~2006 is not available prior to the filing of this quarterly report on Form 10-Q. The Company will disclose this information on its website and furnish it on Form 8-K approximately 60 days after the end of the third quarter and in the Company’s Form 10-K for the period ending December 31, ~~2005.~~2006.

The following table, which was posted on the Company’s website and ~~furnished~~filed on Form 8-K on August 31, 2006, sets forth for each of the Company’s key products sold by the reporting segments listed below, the net sales of the applicable product for each of the ~~three months~~quarters ended June 30, 2006, March 31, 2006, June 30, 2005 and March 31, 2005, and the estimated number of months on hand of the applicable product in the direct customer distribution channel for the reporting segment as of ~~June 30, 2005 and March 31, 2005.~~the end of each of the four quarters. The estimates of months on hand for key products described below

for the International Pharmaceuticals reporting segment are based on data collected for all of the Company’s significant business units outside of the United States. Also described further below is information on non-key product(s) where the amount of inventory on hand at direct customers is more than approximately one month and the impact is not de minimis. For the other reporting segments, estimates are based on data collected for the United States and all significant business units outside of the United States.

The above months on hand information represents the Company’s estimates of aggregate product level inventory on hand at direct customers ~~as of June 30, 2005 and March 31, 2005~~ divided by the expected demand for the applicable product. Expected demand is the estimated ultimate patient/consumer demand calculated based on estimated end-user consumption or direct customer ~~outmovement~~out-movement data over the most recent thirty-one day period or other reasonable period. Factors that may affect the Company’s estimates include generic competition, seasonality of products, direct customer purchases in light of price increases, new product or product presentation launches, new warehouse openings by direct customers, new customer stockings by direct customers and expected direct customer purchases for governmental bidding situations.

The Company relies on a variety of methods to calculate months on hand for these reporting segments. Where available, the Company relies on information provided by third parties to determine estimates of aggregate product level inventory on hand at direct customers and expected demand. For the reporting segments listed above, however, the Company has limited information on direct customer product level inventory, end-user consumption and direct customer ~~outmovement~~out-movement data. Further, the quality of third party information, where available, varies widely. In some circumstances, such as the case with new products or seasonal products, such historical end-user consumption or ~~outmovement~~out-movement information may not be available or applicable. In such cases, the Company uses estimated prospective demand. In cases where direct customer product level inventory, ultimate patient/consumer demand or ~~outmovement~~out-movement data do not exist or are otherwise not available, the Company has developed a variety of other methodologies to calculate estimates of such data, including using such factors as historical sales made to direct customers and third party market research data related to prescription trends and end-user demand.

As of March 31, 2006, BARACLUDE, an oral antiviral agent, had approximately 1.1 months of inventory on hand at direct customers. The level of inventory on hand is due primarily to stocking of the product in support of its recent launch in China.

As of June 30, 2006, March 31, 2006 and March 31, 2005, DAFALGAN, ~~a non-key~~an analgesic product sold principally in Europe, had ~~net sales of $40 million~~approximately 1.1, 1.4 and ~~approximately~~ 1.3 months ~~or $16 million,~~ of inventory on hand, respectively, at direct customers. The level of inventory on hand is due primarily to private pharmacists purchasing DAFALGAN approximately once every eight weeks ~~which has been worked down to less than one month on hand at June 30, 2005.~~and the seasonality of the product.

As of ~~June 30, 2005 and~~ March 31, ~~2005, Excedrin,~~2006, EFFERALGAN, an analgesic product sold principally in ~~the U.S.,~~Europe, had approximately ~~1.5~~1.2 months ~~and 1.6 months, respectively,~~ of inventory on hand at direct customers. The level of inventory on hand is due primarily to private pharmacists purchasing EFFERALGAN approximately once every eight weeks and the ~~customary practice~~seasonality of ~~direct customers holding within their warehouses~~the product.

As of June 30, 2006 and ~~stores one and one-half to two~~March 31, 2006, MONOPRIL, a cardiovascular product, had approximately 1.1 months of inventory on hand, at direct customers. The level of inventory on hand is due primarily to supply of the product in support of its inclusion in a government program in Russia.

As of June 30, 2006 and March 31, 2006, PRAVACHOL, a cardiovascular product, had approximately 1.4 and 1.5 months of inventory on ~~hand. EXCEDRIN was included~~hand, respectively, at direct customers. The increased level of inventory on hand is due primarily to an increase in orders from a significant direct customer in France. It is anticipated that the inventory levels for this customer will be worked down during the third ~~quarter 2005 sale~~and fourth quarters.

June 30, 2006, VIDEX/VIDEX EC, an antiviral product, had approximately 1.2 months of inventory on hand at direct customers. The increased level of inventory on hand is due primarily to government purchasing patterns in Brazil.

The Company continuously seeks to improve the quality of its estimates of months on hand of inventories held by its direct customers including thorough review of its methodologies and processes for calculation of these estimates and review and analysis of its own and third parties’ data used in such calculations. The Company expects that it will continue to review and refine its methodologies and processes for calculation of these estimates and will continue to review and analyze its own and third parties’ data in such calculations. The Company also has and will continue to take steps to expedite the receipt and processing of data for the non-U.S. Pharmaceuticals business.

The combined third quarter 2006 revenues from the Health Care Group increased 1% to $1.0 billion compared to the same period in 2005. Excluding a 5% unfavorable impact from the divestiture of the U.S. and Canadian Consumer Medicines business in the third quarter of 2005, Health Care Group sales increased 6% in the third quarter 2006.

The composition of the ~~net increase~~change in nutritional sales is as follows:

Key Nutritional product lines and their sales, representing 95% and 94% of total Nutritional sales in the third quarter of ~~both~~2006 and 2005, ~~and 2004,~~respectively, are as follows:

Worldwide Nutritional sales increased ~~13%~~6%, including a 1% favorable foreign exchange impact, to $582 million in the third quarter of 2006 from $547 million in the same period in 2005. U.S. Nutritional sales were relatively flat at $267 million in the third quarter of 2006 in part due to temporary supply constraints, which were remedied during the quarter. International Nutritional sales increased 12% to $315 million in the third quarter of 2006, including a 3% favorable foreign exchange impact, primarily due to increased sales of ENFAMIL and ENFAGROW.

The Other Health Care segment includes ConvaTec and the Medical Imaging business. In the third quarter of 2005, the Company sold its U.S. and Canadian Consumer Medicines business and related assets (Consumer Medicines). The composition of the change in Other Health Care segment sales is as follows:

Other Health Care sales by business and their key products for the third quarter of 2006 and 2005, were as follows:

Worldwide ConvaTec sales increased 6%, including a 2% favorable foreign exchange impact, to ~~$547~~$265 million in ~~2005~~the third quarter of 2006 from ~~$484~~$250 million in ~~2004.~~

~~International Nutritional sales~~the same period of 2005. Sales of wound therapeutic products increased ~~11%~~9%, including a 4%3% favorable foreign exchange impact, to ~~$281 million from $254~~$113 million in ~~2004,~~the third quarter of 2006 from $104 million in the same period in 2005, primarily due to ~~increased sales in Toddler/Children’s Nutritional products.~~

~~Domestic Nutritional sales increased 16% to $266 million in 2005 from $230 million in 2004, primarily due to increased sales in ENFAMIL.~~

Sales of ENFAMIL, the Company’s best-selling infant formula, increased 13%, including a 1% favorable foreign exchange impact, to $230 million in 2005 from $203 million in 2004, primarily due to strong salescontinued growth ~~in the U.S. and the launch of ENFAMIL GENTLEASE LIPIL infant formula in August 2005.~~

~~Related Healthcare~~

~~The Related Healthcare segment includes ConvaTec, the Medical Imaging business and Consumer Medicines in the United States and Canada. The composition~~ of the ~~net decrease in Related Healthcare segment sales is as follows:~~

Three Months Ended
September 30,
   Analysis of % Change
   Total Change
Volume
Price
Foreign Exchange
2005 vs. 2004
   (1)% 1% (2)% —

~~Related Healthcare sales by business and their key products for the three months ended September 30 were as follows:~~

   Three Months Ended
September 30,

   2005
   2004
   % Change

   (dollars in millions)
ConvaTec
   $ 250    $ 237    5 %
Ostomy
   139    135    3 %
Wound Therapeutics
   104    99    5 %
Medical Imaging
   150    145    3 %
CARDIOLITE
   106    101    5 %
Consumer Medicines
   42    64    (34 )%

•

ConvaTec sales increased 5%, including a 1% favorable foreign exchange impact to $250 million in 2005 compared to $237 million in 2004, primarily due to the increase in worldwide sales of wound therapeutic and ostomy products. Sales of wound therapeutic products increased 5%, including a 1% favorable foreign exchange impact, to $104 million in 2005 from $99 million in 2004, primarily due to increased sales of AQUACEL^®~~. Ostomy sales increased 3%, including a 1% favorable foreign exchange impact, to $139 million in 2005 from $135 million in 2004, primarily due to the introduction of new products.~~

AQUACEL franchise.

Worldwide Medical Imaging sales increased 3%2% to ~~$150~~$153 million in ~~2005 compared to $145 million in 2004. Sales of CARDIOLITE increased 5% to $106 million in 2005 from $101 million in 2004, primarily due to increased demand.~~

~~Consumer Medicines sales decreased 34% to $42 million in 2005 from $64 million in 2004. During~~ the third quarter of ~~2005,~~2006 from $150 million in the ~~Company completed~~same period in 2005. This increase was primarily due to an increase in TechneLite technetium Tc99m Generators sales, resulting from the ~~sale of~~residual impact following a competitor’s withdrawal from the ~~U.S.~~market and ~~Canadian Consumer Medicines business and related assets. For additional information, see “Item 1. Financial Statements — Note 4. Acquisitions and Divestitures.”~~an increase in DEFINITY sales during a competitor’s continued withdrawal from the market, partially offset by a decline in CARDIOLITE sales. The key patent for CARDIOLITE expires in January 2008.

In general, the Company’s products are available in most countries in the world. The largest markets are in the United States, France, Spain, Canada, Japan, ~~Spain,~~ Italy, ~~Germany, Canada,~~Mexico and ~~the UK.~~Germany. The Company’s sales by geographic areas were as follows:

Sales in the United States ~~remained constant in 2005, with~~ decreased ~~sales in PARAPLATIN~~18%, primarily due to the impact of the at-risk launch of generic ~~competition that began at~~clopidogrel bisulfate in August 2006 and the ~~end~~loss of ~~2004, being~~exclusivity of PRAVACHOL, partially offset by ~~increased~~the continued growth of ABILIFY*, ERBITUX*, REYATAZ, the SUSTIVA franchise and AVAPRO*/AVALIDE* as well as sales of ~~growth drivers including PLAVIX*, ABILIFY*, REYATAZ~~recently launched products ORENCIA, BARACLUDE and ~~ERBITUX*.~~

Sales in Europe, Middle East and Africa decreased 9%12%, including a 3% favorable foreign exchange impact, as a result of sales decline of PRAVACHOL and TAXOL^{^®} ~~and PRAVACHOL~~ (paclitaxel) resulting from ~~exclusivity losses.~~increased generic competition. This decrease in sales was partially offset by ~~increased~~ sales in major European markets of ABILIFY*AVAPRO*/AVALIDE*, REYATAZ and ~~REYATAZ, which were both launched in Europe in the second quarter of 2004.~~ABILIFY*.

Sales in the Other Western Hemisphere countries ~~increased 15%,~~remained relatively constant, including a ~~11%~~3% favorable foreign exchange impact, ~~primarily due~~compared to ~~increased sales of PLAVIX* across all markets, and REYATAZ~~the same period in ~~Brazil and Canada.~~2005.

Sales in the Pacific region ~~increased 13%~~decreased 1%, including a 2%1% favorable foreign exchange ~~impact, as a result of increased sales of TAXOL~~^® ~~in Japan, and ENFAGROW in China, Malaysia and Vietnam.~~impact.

Cost of products sold, as a percentage of net sales, increased to ~~31.1%~~35.3% in the third quarter of 2006. In the third quarter of 2006, the Company reported $24 million of expenses (or 0.6% as a percent of net sales) in cost of products sold, which were reported in 2005 ~~compared with 30.7%~~as marketing, selling and administrative expenses. Excluding the impact of the reclassification, cost of products sold as a percentage of net sales increased to 34.7% in the third quarter of ~~2004,~~2006 compared with 31.1% in 2005 in the same period. This increase was primarily due to the unfavorable impact of pharmaceutical net sales mix, ~~partially offset by~~including the loss of sales ~~growth~~ of ~~ABILIFY*, REYATAZ~~PLAVIX* due to the at-risk launch of generic clopidogrel bisulfate in August 2006 as well as impairment charges for a manufacturing facility and ~~PLAVIX*.~~EMSAM* related assets.

Marketing, selling and administrative expenses were $1,189 million, and as a percentage of net sales, were ~~27.0%~~28.6% in the third quarter of ~~2005~~2006. Excluding the impact of the above-mentioned reclassification, marketing, selling and ~~25.1%~~administrative expenses decreased 6% to $1,213 million in the third quarter of ~~2004. In~~2006 compared to the same period in 2005 and as a percentage of net sales, were 29.2% and 27.0% in the third quarters of 2006 and 2005, respectively. The decrease in marketing, selling and administrative expenses ~~increased 7% to $1,286 million from 2004, primarily~~was mainly due to ~~higher legal costs, higher pension~~lower sales force expenses ~~reflecting increased amortization~~resulting from the previously announced restructuring of ~~unrecognized net losses as well as changes~~the U.S. primary care sales organization that became effective in ~~actuarial assumptions,~~March 2006 and ~~increased expenditures on late-stage compounds.~~lower international expenses for PRAVACHOL.

Advertising and product promotion ~~expenditures increased 7%~~spending decreased by 18% to ~~$349 million in 2005 from 2004, primarily for increased investments behind PLAVIX* and the launch of BARACLUDE™, in addition to increased costs associated with pre-launch activities.~~

~~The Company’s investment in research and development totaled $669~~$286 million in the third quarter of 2006 from $349 million in the same period in 2005, ~~an increase~~primarily driven by lower spending on mature brands, timing of ~~9% over 2004,~~PLAVIX* spending and ~~as a percentage~~the divestiture of ~~sales were 14.0%~~the U.S. and Canadian Consumer Medicines business in 2005, partially offset by increased investments in other major products and new products including ORENCIA and SPRYCEL.

Research and development expenses increased by 13% to $756 million in the third quarter of ~~2005 compared with 12.9%~~2006 from $669 million in the ~~third quarter of 2004. The increase~~same period in 2005, principally reflecting ongoing investments in research and development, ~~expenses reflects~~which have continued ~~investments in~~to focus on late-stage compounds. ~~In 2005, investment in pharmaceutical research~~Research and development ~~equaled 16.3%~~costs also included $17 million of ~~Pharmaceuticals sales compared to 14.7%~~charges for upfront and milestone payments in ~~2004.~~

Acquired in-process research and development of $1 million in 2004 is related to the acquisition of Acordis. For additional information on the acquisition, see “Item 1. Financial Statements—Note 4. Acquisitions and Divestitures.”2006.

Restructuring programs have been implemented to downsize, realign and streamline operations in order to increase productivity, reduce operating expenses and to rationalize the Company’s manufacturing network, research facilities, and the sales and marketing organizations. Actions under the third quarter ~~2005~~2006 restructuring ~~program~~programs are expected to be complete by ~~late 2005,~~early 2007, while actions under the third quarter ~~2004~~2005 restructuring ~~program~~programs are substantially ~~completed.~~complete. As a result of these actions, the Company expects the future annual benefit to earnings from continuing operations before minority interest and income taxes to be approximately $1$11 million and ~~$125~~$1 million for the third quarter ~~2005~~2006 and ~~2004~~2005 programs, respectively. For additional information on restructuring, see “Item 1. Financial Statements—Note 3. Restructuring.”

Litigation income includes $9 million in the third quarter of 2006 related to an insurance recovery for a previously settled litigation matter. In the third quarter of 2005, the Company recorded litigation insurance recovery of $26 million in aggregate as a result of agreements to settle coverage disputes primarily related to product liability with its various insurers. ~~In the third quarter of 2004, the Company recorded litigation charges of $25 million, related to anti-trust litigation regarding PLATINOL.~~ For additional information on litigation charges, see “Item 1. Financial ~~Statements —~~ Statements—Note ~~17.~~18. Legal Proceedings and ~~Contingencies —~~ Contingencies—Other Securities Matters.”

The gain on sale of ~~business~~businesses of $569 million ~~($370 million net of tax)~~ in ~~the third quarter of~~ 2005 ~~is related to sale of the U.S. and Canadian Consumer Medicines business and related assets. The gain on sale of business of $3 million in 2004 is~~was related to the sale of ~~the Mead Johnson Adult Nutritional business.~~Consumer Medicines. For additional information, ~~on these sales,~~ see “Item 1. Financial ~~Statements —~~ Statements—Note 4. Acquisitions and Divestitures.”

Equity in net income of affiliates for the third quarter of ~~2005~~2006 was ~~$84~~$118 million, compared with ~~$70~~$84 million in the third quarter of ~~2004.~~2005. Equity in net income of affiliates is principally related to the Company’s international joint venture with Sanofi and investment in ImClone. The ~~$14~~$34 million increase in equity in net income of affiliates primarily ~~reflects the increase in~~due to increased net income in the Sanofi joint venture. For additional information on equity in net income of affiliates, see “Item 1. Financial ~~Statements —~~ Statements—Note 2. Alliances and Investments.”

Other ~~expenses,~~income/expense, net, was income of ~~income, were $38 million and $16~~$34 million in the third ~~quarters~~quarter 2006 compared to expense of ~~2005 and 2004, respectively.~~$38 million in the third quarter of 2005. Other ~~expenses~~income/expense include net interest expense, foreign exchange gains and losses, income from third-party contract manufacturing, ~~and~~ royalty income, gains and losses on disposal of property, plant and equipment and certain other litigation matters. The ~~$22~~$72 million ~~increase~~difference in other ~~expenses in 2005~~income/expense was primarily due to the reversal of accruals recorded in the first quarter of 2006 with respect to the potential payments under the proposed settlement with Apotex, higher income from contract manufacturing and a net foreign exchange ~~gains recognized~~gain in ~~2004.~~2006. For additional information, see “Item 1. Financial ~~Statements —~~ Statements—Note 7. Other (Income)/Expense, Net.”

Stock-based compensation expense recognized under SFAS 123(R) for the three months ended September 30, 2006 was $20 million. These charges were recorded in cost of product sold, marketing selling and administrative expenses, and research and development expenses in the current year. Stock-based compensation expense recognized under Accounting Principles Board (APB) Opinion No. 25 for the three months ended September 30, 2005 was $9 million. These expenses were recorded in marketing, selling and administrative.

During the quarters ended September 30, ~~2005~~2006 and ~~2004,~~2005, the Company recorded ~~several~~specified (income)/expense items that affected the comparability of results of the periods presented herein, which are set forth in the following ~~table.~~tables:

In the third quarter of ~~2005,~~2006, earnings from continuing operations before minority interest and income taxes ~~increased 42%~~decreased 62% to ~~$1,626~~$617 million from ~~$1,146~~$1,626 million in the third quarter of ~~2004.~~2005. The ~~$480 million increase~~decrease was primarily driven by the ~~gain on sale~~net impact of items that affected the comparability of results as discussed above, lower sales for pharmaceutical products as a result of the ~~U.S.~~at-risk launch of generic clopidogrel bisulfate in August 2006 and ~~Canadian Consumer Medicines business~~loss of exclusivity of PRAVACHOL, increased spending on research and ~~related assets.~~

development of new compounds, partially offset by an increase in equity in net income of affiliates, lower advertising and promotion expenses, lower sales force expenses and the reversal of reserves recorded in the first quarter of 2006, with respect to the potential payments under the proposed settlement with Apotex.

Earnings before minority interest and income taxes decreased to ~~$915~~$498 million in the third quarter of 2006 from $923 million in the third quarter of 2005 ~~from $1,127 million in the third quarter of 2004~~ primarily ~~due to~~driven by lower sales ~~and gross margin erosion~~ as a result of ~~an unfavorable shift~~the at-risk launch of generic clopidogrel bisulfate in ~~the sales mix,~~August 2006 and loss of exclusivity of PRAVACHOL, investments in research and development ~~legal costs~~ and ~~marketing expenditures on late-stage compounds.~~

Earnings before minority interest and income taxes increased to ~~$150~~$161 million in the third quarter of 2006 from $157 million in the third quarter of 2005, ~~from $126 million~~primarily due to growth in ~~the third quarter of 2004, primarily from sales growth of both infant~~Asia and ~~children’s nutritional products.~~

Earnings before minority interest and income taxes increased to $129 million in the ~~Related Healthcare segment decreased to $125~~third quarter of 2006 from $119 million in the third quarter of 2005, ~~from $131~~primarily driven by increased sales in the ConvaTec business.

Loss before minority interest and income taxes was $171 million in the third quarter of ~~2004,~~2006 compared to earnings of $427 million in the third quarter of 2005. The difference was primarily due to the gain on sale of the ~~U.S. and Canadian~~ Consumer Medicines business ~~and related assets.~~in the third quarter of 2005.

The effective income tax rate on earnings from continuing operations before minority interest and income taxes was ~~31.2% in~~31.3% for the ~~third quarter of 2005~~three months ended September 30, 2006 compared with ~~20.9%~~31.2% for the three months ended September 30, 2005. The tax rate for the three months ended September 30, 2006 was unfavorably impacted by lower tax benefits associated with certain restructuring expenses, and a change in ~~the third quarter of 2004.~~estimate related to prior year tax contingency matters. The ~~higher effective~~ tax rate for the three months ended September 30, 2005 was ~~due~~ primarily ~~to a~~driven by higher ~~concentration~~taxes on the sale of ~~pre-tax earnings in~~ the U.S. and ~~Canada attributable to the sale of the~~Canadian Consumer Medicines business and related ~~assets, and lower foreign tax credits.~~ assets.

In the third quarter of ~~2005, as a result~~2006, minority interest, net of ~~the sale of the Consumer Medicines business and other changes in assumptions regarding future taxable profits, the Company recorded a net benefit of approximately $3~~taxes decreased to $86 million ~~in its tax provision associated with the reduction of its valuation allowance on certain deferred tax assets.~~

~~Net earnings~~ from ~~continuing operations increased 28%~~$155 million in the third quarter of 2005 primarily due to ~~$964 million~~lower earnings resulting from ~~$755 million in~~ the ~~third quarter~~impact of ~~2004. In~~ the ~~third quarter~~August 2006 at-risk launch of 2005, basic earnings per share from continuing operations increased 26% to $0.49 from $0.39 in the third quarter of 2004, while diluted earnings per share from continuing operations increased 29% to $0.49 from $0.38 in 2004.

Except as noted below, the factors affecting the third quarter comparisons all affected the nine month comparisons.

Net sales from continuing operations for the first nine months of ~~2005~~2006 decreased 3% to $13.7 billion from $14.2 billion in 2005. U.S. net sales remained ~~constant~~consistent at ~~$14,188 million from $14,223 million~~$7.6 billion in ~~2004. U.S. sales decreased 2%~~2006 compared to ~~$7,616 million in~~ 2005, ~~from $7,803 million in 2004,~~ while international sales ~~increased 2%~~decreased 7%, including a ~~3% favorable~~1% unfavorable foreign exchange impact, to ~~$6,572 million in 2005 from $6,420 million in 2004.~~

The composition of the ~~net (decrease)/increase~~change in sales is as follows:


	Total Change	Analysis of % Change
Nine Months Ended September 30,	Total Change	Volume	Price	Foreign Exchange
2006 vs. 2005	(3)%	(6)%	3%	—

The following table sets forth the reconciliation of the Company’s gross sales to net sales adjustments by each significant category of gross-to-net sales adjustments:

The decrease in gross-to-net adjustments for the nine months ended September 30, 2006 compared to the same period in 2005 was affected by a number of factors, including customer mix and a portfolio shift, in each case towards products that required lower rebates, as well as changes in contract status. The decrease in prime vendor charge-backs ~~in 2005~~ was primarily the result of volume erosion on highly rebated PARAPLATIN and TAXOL^® (paclitaxel) due to ~~lower relative sales volume~~generic competition as well as the impact from the discontinued commercialization of TEQUIN. Managed health care rebates decreased as a result of exclusivity loss of PRAVACHOL, which also reduced Medicaid rebates. In addition, the shift in ~~this segment due~~patient enrollment, from Medicaid to ~~product mix. The~~Medicare under Medicare Part D, resulted in a decrease in Medicaid rebate accruals, partially offset by a corresponding increase in managed healthcare rebates was primarily attributable to lower sales volume through managed healthcare companies. The decrease in sales returns was primarily due to lower returns for certain products including TEQUIN, PRAVACHOL and SUSTIVA. The decrease in other adjustments was due to lower sales discounts in the international businesses and lower rebates to foreign governments.health care rebate accruals.

The following table sets forth the activities and ending balances of each significant category of gross-to-net sales adjustments:

In the first nine months of 2005, the Company recorded gross-to-net sales adjusting charges and credits related to sales made in prior periods. The significant items included charges of $36 million for Medicaid rebates primarily as a result of higher than expected Medicaid utilization of various products; charges of $6 million for managed care rebates due to changes in estimates of managed care claims; credits of $5 million for prime vendor charge-backs primarily resulting from a resolution of intermediary pricing discrepancies impacting the Company’s oncology business, partially offset by charges for other adjustments; credits of $19 million for sales returns resulting from lower returns for certain products; and credits of $31 million for other adjustments primarily as a result of lower than expected rebates to foreign governments. No other2006, no significant revisions were made to the estimates for gross-to-net sales adjustments related to sales made in ~~2005.~~

The composition of the ~~net decrease~~change in pharmaceutical sales is as follows:

For the nine months ended September 30, ~~2005,~~2006, worldwide Pharmaceuticals sales decreased 2%5%, including a 1% unfavorable foreign exchange impact, to ~~$11,242~~$10,713 million. ~~Domestic~~U.S. pharmaceutical sales decreased 4%1% to $5,900 million from $5,956 million ~~from $6,191 million~~ in ~~2004,~~2005, while international pharmaceutical sales ~~increased 1%~~decreased 9%, including a ~~3% favorable~~1% unfavorable foreign exchange impact to ~~$5,286~~$4,813 million in the first nine months of ~~2005~~2006 from ~~$5,223~~$5,286 million in ~~2004.~~2005.

Key pharmaceutical products and their sales, representing ~~80%~~79% and 76% of total pharmaceutical sales in the first nine months of ~~both~~2006 and 2005, ~~and 2004,~~ respectively, are as follows:

Sales of PLAVIX* remained relatively constant at $2,761 million in 2006 compared to the same period in 2005. Estimated total U.S. prescription demand decreased approximately 2% compared to 2005 due to strong sales in the first seven months of 2006 offset by the impact of the August 2006 at-risk launch of generic clopidogrel bisulfate.

Sales of PRAVACHOL decreased 37%, including a 1% unfavorable foreign exchange impact, to $1,051 million from $1,672 million in 2005. Estimated total U.S. prescription demand decreased approximately 51% compared to 2005.

Sales of AVAPRO*/AVALIDE* increased ~~17%~~12% to $790 million from $705 million in 2005. U.S. sales increased to $465 million in 2006 compared with $406 million in 2005. Estimated total U.S. prescription demand increased approximately 4% compared to 2005. International sales increased 9%, including a 1% favorable foreign exchange impact, to ~~$2,762~~$325 million from ~~$2,368~~$299 million in ~~2004. Domestic sales increased 15% to $2,329 million from $2,017 million in 2004, primarily due to continued estimated prescription growth of approximately 14% in the U.S. market.~~2005.

Sales of ~~PRAVACHOL decreased 13%~~COUMADIN increased 4%, ~~including a 1% favorable foreign exchange impact,~~ to ~~$1,672 million from $1,925~~$163 million in ~~2004. Domestic sales decreased 8%~~2006 compared to ~~$908 million in 2005. Estimated U.S. prescriptions decreased approximately 16%. International sales decreased 19%, including a 3% favorable foreign exchange impact, to $764 million.~~

~~Sales of AVAPRO*/AVALIDE* increased 5%, including a 2% favorable foreign exchange impact, to $705 million from $671 million in 2004. Domestic sales were $406~~$156 million in 2005, ~~compared with $408 million in 2004, while international sales increased 14%, including a 5% favorable foreign exchange impact, to $299 million from $263 million in 2004~~ primarily due to ~~increased sales~~higher average net selling prices, partially offset by a decrease in ~~Canada, Germany, Australia and France.~~demand due to continued competition.

Sales of MONOPRIL decreased ~~21%~~19%, including a ~~3% favorable~~1% unfavorable foreign exchange impact, to ~~$162~~$131 million.

Sales of ~~COUMADIN~~REYATAZ increased 33%, despite a 1% unfavorable foreign exchange impact, to $676 million in 2006 compared to $508 million in 2005. Estimated total U.S. prescription demand increased approximately 17% compared to 2005.

Total revenue for the SUSTIVA franchise increased 12%, to $569 million from $510 million in the same period in 2005. Estimated total U.S. prescription growth increased approximately 8% compared to 2005.

Sales of ZERIT decreased ~~13%~~30%, including a 1% ~~favorable~~unfavorable foreign exchange impact, to ~~$156~~$119 million in ~~2005~~2006 from $169 million in 2005. Estimated total U.S. prescriptions growth decreased approximately 31% compared to ~~$179 million in 2004.~~2005.

Sales of ~~SUSTIVA increased 14%, including a 2% favorable foreign exchange impact, to $510~~BARACLUDE were $47 million ~~in 2005 from $449 million in 2004, primarily due to estimated U.S. prescription growth~~for the first nine months of ~~approximately 5%, higher average selling prices and lower sales returns.~~

~~Sales of REYATAZ were $508 million in 2005~~2006 compared to ~~$266 million in 2004. Sales in Europe continued to grow since its introduction in the second quarter of 2004, achieving sales of $148~~$7 million in the ~~first nine months~~same period of 2005.

Sales of ~~ZERIT~~CEFZIL decreased ~~18%, including a 2% favorable foreign exchange impact,~~65% to ~~$169~~$64 million in ~~2005~~2006 from ~~$205~~$184 million in ~~2004, as a result of a decrease in estimated U.S. prescriptions of approximately 31% compared to 2004.~~

~~Sales of VIDEX/VIDEX EC decreased 36%, including a 2% favorable foreign exchange impact, to $133 million in 2005 from $207 million in 2004.~~2005.

Sales of ~~CEFZIL~~ERBITUX* increased ~~2%, including a 2% favorable foreign exchange impact,~~66% to ~~$184~~$485 million in ~~2005~~2006 from ~~$181~~$292 million in ~~2004.~~

~~BARACLUDE™ generated sales of $7 million since its launch~~the same period in ~~the U.S. in April~~ 2005.

~~Sales~~SPRYCEL generated sales of ~~ERBITUX* were $292~~$11 million since its launch in ~~2005 compared to $173 million~~the U.S. in ~~2004 after its introduction in February 2004.~~

~~Sales of PARAPLATIN decreased 82% to $119 million in 2005 from $646 million in 2004. Domestic sales decreased 96% to $23 million in 2005 from $549 million in 2004.~~July 2006.

Total revenue for ABILIFY* increased ~~71%~~34%, ~~including a 1% favorable foreign exchange impact,~~ to $920 million in 2006 from $688 million in ~~2005 from $402 million in 2004. Estimated~~2005. U.S. ~~prescription demand~~sales increased ~~approximately 46% compared to 2004. Total revenue for ABILIFY* in Europe has continued to grow since its launch, to $98 million~~32% in the first nine months of 2006 compared to 2005. Estimated total U.S. prescription demand increased approximately 22% compared to 2005.

~~GLUCOPHAGE* franchise~~EMSAM* generated sales ~~decreased 52% to $137~~of $15 million since its launch in ~~2005, compared to $283~~the U.S. in April 2006.

ORENCIA generated sales of $57 million since its launch in ~~2004, primarily resulting from increased generic competition.~~U.S. in February 2006.

Sales of EFFERALGAN ~~increased 6%~~decreased 8%, including a ~~4% favorable~~2% unfavorable foreign exchange impact, to $192 million in 2006 from $209 million in 2005, ~~from $198 million~~primarily due to a moderate flu season in ~~2004.~~the first quarter of 2006 compared to a strong flu season in the same period in 2005.

The estimated U.S. prescription ~~and prescription growth~~change data provided above includes information only from the retail and mail order channels and do not reflect information from other channels, such as hospitals, institutions and long-term care, among others. The estimated prescription and prescription ~~growth~~change data are based on NPA data provided by IMS.

The following ~~table sets~~tables set forth for each of the Company’s top 15 pharmaceutical products (based on 2005 annual net sales) and products that the Company views as current and future growth drivers sold by the U.S. Pharmaceuticals business, ~~(based on 2004 annual net sales),~~ for the nine months ended September 30, ~~2005 and 2004~~2006 compared to the same ~~periods~~period in the prior year: (a) changes in reported U.S. net sales for the period; (b) estimated total U.S. prescription growth for the retail and mail order channels and the estimated U.S. therapeutic category share of the applicable product, calculated by the Company based on NPA data provided by ~~IMS, a supplier of market research for the pharmaceutical industry;~~IMS; and (c) estimated total U.S. prescription ~~growth~~change for the retail and mail order channels and the estimated U.S. therapeutic category share of the applicable product, calculated by the Company based on NGPS data provided by IMS.

For an explanation of the data presented above and the calculation of such ~~data. See~~data, see “—Three Months Results of ~~Operations”.~~Operations.”

For the first nine months of 2006, the combined revenues from the Health Care Group increased 1% to $3.0 billion compared to the same period in 2005. Excluding a 6% unfavorable impact from the divestiture of the U.S. and Canadian Consumer Medicines business in the third quarter of 2005, Health Care Group sales increased 7% for the first nine months of 2006.

The composition of the ~~net increase~~change in nutritional sales is as follows:

Key Nutritional product lines and their sales, representing 95% ~~and 93%~~ of total Nutritional sales in the first nine months of ~~2005~~2006 and ~~2004, respectively,~~2005, are as follows:

Worldwide Nutritional sales increased 8%, including a 1% favorable foreign exchange impact and a 2% unfavorable impact from the divestiture of the Adult Nutritional business in 2004, to $1,621 million in 2005 from 2004. International sales increased 10% to $833 million, including a 3% favorable foreign exchange impact and a 1% unfavorable impact from the divestiture of the Adult Nutritional business in 2004. Domestic sales increased 6% to $788 million, including a 4% unfavorable impact from the divestiture of the Adult Nutritional business in 2004.

~~Sales of ENFAMIL increased 13%~~7%, including a 1% favorable foreign exchange impact, to ~~$715~~$1,729 million in ~~2005~~the first nine months of 2006 from ~~$635~~$1,621 million in ~~2004.~~

the same period in 2005. International Nutritional sales increased 12% to $933 million for the first nine months, including a 2% favorable foreign exchange impact, while domestic sales increased 1% to $796 million.

The composition of the ~~net increase~~change in ~~Related Healthcare~~Other Health Care segment sales is as follows:

~~Related Healthcare~~Other Health Care sales by business and their key products for the nine months ended September 30, 2006 and 2005 were as follows:

Worldwide ConvaTec sales increased 5%4%, ~~including~~despite a ~~3% favorable~~1% unfavorable foreign exchange impact, to $757 million for the first nine months of 2006 from $725 million in ~~2005 from $688 million in 2004. Sales~~the same period of wound therapeutic products increased 9%, including a 2% favorable foreign exchange impact, to $304 million in 2005 from $280 million in 2004, while ostomy sales increased 2%, including a 3% favorable foreign exchange impact, to $405 million in 2005 from $399 million in 2004.2005.

Worldwide Medical Imaging sales increased ~~3%, including a 1% favorable foreign exchange impact~~13% to $502 million for the first nine months of 2006 from $446 million in the same period in 2005, primarily due to an increase in TechneLite technetium Tc99m Generator sales in the first quarter of 2006, resulting from ~~$435~~the residual impact following a competitors withdrawal from the market. CARDIOLITE sales decreased 3% to $305 million ~~in 2004. Sales of CARDIOLITE increased 6% to~~from $316 million in ~~2005 from $298 million~~the same period in ~~2004.~~2005.

~~Consumer Medicines sales decreased 19% to $154 million from $190 million in 2004.~~

Sales in the United States ~~decreased 2%~~remained relatively constant compared to the same period in 2005 ~~with lower~~due to strong PLAVIX* sales in the first seven months of ~~PARAPLATIN,~~2006 offset by the ~~GLUCOPHAGE* franchise as a result~~impact of the August 2006 at-risk launch of generic ~~competition, PRAVACHOL due to increased competition, partially offset by increased sales of growth drivers.~~

Sales in Europe, Middle East and Africa decreased 2%13%, including a ~~3% favorable~~2% unfavorable foreign exchange impact, ~~as a result of sales decline~~compared to the same period in ~~France, Germany, the UK, Italy, partially offset by increased sales in Spain.~~

Sales in the Other Western Hemisphere countries increased ~~11%~~3%, including a 7%4% favorable foreign exchange impact, ~~primarily due~~compared to ~~increased sales~~the same period in ~~Latin American countries.~~

Sales in the Pacific region ~~increased 9%, including~~remained relatively constant, despite a ~~2% favorable~~1% unfavorable foreign exchange impact, ~~as a result of increased sales~~compared to the same period in ~~Japan, China and Australia.~~2005.

Cost of products sold, as a percentage of net sales, increased to ~~30.5%~~32.9% in the first nine months of ~~2005 compared with 30.4%~~2006. In 2006, the Company reported $74 million of certain costs in cost of products sold which were previously reported in marketing, selling and administrative expenses. Excluding the impact of the reclassification, cost of products sold as a percentage of net sales, increased to 32.4% in the first nine months of ~~2004. The~~2006 compared with 30.5% in 2005. This increase iswas primarily due to the unfavorable impact of ~~U.S. Pharmaceutical~~the pharmaceutical net sales mix, including the loss of sales of PLAVIX* due to the at-risk launch of generic clopidogrel bisulfate in ~~2005, partially offset by $76 million of net litigation~~August 2006 and impairment charges ~~recorded 2004.~~for a manufacturing facility and EMSAM* related assets.

Marketing, selling and administrative expenses were $3,608 million, and as a percentage of net sales, were 26.3% in the first nine months of ~~2005~~2006. Excluding the impact of the above-mentioned reclassification, marketing, selling and ~~25.5% in the first nine months of 2004.~~

~~Advertising and product promotion expenditures increased 5%~~administrative expenses decreased 1% to ~~$1,032 million from 2004, primarily due to the launch of BARACLUDE™ and continued investments in growth drivers, partially offset by lower spending on mature products.~~

~~The Company’s investment in research and development totaled $1,971~~$3,682 million in the first nine months of 2006 compared to the same period in 2005 ~~an increase~~and as a percentage of ~~8% over 2004. In~~net sales, were 26.9% and 26.3% in the first nine months of 2006 and 2005, ~~research~~respectively. The decrease was primarily due to lower sales force expenses resulting from the previously announced restructuring of the U.S. primary care sales organization that became effective in March 2006 and lower international expenses for PRAVACHOL, mostly offset by the impact of the adoption of stock option expensing.

Advertising and product promotion spending decreased 10% to $933 million from 2005.

Research and development ~~spending dedicated~~expenses increased by 14% to ~~pharmaceutical products increased to 16.0% of Pharmaceuticals sales compared with 14.7% in 2004.~~

~~Acquired in-process research and development of $63~~$2,246 million in the first nine months of ~~2004 is related to~~2006 from $1,971 million in the ~~acquisition~~same period in 2005. Research and development costs also included $36 million and $37 million of ~~Acordis. For additional information on the sale, see “Item 1. Financial Statements—Note 4. Acquisitions~~charges consisting of upfront and ~~Divestitures.”~~milestone payments in 2006 and 2005, respectively.

Actions under the 2006 restructuring program ~~for the first nine months of 2005~~ are expected to be complete by ~~late 2005,~~early 2007, while actions under the 2005 restructuring program ~~for the first nine months 2004~~ are substantially ~~completed.~~complete. As a result of these actions, the Company expects the future annual benefit to earnings from continuing operations before minority interest and income taxes to be approximately $7$24 million and ~~$142~~$6 million for the ~~two restructuring~~2006 and 2005 programs, ~~for the first nine months of 2005 and 2004,~~ respectively. ~~For additional information on restructuring, see “Item 1. Financial Statements—Note 3. Restructuring.”~~

~~For the first nine months of 2005, the Company recorded net litigation charges of $72~~Litigation income includes $44 million ~~reflecting an increase to the reserves for liabilities~~in 2006 related to ~~private litigations~~an insurance recovery for previously settled litigation matters and ~~governmental investigations~~income from a settlement of ~~$373 million, ERISA~~ litigation ~~and~~

other matters of $20 million, partially offset by insurance recoveries of $321 million. The $404 million litigation expense recorded in 2004 consisted of $320 million related to private litigation and governmental investigations related to wholesaler inventory issues and accounting matters, $50 million related to the PLATINOL litigation settlement and $34 million related to pharmaceutical pricing and sales and practices. For additional information on litigation charges, see “Item 1. Financial Statements — Note 17. Legal Proceedings and Contingencies.”

matter. In 2005, the Company recorded ~~a gain~~litigation charges of ~~$569~~$373 million ~~on the sale~~and ERISA litigation and other matters of ~~the U.S. and Canadian Consumer Medicines business and related assets.~~ $20 million, partially offset by insurance recoveries of $321 million.

The gain on sale of ~~business~~businesses of ~~$316~~$200 million in ~~2004~~2006 was related to the sale of inventory, trademark, patent and intellectual property rights related to DOVONEX*. The gain on sale of businesses of $569 million in 2005 was related to the ~~Mead Johnson Adult Nutritional business.~~sale of Consumer Medicines. For additional information, ~~on these sales,~~ see “Item 1. Financial Statements—Note 4. Acquisitions and Divestitures.”

Equity in net income of affiliates for the first nine months of ~~2005~~2006 was ~~$240~~$336 million, compared with ~~$204~~$240 million in the first nine months of ~~2004. Equity in net income of affiliates is principally related to the Company’s joint venture with Sanofi and investment in ImClone.~~2005. The ~~$36~~$96 million increase in equity in net income of affiliates was primarily ~~reflects an increase in~~due to increased net income in the ~~Sanofi~~ joint venture ~~partially offset by a net loss~~with Sanofi and income from the equity investment in ~~ImClone. For additional information on equity~~ImClone in ~~net income of affiliates, see “Item 1. Financial Statements—Note 2. Alliances and Investments.”~~2006 compared to a loss in 2005.

Other ~~expenses,~~expense, net, was income of ~~income, were $168~~$59 million and ~~$62~~$168 million in the first nine months of 2006 and 2005, ~~and 2004,~~ respectively. Other expenses include net interest expense, foreign exchange gains and losses, income from third-party contract manufacturing, royalty income, gains and losses on disposal of property, plant and equipment, and debt retirement costs. The ~~increase~~$109 million decrease in other ~~expenses in 2005~~expense was primarily due to higher expense in 2005, consisting of $69 million of debt retirement costs and $47 million of net foreign exchange transaction losses.

Stock-based compensation expense recognized under SFAS 123(R) for the nine months ended September 30, 2006 was $91 million. These charges were recorded in ~~connection with~~cost of product sold, marketing selling and administrative expenses, and research and development expenses in the ~~repurchase of~~current year. Stock-based compensation expense recognized under APB No. 25 for the $2.5 billion Notes due 2006, partially offset by the gain on sale of an equity investment. For additional information on the repurchase of the $2.5 billion Notes, see “Item 1. Financial Statements—Note 13. Short-term Borrowingsnine months ended September 30, 2005 was $28 million. These expenses were recorded in marketing, selling and ~~Long-term Debt.”~~

During the nine months ended September 30, ~~2005~~2006 and ~~2004,~~2005, the Company recorded ~~several~~specified (income)/expense items that affected the comparability of results of the periods presented herein, which are set forth in the following ~~table.~~table:

In the first nine months of ~~2005,~~2006, earnings from continuing operations before minority interest and income taxes ~~increased 9%~~decreased 21% to ~~$3,684~~$2,920 million from ~~$3,379~~$3,684 million in the first nine months of ~~2004.~~2005. The ~~$305 million increase included~~decrease in 2006 was primarily driven by the net impact of items that affected the comparability of results as discussed above, lower sales for pharmaceutical products as a ~~$569 million gain on sale~~result of the ~~U.S.~~at-risk launch of generic clopidogrel bisulfate in August 2006 and ~~Canadian Consumer Medicines business and related assets in the third quarter~~loss of ~~2005 and a $316 million gain in the first quarter~~exclusivity of ~~2004 from the sale of the Adult Nutritional business. The increase was offset by higher~~PRAVACHOL, increased spending on research and development, partially offset by an increase in equity in net income of affiliates and ~~marketing, selling~~lower advertising and ~~administrative costs in 2005.~~

Earnings before minority interest and income taxes decreased to ~~$2,884~~$2,277 million in the first nine months of ~~2005~~2006 from ~~$3,309~~$2,909 million in the first nine months of ~~2004.~~

Earnings before minority interest and income taxes increased to ~~$494~~$531 million in the first nine months of ~~2005~~2006 from ~~$466~~$516 million in the first nine months of ~~2004.~~2005.

Earnings before minority interest and income taxes ~~in the Related Healthcare segment decreased~~increased to ~~$365~~$381 million in the first nine months of ~~2005~~2006 from ~~$396~~$347 million in the first nine months of ~~2004.~~2005.

Loss before minority interest and income taxes was $269 million in the first nine months of 2006 compared to $88 million in the first nine months of 2005. The ~~$31 million decrease~~difference was primarily due to ~~lower earnings in~~the gain on sale of the Consumer Medicines ~~business.~~

business and higher insurance recoveries in the third quarter of 2005, partially offset by debt retirement costs incurred in 2005 and gain on sale of DONOVEX* in 2006.

The effective income tax rate on earnings from continuing operations before minority interest and income taxes was ~~20.5% in the first nine months of 2005 compared with 22.3% in the first nine months of 2004. The lower effective tax rate~~26.6% for the nine months ended September 30, 2006 compared with 20.5% for the nine months ended September 30, 2005. The higher tax rate resulted from the 2005 ~~was~~tax rate being lower due ~~primarily~~ to a tax ~~benefit~~benefits associated with the ~~release of contingency reserves resulting from the~~ settlement of ~~examinations by the~~an Internal Revenue Service ~~for the years 1998 through 2001,~~(IRS) examination and a ~~change in estimate related~~favorable adjustment to ~~the reduction of a deferred tax provision established in the fourth quarter of 2004 for~~taxes on special dividends under the American Jobs Creation Act (AJCA) of ~~2004 (AJCA), partially offset~~2004. The 2006 tax rate is also unfavorably impacted by ~~higher taxes on~~ the ~~sale~~expiration of the ~~Consumer Medicines business, lower foreign tax credits,~~U.S. federal research and ~~the unfavorable treatment of certain litigation reserves. The Company has recorded valuation allowances for certain state net deferred tax assets, state net operating loss and~~development tax credit carryforwards, foreign net operating loss and tax credit carryforwards, and charitable contribution carryforwards. The Company currently believes that the state net deferred tax assets, state net operating loss and tax credit carryforwards, foreign net operating loss and tax credit carryforwards, and charitable contribution carryforwards for which valuation allowances have been provided, more likely than not, will not be realized in the future. In the third quarteras of 2005, as a result of the sale of the Consumer Medicines business and other changes in assumptions regarding future taxable profits, the Company recorded a net benefit of approximately $3 million in its tax provision associated with the reduction of its valuation allowance on certain deferred tax assets.

As a result of Temporary Regulations issued by the Internal Revenue Service, the Company is evaluating certain changes to its global legal entity structure and their effects on its projected effective tax rate for 2005 and beyond. Such changes are not expected to have a current cash income tax effect.

Net earnings from continuing operations increased 11% in the first nine months of 2005 to $2,493 million from $2,239 million in the first nine months of 2004. In the first nine months of 2005, basic earnings per share from continuing operations increased 10% to $1.28 from $1.16 in the first nine months of 2004, while diluted earnings per share from continuing operations increased 11% to $1.27 from $1.14 in 2004.

In May 2005, the Company completed the sale of OTN to One Equity Partners LLC for cash proceeds of $197 ~~million.~~million including the impact of a preliminary working capital adjustment. The Company recorded a pre-tax gain of $63 million ($13 million net of tax), that was presented as a gain on sale of discontinued operations in the consolidated statement of earnings.

OTN was previously presented as a separate segment. For further discussion of OTN, see “Item 1. Financial Statements—Note 5. Discontinued Operations.”

The following amounts related to the OTN business have been segregated from continuing operations and are reflected as discontinued operations for all periods presented:

On October 18, 2005, the FDA issued an approvable letter for muraglitazar, an investigational oral medicine for the treatment of type 2 diabetes. The FDA has requested additional information from ongoing clinical trials to more fully address the cardiovascular safety profile of muraglitazar. For additional information related to the approvable letter, see “Item 1. Financial Statements—Note 2. Alliances and Investments.”

~~In September 2005, the FDA’s Arthritis Advisory Committee unanimously recommended approval of ORENCIA~~^{^®} (abatacept), an investigational selective modulator of T-cell co-stimulation under development for the treatment of rheumatoid arthritis. The Company completed its submission of a Biologics License Application to the FDA for ORENCIA^{^®} ~~in March 2005, and the original FDA action date of October 1, 2005 has been postponed to December 31, 2005.~~

In August 2005, the Company and ImClone announced that ImClone has submitted a supplemental Biologics License Application to the FDA for approval of ERBITUX*, an IgG1 monoclonal antibody in the treatment of Squamous Cell Carcinoma of the Head and Neck (SCCHN). The application seeks U.S. marketing approval for the use of ERBITUX* in combination with radiation for locally or regionally advanced SCCHN, and as monotherapy in patients with recurrent and/or metastatic SCCHN where prior platinum-based chemotherapy has failed or where platinum-based therapy would not be appropriate. ImClone has requested priority review of the application. ERBITUX* is currently indicated for the treatment of refractory metastatic colorectal cancer.

Cash, cash equivalents and marketable debt securities totaled approximately ~~$3.8~~$5.5 billion at September 30, ~~2005~~2006 compared to ~~$7.5~~$5.8 billion at December 31, ~~2004.~~2005. The Company continues to maintain a sufficient level of working capital, which was approximately ~~$3.5 billion and $5.0~~$5.5 billion at September 30, ~~2005~~2006 and $5.4 billion at December 31, ~~2004, respectively. In 2005~~2005.

As noted above, there have been recent developments in the pending patent litigation involving PLAVIX*, including the generic launch by Apotex in August, which has currently been halted by a preliminary injunction. Apotex has appealed the court’s grant of the preliminary injunction. Trial in the underlying patent case is scheduled for January 22, 2007. If Apotex were to prevail in its appeal of the preliminary injunction order, or at trial, PLAVIX* would face renewed generic competition. Subject to those developments, the Company currently believes that, in the absence of renewed or additional generic competition for PLAVIX*, in 2006 and future periods, ~~the Company expects~~ cash generated by its U.S. operations, together with existing cash and borrowings from the capital markets, to ~~sufficiently~~be sufficient to cover cash needs for working capital, capital expenditures (which the Company expects to include substantial investments in facilities to increase and maintain the Company’s capacity to provide biologics on a commercial scale), milestone payments and dividends paid in the United States. Cash and cash equivalents, marketable securities, the conversion of other working-capital items and borrowings are expected to fund near-term operations.

~~In the fourth quarter of 2004, the Company disclosed that it anticipated repatriating approximately $9 billion in special dividends in 2005 and recorded a $575 million provision~~Under any circumstances, renewed or additional generic competition for ~~deferred taxes pursuant~~PLAVIX* would be material to the ~~American Jobs Creation Act~~Company’s sales of ~~2004 (AJCA) as enacted~~PLAVIX* and ~~other~~results of operations and cash flows, and could be material to the Company’s financial condition and liquidity. Additional information about the pending ~~matters. In~~PLAVIX* patent litigation and the ~~first quarter of 2005, the Company repatriated approximately $6.2 billion~~recent adverse developments is included in ~~special dividends from foreign subsidiaries~~“Item 1. Financial Statements—Note 18. Legal Proceedings and will repatriate the remainder of the $9 billion in the fourth quarter of 2005. The Company expects that it will use the special dividends in accordance with requirements established by the U.S. Treasury Department. During the second quarter of 2005, the U.S. Treasury Department issued AJCA related guidance clarifying that the “gross-up” for foreign taxes associated with the special dividends also qualifies for the 5.25% tax rate established by the AJCA. As a result of this guidance, the Company reduced the $575 million provision by recording a benefit of approximately $135 million in its tax provision for the second quarter of 2005. Except for earnings associated with the special dividends discussed above, U.S. income taxes have not been provided on the balance of unremitted earnings of non-U.S. subsidiaries, since the Company has invested or expects to invest such earnings permanently offshore.

Contingencies—Intellectual Property—PLAVIX* Litigation” and “—Executive Summary—PLAVIX*” above.

Cash and cash equivalents at September 30, ~~2005~~2006 primarily consisted of U.S. dollar denominated bank deposits with an original maturity of three months or less. Marketable securities at September 30, ~~2005~~2006 primarily consisted of U.S. dollar denominated floating rate instruments with an ‘AAA/aaa’ credit rating. Due to the nature of these instruments, the Company considers it reasonable to

expect that their fair market values will not be significantly impacted by a change in interest rates, and that they can be liquidated for cash at short notice.

On September 1, 2006, the Company and Sanofi each posted $200 million towards a $400 million bond with the U.S. District Court for the Southern District of New York as collateral in support of the preliminary injunction. The Company has pledged to the issuer of the bond collateral for its $200 million bond consisting of short-term, high quality securities. This collateral is reported as marketable securities on the Company’s consolidated balance sheet at September 30, 2006. Under the terms of the pledge agreement, the Company is entitled to receive the income generated from the marketable securities and to make certain investment decisions, but is restricted from using the $200 million pledged securities for any other purpose until such time the bond is cancelled.

Short-term borrowings and long-term debt were ~~$277~~$630 million and $7.8 billion, respectively, at September 30, ~~2005,~~2006, compared ~~with $1,883~~to $231 million and $8.4 billion, respectively, at December 31, ~~2004, primarily as a result of the retirement of commercial paper.~~2005. The $500 million Term Facility due in August 2007 was reclassified from long-term debt to short-term borrowings.

Long-term debt was $5.9 billion at September 30, 2005 compared to $8.5 billion at December 31, 2004. During the second quarter of 2005, the Company repurchased all of its outstanding $2.5 billion aggregate principal amount 4.75% Notes due 2006, and incurred an aggregate pre-tax loss of approximately $69 million in connection with the early redemption of the Notes and termination of related interest rate swaps. The Moody’s Investors Service (Moody’s) long-term and short-term credit ratings for the Company are currently A1A2 and Prime-1, ~~respectively. On November 1, 2005, Moody’s placed~~respectively, following a downgrade of the long-term ~~A1 senior~~credit rating during the third quarter of 2006 from A1. Moody’s long-term credit rating was amended from negative outlook to stable outlook in the ~~Company’s debt under review for possible downgrade, while affirming the short-term Prime-1 rating.~~third quarter of 2006. Standard & Poor’s (S&P) long-term and short-term credit ratings for the Company are currently A+ and A-1, respectively. S&P’s long-term credit rating ~~remains~~is on negative outlook. Fitch Ratings ~~Ltd.~~ (Fitch) long-term and short-term credit ratings for the Company are currently A+ and F1, respectively. ~~On September 16, 2005, Fitch’s long-term credit rating on~~Fitch has placed the Company ~~was changed from negative to stable outlook.~~onRating Watch Negative.

In August 2005, a wholly-owned subsidiary of the Company entered into a new $2.5 billion term loan facility with a syndicate of lenders. Borrowings under this facility will be guaranteed by the Company, the subsidiaries of the borrower and by certain European subsidiaries of the Company. This facility contains a five-year tranche of up to $2.0 billion and a two-year tranche of up to $500 million. The Company is subject to substantially the same covenants as those included in its December 2004 Revolving Credit facility. The Company is also subject to further restrictions, including certain financial covenants. Prior to borrowing any proceeds against the facility, the Company obtained a waiver from the lenders for a covenant default under this facility due to a one-time intercompany distribution. In October 2005, the Company, through its subsidiary, borrowed $2 billion against this facility.

The ~~decrease~~increase in working capital of ~~$1,435~~$90 million from December 31, ~~2004~~2005 to September 30, ~~2005~~2006 was primarily due to: ~~a reduction in net cash (cash, cash equivalents and marketable securities less short-term borrowings) primarily used for the early redemption of the $2.5 billion Notes;~~ lower ~~receivables resulting from collection of foreign withholding taxes and lower sales volume; higher reserves for litigation matters; and unfavorable translation impact~~accounts payable due to the ~~strengthening~~timing of payments at the ~~U.S. Dollar; partially offset by lower accrued liability for royalties, product liability and lower unrealized losses from derivatives resulting from the weakening~~end of ~~the Euro;~~2005; reduction in income taxes payable in 2006 as a result of expected tax refunds in the U.S. and payments of withholding taxes; litigation settlement payments; higher inventories in 2006 due to higher PLAVIX* inventory resulting from ~~payments related~~the at-risk launch of generic clopidogrel bisulfate in August 2006, new product launches and higher demand for the Company’s other pharmaceutical growth drivers; and lower rebate accruals due to change in customer mix, partially offset by lower receivables due to lower sales resulting from the at-risk launch of generic clopidogrel bisulfate and the loss of exclusivity of PRAVACHOL and an increase in short-term borrowings due to the ~~repatriation~~reclassification of ~~special dividends under the AJCA; and higher inventories~~a Term Facility due ~~to increased demand of newer products and existing key brands.~~in August 2007 previously reported in long-term debt.

Net cash provided by operating activities was ~~$1,511~~$1,872 million in the first nine months of ~~2005~~2006 and ~~$2,493~~$1,539 million in the first nine months of ~~2004.~~2005. The ~~$982~~$333 million ~~decrease~~increase is mainly attributable to lower net earnings due to the at-risk launch of generic clopidogrel bisulfate, the loss of exclusivity of PRAVACHOL and ~~higher usage~~an increase in research and development, as well as the change in adjustments to net earning including net deferred tax expense in 2006 as compared to net deferred tax benefit in 2005 and lower gain on sales of ~~working capital.~~product assets and businesses in 2006 as compared to 2005. The significant changes in cash flows from operating assets and liabilities between ~~2005~~2006 and ~~2004~~2005 are: a ~~$926~~$148 million ~~decrease~~negative cash flow variance from receivables driven by the collection of foreign withholding taxes and milestone receipts in 2005 along with higher receivables due from alliance partners in 2006, partially offset by lower trade receivable balances in 2006 compared to 2005 due to lower sales volume; a $172 million positive cash flow variance from inventories primarily due to exclusivity loss of products in 2006; a $410 million negative cash flow variance primarily due to litigation settlement payments in 2006 compared to insurance recoveries for previously settled litigations in 2005; and a $285 million positive cash flow variance from income ~~tax~~taxes payable primarily related to the settlement of examinations by the ~~Internal Revenue Service~~IRS for ~~the~~ years 1998 through 2001 and ~~the payment of taxes related to~~ the repatriation of special dividends under the ~~AJCA; a $611 million decrease~~AJCA in accounts payable and accrued expenses primarily due to vendor payments prior to the sale of the OTN business and lower accrued rebates and returns, interest and royalties; a $178 million increase in inventories due to the growth of newer products and in anticipation of new product launches; and a $857 million decrease in receivables primarily due to lower sales volume and foreign withholding taxes.2005.

Net cash ~~provided by~~used in investing activities was $534 million in the first nine months of 2006 compared to net cash provided of $2,514 million in the first nine months of ~~2005 compared to net~~2005. The $3,048 million negative cash ~~used of $1,509 million in the first nine months of 2004. The $4,023 million increase~~flow variance is primarily attributable to the sale of marketable securities in 2005, proceeds from the sale of the Consumer Medicines ~~business for $646 million~~and OTN businesses in 2005 for a total of $843 million and ~~a one time $250~~milestone payments in 2006 for $280 million ~~milestone payment~~primarily to ImClone, partially offset by proceeds from the sale of DOVONEX* in ~~2004.~~2006 for $200 million.

Net cash used in financing activities was ~~$5,562~~$1,576 million in the first nine months of ~~2005 and $97~~2006 compared to $5,590 million in the first nine months of ~~2004.~~2005. The ~~$5,465~~$4,014 million ~~decrease~~positive cash flow variance was mainly attributable to the repayment of short-term borrowings and retirement of ~~commercial paper and~~ long-term debt in 2005.

During the nine months ended September 30, ~~2005~~2006 and ~~2004,~~2005, the Company did not purchase any of its common stock.

For each of the three and nine month periods ended September 30, ~~2005~~2006 and ~~2004,~~2005, dividends declared per common share were $.28 and $.84 respectively. The Company paid ~~$549~~$551 million and ~~$1,639~~$1,649 million in dividends for the three and nine months ~~of 2005~~ended September 30, 2006, respectively, and ~~$544~~$549 million and ~~$1,630~~$1,639 million for the three and nine months ~~of 2004,~~ended September 30, 2005, respectively. Dividend decisions are made on a quarterly basis by the Board of Directors.

For a discussion of the Company’s contractual obligations, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s ~~2004~~2005 Form 10-K.

As previously disclosed, on August 4, 2004, the Company entered into a final settlement with the ~~SEC,~~Securities and Exchange Commission (SEC), concluding an investigation concerning certain wholesaler inventory and accounting matters. The settlement was reached through a Consent Order (Consent), a copy of which was attached as Exhibit ~~10s~~10 to the Company’s quarterly report on Form 10-Q for the period ended September 30, 2004.

Under the terms of the Consent, the Company ~~has~~ agreed, subject to certain defined exceptions, to limit sales of all products sold to its direct customers (including wholesalers, distributors, hospitals, retail outlets, pharmacies and government purchasers) based on expected demand or on amounts that do not exceed approximately one month of inventory on hand, without making a timely public disclosure of any change in practice. The Company ~~has~~ also agreed in the Consent to certain measures that it has implemented including: (a) establishing a formal review and certification process of its annual and quarterly reports filed with the SEC; (b) establishing a business risk and disclosure group; (c) retaining an outside consultant to comprehensively study and help re-engineer the Company’s accounting and financial reporting processes; (d) publicly disclosing any sales incentives offered to direct customers for the purpose of inducing them to purchase products in excess of expected demand; and (e) ensuring that the Company’s budget process gives appropriate weight to inputs that come from the bottom to the top, and not just those that come from the top to the bottom, and adequately documenting that process.

Further, the Company agreed in the Consent to retain an “Independent ~~Adviser”~~Advisor” through the date that the Company’s Form 10-K for the year ended 2005 iswas filed with the SEC. The ~~Consent defines certain powers and responsibilities of~~Independent Advisor continues to serve as the ~~Independent Adviser. The Consent includes a process for~~Monitor under the Independent Adviser to make recommendations regarding the Company’s compliance with applicable federal securities laws and corporate obligations. The Company has agreed in the Consent to adopt the Independent Adviser’s recommendations regarding compliance with applicable federal securities laws and corporate obligations.

As previously disclosed, on June 15, 2005, the Company entered into a ~~Deferred Prosecution Agreement (DPA)~~DPA with the ~~United States Attorney’s Office (USAO)~~USAO for the District of New Jersey resolving the investigation by the USAO of the Company relating to wholesaler inventory and various accounting matters covered by the Company’s settlement with the SEC. Pursuant to the DPA, the USAO filed a criminal complaint against the Company alleging conspiracy to commit securities fraud, but will defer prosecution of the Company and dismiss the complaint after two years if the Company satisfies all of the requirements of the DPA. A copy of the DPA was filed as Exhibit 99.2 to a Form 8-K filed by the Company on June 16, 2005 and is incorporated by reference hereto as Exhibit ~~10w.~~

Under the DPA, among other things, the Company ~~has~~ agreed to include in its Forms 10-Q and 10-K filed with the SEC and in its annual report to shareholders the following information: (a) estimated wholesaler/direct customer inventory levels of the top fifteen (15) products sold by the U.S. Pharmaceuticals business; (b) for major non-U.S. countries, estimated aggregate wholesaler/direct-customer inventory levels of the top fifteen (15) pharmaceutical products sold in such countries taken as a whole measured by aggregate annual sales in such countries; (c) arrangements with and policies concerning wholesaler/direct customers and other distributors for these products, including efforts by the Company to control and monitor wholesaler/distributor inventory levels; and (d) data concerning prescriptions or other measures of end-user demand for these products. Pursuant to the DPA, the Company also ~~will~~agreed to include in such filings and reports information on acquisition, divestiture, and restructuring reserve policies and activity, and rebate accrual policies and activity.

~~Under the DPA, the~~The Company also agreed to implement remedial measures already undertaken or mandated in the Consent and in the settlements of the derivative litigation and the federal securities class action relating to wholesaler inventory and various accounting matters. In addition, the Company agreed to undertake additional remedial actions, corporate reforms and other actions, including: (a) appointing an additional non-executive Director acceptable to the USAO; (b) establishing and maintaining a training and education program on topics that include corporate citizenship and financial reporting obligations; (c) making an additional $300 million payment into the

shareholder compensation fund established in connection with the Consent; (d) not engaging in or attempting to engage in any criminal conduct as that term is defined in the DPA; (e) continuing to cooperate with the USAO, including with respect to the ongoing investigation regarding individual current and former employees of the Company; and (f) retaining ~~an independent~~a Monitor. Also as part of the DPA, the Board of Directors separated the roles of Chairman and Chief Executive ~~Office~~Officer of the Company and on June 15, 2005, elected a Non-Executive Chairman.

Additionally, under the DPA, the Company agreed to not engage or attempt to engage in criminal conduct. “Criminal conduct” is defined under the DPA as a) any crime related to the Company’s business activities committed by one or more executive officers or directors; b) securities fraud, accounting fraud, financial fraud or other business fraud materially affecting the books and records of publicly filed reports of the Company, and c) obstruction of justice. The USAO, in its discretion, may prosecute the Company for any federal crimes for which the USAO has knowledge, including the matters that were the subject of the criminal complaint referenced above, should the USAO determine that the Company committed any criminal conduct.

The ~~independent~~ Monitor ~~who also serves as the Independent Advisor pursuant to the Consent,~~ has defined powers and responsibilities under the DPA, including the responsibility to oversee at least through April 2007, the Company’s compliance with all of the terms of the DPA, the Consent and the settlements of the derivative action and the federal securities class action. The Monitor has the authority to require the Company to take any steps he believes necessary to comply with the terms of the DPA and the Company is required to adopt all recommendations made by the Monitor, unless the Company objects to the recommendation and

the USAO agrees that adoption of the recommendation should not be required. In addition, the ~~independent~~ Monitor ~~will report~~reports to the USAO, on at least a quarterly basis, as to the Company’s compliance with the DPA and the implementation and effectiveness of the internal controls, financial reporting, disclosure processes and related compliance functions of the Company.

On September 12, 2006, the Board of Directors announced that the Company’s then current chief executive officer and general counsel would be leaving their respective positions effective immediately. The announcement took place after the Board received and considered reports from the Company’s outside counsel on issues relating to the PLAVIX* patent litigation with Apotex and a preliminary recommendation from the Monitor to terminate the employment of such individuals. The Monitor’s recommendation followed an investigation initiated by the USAO that is being conducted by the Monitor and the USAO into corporate governance issues relating to the Company’s negotiations on a proposed settlement with Apotex. The Company has been advised by the Monitor and the USAO that the investigation does not involve matters that are the subject of the ongoing investigation by the Antitrust Division of the Department of Justice into the PLAVIX* settlement agreement. At the time the Monitor made his preliminary recommendation, the Monitor and the USAO also advised the Company that they had not found a violation of the DPA or any unlawful conduct by the Company or its employees. The investigation is ongoing and has been expanded to include a review of whether there was any violation of Federal securities laws in connection with the proposed settlement with Apotex under the terms of the SEC Consent. The Monitor and USAO may make additional findings and recommendations in connection with the Monitor’s final report on the investigation. It is not possible at this time reasonably to assess the outcome of the investigation or its impact on the Company. For additional information on the pending PLAVIX* patent litigation and the Antitrust Division investigation, see “Item 1. Financial Statements—Note 18. Legal Proceedings and Contingencies.”

The Company has established a company-wide policy to limit its sales to direct customers for the purpose of complying with the Consent. This policy includes the adoption of various procedures to monitor and limit sales to direct customers in accordance with the terms of the Consent. These procedures include a governance process to escalate to appropriate management levels potential questions or concerns regarding compliance with the policy and timely resolution of such questions or concerns. In addition, compliance with the policy ~~will be~~is monitored on a regular basis.

The Company maintains ~~inventory management agreements (IMAs)~~IMAs with most of its U.S. pharmaceutical wholesalers ~~which~~that account for nearly 100% of total gross sales of U.S. pharmaceutical products. Under the current terms of the IMAs, the Company’s three largest wholesaler customers provide the Company with weekly information with respect to months on hand product level inventories and the amount of out-movement of products. These three wholesalers currently account for ~~over~~ 90% of total gross sales of U.S. pharmaceutical products. The inventory information received from these wholesalers, together with the Company’s internal information, is used to estimate months on hand product level inventories at these wholesalers. The Company estimates months on hand product inventory levels for its U.S. Pharmaceutical business’s wholesaler customers other than the three largest wholesalers by extrapolating from the months on hand calculated for three largest wholesalers. The Company considers whether any adjustments are necessary to these extrapolated amounts based on such factors as historical sales of individual products made to such other wholesalers and third-party market research data related to prescription trends and patient demand. In contrast, for the Company’s Pharmaceutical business outside of the United States, Nutritionals and ~~Related Healthcare~~Other Health Care business units around the world, the Company has significantly more direct customers, limited information on direct customer product level inventory and corresponding ~~out movement~~out-movement information and the reliability of third party demand information, where available, varies widely. Accordingly, the Company relies on a variety of methods to estimate months on hand product level inventories for these business units.

The Company ~~will disclose~~discloses for each of its top fifteen (15) pharmaceutical products (based on 2005 net sales) and pharmaceutical products that the Company views as current and future growth drivers sold by the U.S. Pharmaceutical business ~~(based on 2004 net sales)~~ the amount of net sales and the estimated number of months on hand in the U.S. wholesaler distribution channel as of the end of the immediately preceding quarter and as of the end of the applicable quarter as well as corresponding information for the prior year in its quarterly and annual reports on Forms 10-Q and 10-K. ~~This information for the quarter ended September 30, 2005 is included in Management Discussion and Analysis in this Form 10-Q.~~ The Company ~~will disclose~~discloses corresponding information for the top fifteen (15) pharmaceutical products and pharmaceutical products that the Company views as current and future growth drivers sold within its major non-U.S. countries, as described above. For all other business units, the Company ~~will continue to disclose~~discloses on a quarterly basis the key product level inventories. The information required to estimate months on hand product level inventories in the direct customer distribution for the non-U.S. Pharmaceutical businesses is not available prior to the filing of the quarterly report on Form 10-Q for an applicable quarter. Accordingly, the Company ~~will disclose~~discloses this information on its website approximately 60 days after the end of the applicable quarter and furnishes it on Form 8-K, and in the Company’s Form 10-Q for the following quarter. Information for these products for the quarter ended September 30, ~~2005~~2006 is expected to be disclosed on the Company’s website on or about November 30, ~~2005~~2006 and in the Company’s Annual Report on Form 10-K for the ~~quarter ended~~year ending December 31, ~~2005.~~2006. In addition to the foregoing quarterly disclosure, the Company will include all the foregoing information for all business units for each quarter in its Annual Report on Form 10-K. For ~~non-key~~ products not described above, if the inventory at direct customers exceeds approximately one month on hand, the Company will disclose the estimated months on hand for such product(s), except where the impact on the Company is de minimis.

The Company has enhanced and will continue to seek to enhance its methods to estimate months on hand product inventory levels for the U.S. Pharmaceutical business and for the non-U.S. Pharmaceutical businesses around the world, taking into account the complexities described above. The Company also has taken and will continue to take steps to expedite the receipt and processing of data for the non-U.S. Pharmaceutical businesses.

The Company believes the above-described procedures provide a reasonable basis to ensure compliance with both the Consent ~~Order~~ and the DPA and provides sufficient information to comply with disclosure requirements of both.

For a discussion of the Company’s critical accounting policies, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s ~~2004~~2005 Form ~~10-K.~~

~~As previously disclosed, although anticipated sales declines due to continued exclusivity losses during 2005~~10-K and ~~2006 are expected to be more or less offset by growth in sales~~“Item 1. Financial Statements—Note 1. Basis of ~~the Company’s in-line, recently launched~~Presentation and potential new products during the same period, changes in product mix will adversely impact gross margins because the products that have lost or are expected to lose exclusivity generally have higher margins. In addition, earnings will be adversely affected by the Company’s investments to support the introduction of new products and the development and launch of additional new compounds. In 2007, based on management’s

current estimates of growth of the Company’s in-line and recently launched products and a risk-adjusted assessment of potential new product launches, the Company expects earnings growth that should be sustained for a period of time will resume. The Company has and will continue to rationalize its cost base in line with its strategy to increase its sales and marketing emphasis on specialists and high value primary care physicians.

As previously disclosed, the Company has experienced substantial revenue losses in the last few years due to the expiration of market exclusivity protection for certain of its products. The Company expects substantial incremental revenue losses in each of 2005, 2006 and 2007 representing continuing declines in revenues of those products as well as declines in revenues of certain additional products that will lose market exclusivity primarily in 2005 and 2006. For 2005, the Company estimates reductions of net sales in the range of $1.4 billion to $1.5 billion from the 2004 levels for products which have lost or will lose exclusivity protection in 2003, 2004 or 2005, specifically MONOPRIL in the United States, Canada and Europe, GLUCOPHAGE* XR and GLUCOVANCE* in the United States, CEFZIL in the United States, PARAPLATIN in the United States, VIDEX EC in the United States, TAXOL^® in Europe and PRAVACHOL in Europe. The Company also expects substantial incremental revenue losses in each of 2006 and 2007 representing continuing declines in net sales of the products that lost exclusivity protection in 2002, 2003 and 2004 and additional declines attributable to products that will lose exclusivity protection primarily in 2005 and 2006. These products (and the years in which they lose exclusivity protection) include GLUCOPHAGE*/GLUCOVANCE*/GLUCOPHAGE*XR in the United States (2002 to 2004), TAXOL^® in Europe and Japan (2003), PRAVACHOL in the United States (2006) and in Europe (2002 to 2007), PARAPLATIN in the United States (2004), MONOPRIL in the United States (2003), Canada (2003) and Europe (2001 to 2008), ZERIT in the United States (2008) and in Europe (2007 to 2011), CEFZIL in the United States (2005) and in Europe (2004 to 2009) and VIDEX/VIDEX EC (2004 to 2009). The timing and amounts of sales reductions from exclusivity losses, their realization in particular periods and the eventual levels of remaining sales revenues are uncertain and dependent on the levels of sales at the time exclusivity protection ends, the timing and degree of development of generic competition (speed of approvals, market entry and impact) and other factors.

PRAVACHOL, an HMG Co-A reductase inhibitor (statin), had net sales of $1.7 billion in the first nine months of 2005. The Company continues to experience increased competition for PRAVACHOL from established brands and new entrants. U.S. prescriptions for PRAVACHOL declined 16% in the first nine months of 2005 compared to 2004. While the product has begun to lose exclusivity in some markets between now and its anticipated loss of U.S. exclusivity in April 2006, its expected rate of decline in sales and in market share could be accelerated by increased competition from established brands and new entrants.

The Company’s expectations for future sales growth include substantial expected increases in sales of PLAVIX*, which had net sales of $3.3 billion for 2004, and is currently the Company’s largest product ranked by net sales. The composition of matter patent for PLAVIX*, which expires in 2011, is currently the subject of litigation in the United States. Similar proceedings involving PLAVIX* have been instituted outside the United States. The Company continues to believe that the patent is valid and that it is infringed, and with its alliance partner and patent-holder Sanofi, is vigorously pursuing these cases. It is not possible at this time reasonably to assess the outcome of these litigations, or if there were an adverse determination in these litigations, the timing of potential generic competition for PLAVIX*.

The Company and its subsidiaries are the subject of a number of significant pending lawsuits, claims, proceedings and investigations. It is not possible at this time reasonably to assess the final outcome of these investigations or litigations. Management continues to believe, as previously disclosed, that during the next few years, the aggregate impact, beyond current reserves, of these and other legal matters affecting the Company is reasonably likely to be material to the Company’s results of operations and cash flows, and may be material to its financial condition and liquidity. The Company’s expectations for the next several years described above do not reflect the potential impact of litigation on the Company’s results of operations.

This quarterly report on Form 10-Q (including documents incorporated by reference) and other written and oral statements the Company makes from time to time contain certain “forward-looking” statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. You can identify these forward-looking statements by the fact they use words such as “should”, “expect”, “anticipate”, “estimate”, “target”, “may”, “will”, “project”, “guidance”, “intend”, “plan”, “believe” and other words and terms of similar meaning and expression in connection with any discussion of future operating or financial performance. One can also identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. Such forward-looking statements are based on current expectations and involve inherent risks and uncertainties, including factors that could delay, divert or change any of them, and could cause actual outcomes to differ materially from current expectations. These statements are likely to relate to, among other things, the Company’s goals, plans and projections regarding its financial position, results of operations, cash flows, market position, product development, product approvals, sales efforts, expenses, performance or results of current and anticipated products and the outcome of contingencies such as legal proceedings, and financial results, which are based on current expectations that involve inherent risks and uncertainties, including internal or external factors that could delay, divert or change any of them in the next several years.

~~Although it is not possible to predict or identify all factors, they may include but are not limited to the following:~~

Competitive factors, such as (i) new products developed by competitors that have lower prices or superior performance features or that are otherwise competitive with the Company’s current products; (ii) generic competition as the Company’s products mature and patents expire on products; (iii) technological advances and patents attained by competitors; (iv) problems with licensors, suppliers and distributors; and (v) business combinations among the Company’s competitors or major customers.

Difficulties and delays inherent in product development, manufacturing and sale, such as (i) products that may appear promising in development but fail to reach market or be approved for additional indications for any number of reasons, including efficacy or safety concerns, the inability to obtain necessary regulatory approvals and the difficulty or excessive cost to manufacture; (ii) failure of any of our products to achieve or maintain commercial viability; (iii) seizure or recalls of pharmaceutical products or forced closings of manufacturing plants; (iv) the failure to obtain, the imposition of limitations on the use of, or loss of patent and other intellectual property rights; (v) failure of the Company or any of its vendors or suppliers to comply with Current Good Manufacturing Practices and other application regulations and quality assurance guidelines that could lead to temporary manufacturing shutdowns, product shortages and delays in product manufacturing; and (vi) other manufacturing or distribution problems including changes in manufacturing production sites and manufacturing capacity due to regulatory requirements, changes in types of products produced, such as biologics, or physical limitations that could impact continuous supply.

New government laws and regulations, such as (i) health care reform initiatives in the United States at the state and federal level and in other countries; (ii) changes in the FDA and foreign regulatory approval processes that may cause delays in approving, or preventing the approval of, new products; (iii) tax changes such as the phasing out of tax benefits heretofore available in the United States and certain foreign countries; (iv) new laws, regulations and judicial decisions affecting pricing or marketing within or across jurisdictions; and (v) changes in intellectual property law.

Legal difficulties, including lawsuits, claims, proceedings and investigations, any of which can preclude or delay commercialization of products or adversely affect operations, profitability, liquidity or financial condition, including (i) intellectual property disputes, including the outcome of the PLAVIX* litigation in the U.S.; (ii) sales and marketing practices in the U.S. and internationally; (iii) adverse decisions in litigation, including product liability and commercial cases; (iv) the inability to obtain adequate insurance with respect to this type of liability; (v) recalls or withdrawals of pharmaceutical products or forced closings of manufacturing plants; (vi) the failure to fulfill obligations under supply contracts with the government and other customers which may result in liability; (vii) government investigations including those relating to wholesaler inventory, financial restatement and product pricing and promotion; (viii) claims asserting violations of securities, antitrust, federal and state pricing and other laws; (ix) environmental, health and safety matters; (x) tax liabilities; and (xi) compliance with the Deferred Prosecution Agreement. There can be no assurance that there will not be an increase in scope of these matters or that any future lawsuits, claims, proceedings or investigations will not be material.

Increasing pricing pressures worldwide, including rules and practices of managed care groups and institutional and governmental purchasers, judicial decisions and governmental laws and regulations related to Medicare, Medicaid and healthcare reform and potential impact of importation legislative or otherwise, pharmaceutical reimbursement and pricing in general.

Fluctuations in buying patterns and inventory levels of major distributors, retail chains and other trade buyers, which may result from seasonality, pricing, wholesaler buying decisions (including the effect of incentives offered), the Company’s wholesaler inventory management policies (including the workdown or other changes in wholesaler inventory levels) or other factors.

~~Reliance of the Company on vendors, partners and other third parties to meet their contractual, regulatory and other obligations in relation to their arrangements with the Company.~~

Greater than expected costs and other difficulties, including unanticipated effects and difficulties of acquisitions, dispositions and other events, including obtaining regulatory approvals in connection with evolving business strategies, legal defense costs, insurance expense, settlement costs and the risk of an adverse decision related to litigation.

~~Changes to advertising and promotional spending and other categories of spending that may affect sales.~~

~~Changes in product mix that may affect margins.~~

~~Changes~~Accounting Standards” in the Company’s ~~structure, operations, revenues, costs, staffing or efficiency resulting from acquisitions, divestitures, mergers, alliances, restructurings or other strategic initiatives, and~~2006 Form 10-Q for the ~~need to obtain governmental approvals, as appropriate.~~

Economic factors over which the Company has no control such as changes of business and economic conditions including, but not limited to, changes in interest rates and fluctuation of foreign currency exchange rates.

Changes in business, political and economic conditions due to political or social instability, military or armed conflict, nationalization of assets, debt or payment moratoriums, other restrictions on commerce, and actual or threatened terrorist attacks in the United States or other parts of the world and related military action.

~~Changes in accounting standards promulgated by the FASB, the SEC or the AICPA, which may require adjustments to financial statements.~~

~~Capacity, efficiency, reliability, security and potential breakdown, invasion, destruction or interruption of information systems.~~

~~Results of clinical studies relating to the Company’s or a competitor’s products.~~

Although the Company believes it has been prudent in its plans and assumptions, no assurance can be given that any goal or plan set forth in forward-looking statements can be achieved and readers are cautioned not to place undue reliance on such statements, which speak only as of the date made. The Company undertakes no obligation to release publicly any revisions to forward-looking statements as a result of new information, future events or otherwise.

For a discussion of the Company’s market risk, see “Item 7A. Quantitative and Qualitative Disclosures About Market Risk” in the Company’s ~~2004~~2005 Form 10-K.

In the nine months ended September 30, ~~2005,~~2006, the Company purchased a net $66 million notional amount of put options and sold ~~$463~~$814 million notional amount of forward contracts (in several currencies) to partially hedge the exchange impact primarily related to forecasted intercompany inventory purchases for up to the next 2123 months. In addition, the Company bought ~~$415~~$108 million notional amount of ~~Japanese yen~~ forward contracts to hedge the exchange impact related to Japanese yen denominated third party payables and sold a net ~~$5,715~~$58 million notional amount of forward contracts ~~(in several currencies)~~to hedge the exchange impact related to primarily Euro denominated third party payables and receivables. The Company also purchased $44 million notional amount of forward contracts to partially hedge the ~~exchange~~commodity price impact ~~primarily~~ related to ~~non-functional currency denominated intercompany loans. As of September 30, 2005 exposures related~~forecasted natural gas purchases for up to ~~these forward contracts have been largely eliminated.~~

~~In April 2005, in connection with~~ the early redemption of its $2.5 billion Notes due 2006, the Company terminated $2.0 billion notional amount of fixed-to-floating interest rate swap agreements and incurred a loss of $28 million. In June 2005, the Company terminated $500 million notional amount of fixed-to-floating interest rate swap agreements related to its $2.5 billion Notes due 2011, and incurred a loss of $23 million. This loss will be amortized to interest expense over the remaining life of the Notes, due 2011. In September 2005, the Company also terminated $350 million notional amount of fixed-to-floating interest rate swap agreements related to its $350 million Debentures due 2026, and received a gain of $39 million. This gain will be amortized to interest expense over the remaining life of the Debentures due 2026.next 15 months.

Management of the Company, with the participation of its Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures. Based on their evaluation, as of the end of the period covered by this Form 10-Q, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) are effective. ~~There have been~~

The Company is in the process of implementing certain additional modules to the existing enterprise resource planning system. During the third quarter of 2006, certain modules were implemented in the order to cash cycle at the US Pharmaceutical Group operations. This implementation integrates operational and financial systems and expands the functionality of the financial reporting processes. Other than the change mentioned above, no ~~significant~~other changes in internal control over financial reporting ~~for~~occurred during the ~~period covered by this report,~~third quarter of 2006 that have materially affected, or are reasonably likely to materially affect, ~~the Company’s~~ internal control over financial ~~reporting.~~reporting for the Company.

Information pertaining to legal proceedings can be found in “Item 1. ~~Final~~Financial Statements—Note ~~17.~~18. Legal Proceedings and Contingencies,” to the interim consolidated financial statements, and is incorporated by reference herein.

There have been no material changes in our risk factors from those disclosed in our 2005 Annual Report on Form 10-K and Form 10-Q for the quarterly periods ended March 31, 2006 and June 30, 2006 other than as follows:

The Company’s largest product ranked by net sales is PLAVIX* (clopidogrel bisulfate) with U.S. sales of $3.2 billion in 2005 and $2.3 billion for the nine-month period ended September 30, 2006. The composition of matter patent for PLAVIX*, which expires in 2011, is currently the subject of patent litigation in the United States with Apotex Inc. and Apotex Corp. (Apotex) and other generic companies as well as in other less significant jurisdictions.

On August 8, 2006, Apotex launched a generic clopidogrel bisulfate product that competes with PLAVIX*. On August 31, 2006, the U.S. District Court for the Southern District of New York (the Court) in the patent litigation with Apotex granted a motion by the Company and its product partner, Sanofi-Aventis (Sanofi), to enjoin further sales of Apotex’s generic clopidogrel bisulfate product, but did not order Apotex to recall product from its customers. Apotex has appealed the Court’s grant of a preliminary injunction. A hearing on that appeal took place on October 31, 2006, and a decision is pending.

The at-risk launch of generic clopidogrel bisulfate had a significant adverse effect on net sales of PLAVIX* in the third quarter of 2006, which the Company estimates to be in the range of $525 million to $600 million. In the third quarter of 2006, U.S. net sales of PLAVIX* declined to $474 million as compared to $850 million in the first quarter of 2006 and $988 million in the second quarter of 2006. The Company expects the generic clopidogrel bisulfate product that was sold into distribution channels will continue to satisfy a significant majority of prescription demand for the remainder of 2006. In addition, sales of generic clopidogrel bisulfate are expected to have a residual impact on PLAVIX* sales into 2007—the amount and duration of which will depend on the amount of generic product that Apotex sold into the distribution channels, and the rate at which such product will continue to satisfy overall prescription demand. The Company cannot reliably estimate this impact at this point in time.

The Company continues to believe that the PLAVIX* patents are valid and infringed, and with Sanofi, is vigorously pursuing these cases. Trial in the underlying patent litigation has been set for January 22, 2007. It is not possible at this time reasonably to assess the ultimate outcome of Apotex’s appeal of the preliminary injunction, the underlying patent litigation with Apotex or the other PLAVIX* patent litigations, or the timing of any renewed generic competition for PLAVIX* from Apotex or additional generic competition for PLAVIX* from other third party generic pharmaceutical companies.However, if Apotex were to prevail in its appeal of the preliminary injunction order or at the trial in the underlying patent litigation, the Company would expect to face renewed generic competition for PLAVIX* from Apotex promptly thereafter. The full impact of Apotex’s launch of its generic clopidogrel bisulfate product on the Company cannot be reasonably estimated at this time and will depend on a number of factors, including, among others, the amount of generic product sold by Apotex and the pricing of Apotex’s generic product; whether the preliminary injunction is sustained on appeal; when the pending lawsuit is finally resolved and whether the Companies prevail; even if the preliminary injunction is sustained on appeal and the Companies prevail in the pending patent case, the extent to which the launch by Apotex will permanently adversely impact the pricing for PLAVIX*; whether the Companies launch an authorized generic clopidogrel bisulfate product; and, even if the Companies ultimately prevail in the pending lawsuit, the amount of damages, if any, that would be sought and/or recovered by the Companies and Apotex’s ability to pay such damages. Loss of market exclusivity of PLAVIX* and/or sustained generic competition would be material to the Company’s sales of PLAVIX*, results of operations and cash flows, and could be material to the Company’s financial condition and liquidity.

As previously disclosed, the Company and Sanofi had entered into a proposed settlement with Apotex of the pending PLAVIX* patent litigation, which failed to receive the required antitrust clearances. The Antitrust Division of the United States Department of Justice is conducting a criminal investigation regarding the proposed settlement of the PLAVIX* patent litigation with Apotex. The Company is cooperating fully with the investigation. It is not possible at this time reasonably to assess the outcome of the investigation or its impact on the Company. It also is not possible at this time reasonably to assess the impact of the investigation, if any, on the Company’s compliance with the Deferred Prosecution Agreement with the U.S. Attorney’s Office for the District of New Jersey.

The Company has recorded significant deferred tax assets related to U.S. foreign tax credit and research tax credit carryforwards which expire in varying amounts beginning in 2012. Realization of foreign tax credit and research tax credit carryforwards is dependent on generating sufficient domestic-sourced taxable income prior to their expiration. Although realization is not assured, management believes it is more likely than not that these deferred tax assets will be realized. The amount of foreign tax credit and research tax credit carryforwards considered realizable; however, could be reduced in the near term if PLAVIX* were to be subject to either renewed or additional generic competition. If such events occur, the Company may need to record significant additional valuation allowances against these deferred tax assets.

Additional information about the pending PLAVIX* patent litigation and related legal matters is included in “Item 1. Financial Statements—Note 18. Legal Proceedings and Contingencies”, “Management’s Discussion and Analysis — SEC Consent Order and Deferred Prosecution Agreement” and “Management’s Discussion and Analysis — Executive Summary – PLAVIX*.”

The following table summarizes the surrenders of the Company’s equity securities in connection with stock option and restricted stock programs during the nine-month period ended September 30, ~~2005:~~2006:

Exhibits (listed by number corresponding to the Exhibit Table of Item 601 in Regulation S-K).

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2006

¨		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

		FOR THE TRANSITION PERIOD FROMTO


~~DELAWARE~~Delaware		22-0790350
(State or other jurisdiction of ~~Incorporation)~~incorporation or organization)		(I.R.S. Employer Identification No.)


		Page
PART I—FINANCIAL INFORMATION

Item 1.

Financial Statements:

Consolidated ~~Statement~~Statements of Earnings		3

Consolidated ~~Statement~~Statements of Comprehensive Income and Retained Earnings		4

Consolidated Balance ~~Sheet~~Sheets		5

Consolidated ~~Statement~~Statements of Cash Flows		6

Notes to Consolidated Financial Statements		~~7-32~~

~~Report of Independent Registered Public Accounting Firm~~		337-30

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations		~~34-66~~31-63

Item 3.

Quantitative and Qualitative Disclosures About Market Risk		6664

Item 4.

Controls and Procedures		6664

PART II—OTHER INFORMATION

Item 1.

Legal Proceedings		6765

Item 1A.
Risk Factors		65

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds		6766

Item 6.

Exhibits		6866

Signatures		6967


	Three Months Ended September 30,					Nine Months Ended September 30,
	2005		2004			2005			2004
	(dollars in millions)
COMPREHENSIVE INCOME

Net Earnings	$	964	$	758		$	2,501		$	2,249
Other Comprehensive Income/(Loss):
Foreign currency translation, net of tax benefit of zero and $8 for the three months ended September 30, 2005 and 2004, respectively; and net of tax liability of $4 and tax benefit of $28 for the nine months ended September 30, 2005 and 2004, respectively		25		22			(211	)		63
Deferred (losses)/gains on derivatives qualifying as hedges, net of tax liability of $3 and tax benefit of $5 for the three months ended September 30, 2005 and 2004, respectively; and net of tax liability of $103 and $55 for the nine months ended September 30, 2005 and 2004, respectively		12		(19	)		283			109
Available for sale securities, net of tax benefit of $11 and $4 for the nine months ended September 30, 2005 and 2004, respectively		—		—			(20	)		(7	)

Total Other Comprehensive Income		37		3			52			165

Comprehensive Income	$	1,001	$	761		$	2,553		$	2,414

RETAINED EARNINGS

Retained Earnings, January 1						$	19,651		$	19,439
Net Earnings							2,501			2,249
Cash dividends declared							(1,640	)		(1,632	)

Retained Earnings, September 30						$	20,512		$	20,056


	Three Months Ended September 30,				Nine Months Ended September 30,
	2006		2005		2006			2005
COMPREHENSIVE INCOME

Net Earnings	$	338	$	964	$	1,719		$	2,501

Other Comprehensive Income/(Loss):
Foreign currency translation, no tax effect for the three months ended September 30, 2006 and 2005; and no tax effect and net of tax liability of $4 for the nine months ended September 30, 2006 and 2005, respectively		34		25		103			(211	)
Deferred gains/(losses) on derivatives qualifying as hedges, net of tax liability of $12 and $3 for the three months ended September 30, 2006 and 2005, respectively; and net of tax benefit of $18 and tax liability of $103 for the nine months ended September 30, 2006 and 2005, respectively		27		12		(53	)		283
Deferred gains/(losses) on available for sale securities, net of tax liability of $1 and no tax effect for the three months ended September 30, 2006 and 2005, respectively; and net of tax liability of $2 and tax benefit of $11 for the nine months ended September 30, 2006 and 2005, respectively		3		—		5			(20	)


Total Other Comprehensive Income/(Loss)		64		37		55			52


Comprehensive Income	$	402	$	1,001	$	1,774		$	2,553


RETAINED EARNINGS

Retained Earnings, January 1					$	20,464		$	19,651
Net Earnings						1,719			2,501
Cash dividends declared						(1,652	)		(1,640	)

Retained Earnings, September 30					$	20,531		$	20,512


x		QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


	September 30, 2005			December 31, 2004
	(dollars in millions)
ASSETS

Current Assets:
Cash and cash equivalents	$	2,129		$	3,680
Marketable securities		1,652			3,794
Receivables, net of allowances of $202 and $221		3,305			4,373
Inventories, including consignment inventory		2,053			1,830
Deferred income taxes, net of valuation allowances		703			805
Prepaid expenses		303			319

Total Current Assets		10,145			14,801

Property, plant and equipment, net		5,649			5,765
Goodwill		4,824			4,905
Other intangible assets, net		1,988			2,260
Deferred income taxes, net of valuation allowances		1,636			1,129
Prepaid pension		1,095			1,280
Other assets		272			295

Total Assets	$	25,609		$	30,435

LIABILITIES

Current Liabilities:
Short-term borrowings	$	277		$	1,883
Accounts payable		1,342			2,127
Accrued expenses		2,524			2,838
Accrued rebates and returns		1,036			1,209
U.S. and foreign income taxes payable		486			1,023
Dividends payable		547			545
Accrued litigation liabilities		410			186
Deferred revenue on consigned inventory		—			32

Total Current Liabilities		6,622			9,843

Other liabilities		1,824			1,927
Long-term debt		5,895			8,463

Total Liabilities		14,341			20,233

Commitments and contingencies (Note 17)

STOCKHOLDERS’ EQUITY

Preferred stock, $2 convertible series: Authorized 10 million shares; issued and outstanding 7,190 in 2005 and 7,476 in 2004, liquidation value of $50 per share		—			—
Common stock, par value of $.10 per share: Authorized 4.5 billion shares; 2,205 million issued in 2005 and 2,202 million issued in 2004		220			220
Capital in excess of par value of stock		2,527			2,491
Restricted stock		(70	)		(57	)
Accumulated other comprehensive loss		(740	)		(792	)
Retained earnings		20,512			19,651

		22,449			21,513
Less cost of treasury stock—248 million common shares in 2005 and 255 million in 2004		(11,181	)		(11,311	)

Total Stockholders’ Equity		11,268			10,202

Total Liabilities and Stockholders’ Equity	$	25,609		$	30,435


	September 30, 2006			December 31, 2005
ASSETS

Current Assets:
Cash and cash equivalents	$	2,834		$	3,050
Marketable securities		2,671			2,749
Receivables, net of allowances of $157 and $207		2,945			3,378
Inventories, net		2,297			2,060
Deferred income taxes, net of valuation allowances		601			776
Prepaid expenses		300			270

Total Current Assets		11,648			12,283

Property, plant and equipment, net		5,715			5,693
Goodwill		4,828			4,823
Other intangible assets, net		1,933			1,921
Deferred income taxes, net of valuation allowances		1,675			1,808
Prepaid pension		1,172			1,324
Other assets		244			286

Total Assets	$	27,215		$	28,138


LIABILITIES

Current Liabilities:
Short-term borrowings	$	630		$	231
Accounts payable		1,174			1,579
Accrued expenses		2,592			2,446
Accrued rebates and returns		856			1,056
U.S. and foreign income taxes payable		208			538
Dividends payable		550			547
Accrued litigation liabilities		155			493

Total Current Liabilities		6,165			6,890

Pension and other postretirement liabilities		801			804
Deferred income		232			241
Other liabilities		591			631
Long-term debt		7,837			8,364

Total Liabilities		15,626			16,930

Commitments and contingencies (Note 18)

STOCKHOLDERS’ EQUITY

Preferred stock, $2 convertible series: Authorized 10 million shares; issued and outstanding 6,201 in 2006 and 6,540 in 2005, liquidation value of $50 per share		—			—
Common stock, par value of $.10 per share: Authorized 4.5 billion shares; 2,205 million issued both in 2006 and 2005		220			220
Capital in excess of par value of stock		2,493			2,457
Accumulated other comprehensive loss		(710	)		(765	)
Retained earnings		20,531			20,464

		22,534			22,376
Less cost of treasury stock—238 million common shares in 2006 and 248 million in 2005		(10,945	)		(11,168	)

Total Stockholders’ Equity		11,589			11,208

Total Liabilities and Stockholders’ Equity	$	27,215		$	28,138


(Dollars in Millions)	Employees	Termination Benefits			Other Exit Costs		Total
Pharmaceuticals	200	$	4		$	1	$	5
Nutritionals	40		1			1		2

Subtotal	240		5			2		7
Changes in estimates	—		(5	)		—		(5	)

Provision for restructuring, net	240	$	—		$	2	$	2


	Employees	Termination Benefits			Asset Write-Downs		Total
	(dollars in millions)
Pharmaceuticals	—	$	—		$	1	$	1
Nutritionals	13		1			—		1
Changes in estimates	—		(7	)		—		(7	)

Restructuring as reflected in the statement of earnings	13	$	(6	)	$	1	$	(5	)


	Employee Termination Liability			Other Exit Costs Liability			Total
	(dollars in millions)
Balance at December 31, 2003	$	51		$	7		$	58
Charges		102			5			107
Spending		(68	)		(9	)		(77	)
Changes in estimates		(8	)		—			(8	)

Balance at December 31, 2004		77			3			80
Charges		5			1			6
Spending		(38	)		(3	)		(41	)
Changes in estimates		(7	)		(1	)		(8	)

Balance at September 30, 2005	$	37		$	—		$	37


(Dollars in Millions)	Employee Termination Liability			Other Exit Cost Liability			Total
Balance at January 1, 2005	$	78		$	2		$	80
Charges		30			2			32
Spending		(45	)		(6	)		(51	)
Changes in estimates		(3	)		2			(1	)

Balance at December 31, 2005		60			—			60
Charges		19			2			21
Spending		(28	)		(1	)		(29	)
Changes in estimates		(15	)		—			(15	)

Balance at September 30, 2006	$	36		$	1		$	37


	Three Months Ended September 30,				Nine Months Ended September 30,
(Amounts in Millions, Except Per Share Data)	2006		2005		2006		2005
Basic:
Earnings from Continuing Operations	$	338	$	964	$	1,719	$	2,493


Discontinued Operations
Loss, net of taxes		—		—		—		(5	)
Gain on disposal, net of taxes		—		—		—		13


Net Earnings	$	338	$	964	$	1,719	$	2,501


Basic Earnings Per Share:
Average Common Shares Outstanding		1,961		1,953		1,959		1,951


Earnings from Continuing Operations	$	.17	$	.49	$	.88	$	1.28


Discontinued Operations
Loss, net of taxes		—		—		—		—
Gain on disposal, net of taxes		—		—		—		—


Net Earnings per Common Share	$	.17	$	.49	$	.88	$	1.28


Diluted:
Earnings from Continuing Operations	$	338	$	964	$	1,719	$	2,493


Interest expense on conversion of convertible debt, net of taxes		9		6		25		15
Discontinued Operations
Loss, net of taxes		—		—		—		(5	)
Gain on disposal, net of taxes		—		—		—		13


Net Earnings	$	347	$	970	$	1,744	$	2,516


Diluted Earnings Per Share:
Average Common Shares Outstanding		1,961		1,953		1,959		1,951
Conversion of convertible debt		29		29		29		29
Incremental shares outstanding assuming the exercise/vesting of dilutive stock options/restricted stock		2		2		3		3

		1,992		1,984		1,991		1,983


Earnings from Continuing Operations	$	.17	$	.49	$	.88	$	1.27


Discontinued Operations
Loss, net of taxes		—		—		—		—
Gain on disposal, net of taxes		—		—		—		—


Net Earnings per Common Share	$	.17	$	.49	$	.88	$	1.27


	Pharmaceuticals Segment		Nutritionals Segment			Related Healthcare Segment			Discontinued Operations			Total
	(dollars in millions)
Balance as of December 31, 2003	$	4,448	$	118		$	190		$	80		$	4,836
Purchase accounting adjustments:
Reduction due to sale of Adult Nutritional Business		—		(5	)		—			—			(5	)
Purchase price and allocation adjustments		—		—			74			—			74

Balance as of December 31, 2004		4,448		113			264			80			4,905
Purchase accounting adjustments:
Reduction due to sale of OTN		—		—			—			(80	)		(80	)
Reduction due to sale of Consumer Medicines		—		—			(1	)		—			(1	)

Balance as of September 30, 2005	$	4,448	$	113		$	263		$	—		$	4,824


	(dollars in millions)	(Dollars in Millions)
For the year ended December 31:
2005	352
Years ending December 31:
2006	347	$	364
2007	321		348
2008	267		295
2009	235		268
2010			251
Later Years	738		680


	September 30, 2005		December 31, 2004
	(dollars in millions)
Land	$	282	$	290
Buildings		4,533		4,497
Machinery, equipment and fixtures		4,519		4,686
Construction in progress		578		536

		9,912		10,009
Less accumulated depreciation		4,263		4,244

Property, plant and equipment, net	$	5,649	$	5,765


	Foreign Currency Translation			Deferred Loss on Effective Hedges			Available for Sale Securities			Minimum Pension Liability Adjustment			Total Accumulated Other Comprehensive Loss
	(dollars in millions)
Balance at December 31, 2003	$	(491	)	$	(258	)	$	24		$	(130	)	$	(855	)
Other comprehensive income (loss)		63			109			(7	)		—			165

Balance at September 30, 2004	$	(428	)	$	(149	)	$	17		$	(130	)	$	(690	)

Balance at December 31, 2004	$	(283	)	$	(309	)	$	23		$	(223	)	$	(792	)
Other comprehensive income (loss)		(211	)		283			(20	)		—			52

Balance at September 30, 2005	$	(494	)	$	(26	)	$	3		$	(223	)	$	(740	)


(Dollars in Millions)	Foreign Currency Translation			Deferred Gains/(Loss) on Effective Hedges			Deferred Gains/(Loss) on Available for Sale Securities			Minimum Pension Liability Adjustment			Accumulated Other Comprehensive Income/(Loss)

Balance at January 1, 2005	$	(283	)	$	(309	)	$	23		$	(223	)	$	(792	)
Other comprehensive income/(loss)		(211	)		283			(20	)		—			52

Balance at September 30, 2005	$	(494	)	$	(26	)	$	3		$	(223	)	$	(740	)


Balance at December 31, 2005	$	(553	)	$	16		$	1		$	(229	)	$	(765	)
Other comprehensive income/(loss)		103			(53	)		5			—			55

Balance at September 30, 2006	$	(450	)	$	(37	)	$	6		$	(229	)	$	(710	)


	Three Months Ended September 30,												Nine Months Ended September 30,
	Pension Benefits						Other Benefits						Pension Benefits						Other Benefits
	2005			2004			2005			2004			2005			2004			2005			2004
	(dollars in millions)												(dollars in millions)
Service cost — benefits earned during the period	$	63		$	45		$	3		$	1		$	166		$	130		$	8		$	6
Interest cost on projected benefit obligation		97			76			10			4			259			226			31			30
Expected return on plan assets		(118	)		(95	)		(6	)		(2	)		(314	)		(280	)		(18	)		(11	)
Net amortization and deferral		62			40			—			1			166			119			—			11

Total net periodic benefit cost	$	104		$	66		$	7		$	4		$	277		$	195		$	21		$	36


	Three Months Ended September 30,												Nine Months Ended September 30,

	Pension Benefits						Other Benefits						Pension Benefits						Other Benefits

(Dollars in Millions)	2006			2005			2006			2005			2006			2005			2006			2005
Service cost — benefits earned during the period	$	58		$	63		$	2		$	3		$	175		$	166		$	7		$	8
Interest cost on projected benefit obligation		86			97			7			10			260			259			28			31
Expected return on plan assets		(110	)		(118	)		(5	)		(6	)		(332	)		(314	)		(19	)		(18	)
Net amortization and deferral		48			62			1			—			144			166			1			—

Net periodic benefit cost	$	82		$	104		$	5		$	7		$	247		$	277		$	17		$	21


	Three Months Ended September 30,						Nine Months Ended September 30,

(Dollars in Millions)	2006			2005			2006			2005
Cost of products sold	$	1		$	—		$	9		$	—
Marketing, selling and administrative		13			9			55			28
Research and development		6			—			27			—

Total stock-based compensation expense		20			9			91			28
Deferred tax benefit		(7	)		(3	)		(32	)		(9	)

Stock-based compensation, net of tax	$	13		$	6		$	59		$	19


(Dollars in Millions Except per Share Data)	Three Months Ended September 30, 2005			Nine Months Ended September 30, 2005

Net Earnings:
As reported	$	964		$	2,501
Total stock-based employee compensation expense, included in reported net earnings, net of related tax effects		6			19
Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects		(26	)		(88	)

Pro forma	$	944		$	2,432

Basic Earnings per Share:
As reported	$	.49		$	1.28
Pro forma		.48			1.25
Diluted Earnings per Share:
As reported	$	.49		$	1.27
Pro forma		.48			1.23


	Shares of Common Stock				Weighted-Average Exercise Price of Shares
(Shares in Millions)	Available for Option Award		Issued Under Plan		Weighted-Average Exercise Price of Shares
Balance at January 1, 2005	38		163		$	38.87
Authorized	18		—			—
Granted	(20	)	20			25.37
Exercised	—		(9	)		16.26
Lapsed	10		(10	)		37.67

Balance at December 31, 2005	46		164			38.45
Authorized	18		—			—
Granted	(13	)	13			22.82
Exercised	—		(8	)		20.94
Lapsed	5		(5	)		34.29

Balance at September 30, 2006	56		164			38.20


	Options Outstanding						Options Exercisable

Range of Exercise Prices	Number Outstanding	Weighted- Average Remaining Contractual Life (in Years)	Weighted- Average Exercise Price Per Share		Aggregate Intrinsic Value (in millions)		Number Exercisable	Weighted- Average Remaining Contractual Life (in Years)	Weighted- Average Exercise Price Per Share		Aggregate Intrinsic Value (in millions)
$20 - $30	83	7.13	$	25.74	$	55	44	6.19	$	26.40	$	23
$30 - $40	8	.44		32.31		—	8	.44		32.31		—
$40 - $50	41	3.07		47.04		—	42	3.07		47.04		—
$50 - $60	13	4.24		58.15		—	12	4.19		58.13		—
$60 and up	18	2.73		63.31		—	16	2.76		63.30		—

Total	163	5.05		38.18		—	122	4.09		41.72		—


	Three Months Ended September 30, 2006		Nine Months Ended September 30, 2006
Expected volatility	27.8	%	26.3	%
Risk-free interest rate	5.1	%	4.6	%
Dividend yield	4.7	%	4.8	%
Expected life	6.3	yrs	6.3	yrs


(Shares in Thousands)	Number of Nonvested Shares		Weighted- Average Grant-Date Fair Value

Nonvested shares at January 1, 2006	4,162		$	27.36
Granted	3,040			22.81
Vested	(458	)		30.99
Forfeited	(329	)		25.69

Nonvested shares at September 30, 2006	6,415			25.10


(Shares in Thousands)		Long-Term Performance Shares Outstanding

Grant Date	Performance Cycle Measurement Date	Weighted-Average Grant Date Fair Value	September 30, 2006
3/2/04	12/31/06	$28.11	423
3/1/05	12/31/07	25.45	969
3/7/06	12/31/08	20.00	606


	Three Months Ended September 30,						% Change
	2005			2004			% Change
	(dollars in millions)
Net Sales	$	4,767		$	4,778		—
Earnings from continuing operations before minority interest and income tax	$	1,626		$	1,146		42	%
% of net sales		34.1	%		24.0	%
Provision on income taxes	$	507		$	239		112	%
Effective tax rate		31.2	%		20.9	%
Earnings from continuing operations	$	964		$	755		28	%
% of net sales		20.2	%		15.8	%


	Three Months Ended September 30,
									% of Net Sales
(Dollars in Millions)	2006			2005			% Change		2006		2005
Net Sales	$	4,154		$	4,767		(13	)%
Earnings from Continuing Operations before Minority Interest and Income Taxes	$	617		$	1,626		(62	)%	14.9	%	34.1	%
Provision for Income Taxes	$	193		$	507		(62	)%
Effective tax rate		31.3	%		31.2	%
Earnings from Continuing Operations	$	338		$	964		(65	)%	8.1	%	20.2	%


	Three Months Ended September 30,
	Net Sales						% of Total Net Sales
(Dollars in Millions)	2006		2005		% Change		2006		2005
Pharmaceuticals	$	3,154	$	3,778	(17	)%	75.9	%	79.3	%
Nutritionals		582		547	6	%	14.0	%	11.5	%
Other Health Care		418		442	(5	)%	10.1	%	9.2	%

Health Care Group		1,000		989	1	%	24.1	%	20.7	%

Total	$	4,154	$	4,767	(13	)%	100.0	%	100.0	%


	Three Months Ended September 30, 2005						Month Ended September 30, 2005		Three Months Ended September 30, 2006						Month Ended September 30, 2006
	% Change in U.S. Net Sales^(a)		% Change in U.S. Total Prescriptions				Estimated TRx Therapeutic Category Share %^(e)		% Change in U.S. Net Sales^(a)		% Change in U.S. Total Prescriptions				Estimated TRx Therapeutic Category Share %^(d)
	% Change in U.S. Net Sales^(a)		NPA Data ^(b)		NGPS Data ^(c)		NPA Data^(b)	NGPS Data^(c)	% Change in U.S. Net Sales^(a)		NPA Data^(b)		NGPS Data^(c)		NPA Data^(b)	NGPS Data^(c)
ABILIFY* (total revenue)	41		38		36		11	11	21		18		18		12	12
AVAPRO/AVALIDE	(1	)	11		11		15	15	8		3		1		14	14
BARACLUDE^(e)									*	*	*	*	*	*	23	20
CEFZIL	(10	)	(15	)	(17	)	2	2	(96	)	(96	)	(96	)	—	—
COUMADIN	(16	)	(22	)	(25	)	21	20	(8	)	(19	)	(18	)	16	16
DOVONEX	(9	)	(7	)	(8	)	2	3
ERBITUX*^(d)(f)	28		N/A		N/A		N/A	N/A	63		N/A		N/A		N/A	N/A
GLUCOPHAGE* Franchise	(3	)	(46	)	(45	)	2	2	(47	)	(51	)	(51	)	1	1
PARAPLATIN^(d)	(94	)	N/A		N/A		N/A	N/A
KENALOG^(g)									—		N/A		N/A		N/A	N/A
ORENCIA^(h)									—		N/A		N/A		N/A	N/A
PARAPLATIN^(f)									(44	)	N/A		N/A		N/A	N/A
PLAVIX*	7		12		11		86	86	(43	)	(32	)	(35	)	23	21
PRAVACHOL	(7	)	(18	)	(17	)	7	7	(75	)	(82	)	(82	)	1	1
REYATAZ	40		35		30		13	13	23		15		17		33	33
SUSTIVA	6		6		7		23	23
SPRYCEL									—		—		—		3	3
SUSTIVA Franchise ^(j)(total revenue)									27		12		13		32	32
TEQUIN	(32	)	(36	)	(35	)	1	1	(90	)	(91	)	(91	)	—	—
VIDEX/VIDEX EC	(74	)	(72	)	(72	)	3	3	(57	)	(55	)	(56	)	1	1
ZERIT	(29	)	(31	)	(31	)	7	7	(21	)	(30	)	(29	)	5	5


	Three Months Ended September 30, 2004						Month Ended September 30, 2004		Three Months Ended September 30, 2005						Month Ended September 30, 2005
	% Change in U.S. Net Sales^(a)		% Change in U.S. Total Prescriptions				Estimated TRx Therapeutic Category Share %^(e)		% Change in U.S. Net Sales^(a)		% Change in U.S. Total Prescriptions				Estimated TRx Therapeutic Category Share %^(d)
	% Change in U.S. Net Sales^(a)		NPA Data ^(b)		NGPS Data ^(c)		NPA Data ^(b)	NGPS Data^(c)	% Change in U.S. Net Sales^(a)		NPA Data^(b)		NGPS Data^(c)		NPA Data^(b)	NGPS Data^(c)
ABILIFY* (total revenue)	52		85		85		8	8	41		38		36		11	11
AVAPRO/AVALIDE	36		15		17		15	15	(1	)	11		11		15	15
BARACLUDE^(e)									—		—		—		8	7
CEFZIL	58		(26	)	(24	)	2	2	(10	)	(15	)	(17	)	2	2
COUMADIN	(5	)	(18	)	(23	)	28	28	(16	)	(22	)	(25	)	21	20
DOVONEX	—		(9	)	(7	)	3	3
ERBITUX*^(d)(f)	—		N/A		N/A		N/A	N/A	28		N/A		N/A		N/A	N/A
GLUCOPHAGE* Franchise	(83	)	(74	)	(75	)	4	4	(3	)	(46	)	(45	)	2	2
PARAPLATIN^(d)	(31	)	N/A		N/A		N/A	N/A
KENALOG^(g)									111		N/A		N/A		N/A	N/A
ORENCIA^(h)									—		N/A		N/A		N/A	N/A
PARAPLATIN^(f)									(94	)	N/A		N/A		N/A	N/A
PLAVIX*	32		23		26		84	84	7		12		11		86	86
PRAVACHOL	(31	)	(13	)	(12	)	10	10	(7	)	(18	)	(17	)	7	7
REYATAZ	103		*	*	*	*	11	11
SUSTIVA	121		4		10		23	23
REYATAZ⁽ⁱ⁾									40		35		30		31	31
SPRYCEL^(k)									—		—		—		—	—
SUSTIVA⁽ⁱ⁾									6		6		7		30	30
TEQUIN	(9	)	(21	)	(19	)	2	2	(32	)	(36	)	(35	)	1	1
VIDEX/VIDEX EC	59		(3	)	3		9	9	(74	)	(72	)	(72	)	3	3
ZERIT	48		(29	)	(26	)	9	9	(29	)	(31	)	(31	)	7	7


	% Change in Demand on a Constant U.S. Dollar Basis		% Change in Demand on a Constant U.S. Dollar Basis
	June 2006 vs. June 2005		March 2006 vs. March 2005
International Pharmaceuticals
ABILIFY* (total revenue)	21		78
AVAPRO/AVALIDE	(1	)	8
BARACLUDE	N/A		N/A
BUFFERIN*	30		(7	)
CAPOTEN	(32	)	(27	)
DAFALGAN	(10	)	(2	)
EFFERALGAN	(10	)	(28	)
MAXIPIME	(15	)	(26	)
MONOPRIL	(23	)	(28	)
PARAPLATIN	(14	)	(14	)
PERFALGAN	6		24
PLAVIX*	(4	)	(4	)
PRAVACHOL	(39	)	(5	)
REYATAZ	38		25
SUSTIVA	13		(6	)
TAXOL^{^®} (paclitaxel)	(21	)	(24	)
VIDEX/VIDEX EC	(36	)	(29	)
Nutritionals
ENFAMIL/ENFAGROW	4		10
NUTRAMIGEN	15		13
Other Health Care
ConvaTec
Ostomy	7		8
Wound Therapeutics	2		19
Medical Imaging
CARDIOLITE	(6	)	4


	September 30, 2006			June 30, 2006
(Dollars in Millions)	Net Sales		Months on Hand	Net Sales			Months on Hand
ABILIFY* (total revenue)	$	260	0.5	$	267		0.5
AVAPRO/AVALIDE		159	0.4		167		0.5
BARACLUDE		14	0.6		9		0.7
CEFZIL		1	29.2		(1	)	25.7
COUMADIN		45	0.7		46		0.8
ERBITUX*		173	0.5		172		—
GLUCOPHAGE* Franchise		20	0.7		22		0.6
KENALOG		19	0.8		22		0.8
ORENCIA		34	0.8		18		0.3
PARAPLATIN		5	1.5		2		1.7
PLAVIX*		474	1.5		988		0.5
PRAVACHOL		73	1.0		128		1.0
REYATAZ		129	0.5		122		0.6
SPRYCEL		11	1.2		—		—
SUSTIVA Franchise^(a) (total revenue)		128	0.5		115		0.5
TEQUIN		2	2.3		(6	)	2.7
VIDEX/VIDEX EC		3	0.9		5		0.9
ZERIT		19	0.7		18		0.7


	September 30, 2005			June 30, 2005
(Dollars in Millions)	Net Sales		Months on Hand	Net Sales			Months on Hand
ABILIFY* (total revenue)	$	214	0.9	$	200		0.7
AVAPRO/AVALIDE		147	0.5		157		0.6
BARACLUDE		2	1.2		5		4.7
CEFZIL		27	0.7		30		0.8
COUMADIN		49	0.6		42		0.7
ERBITUX*		106	—		97		—
GLUCOPHAGE* Franchise		38	0.7		44		0.8
KENALOG		19	0.7		15		0.5
ORENCIA		—	—		—		—
PARAPLATIN		9	1.1		(1	)	0.8
PLAVIX*		833	0.4		823		0.6
PRAVACHOL		297	0.5		353		0.7
REYATAZ		105	0.6		98		0.8
SPRYCEL		—	—		—		—
SUSTIVA		101	0.6		97		0.8
TEQUIN		21	0.9		22		0.8
VIDEX/VIDEX EC		7	1.1		5		1.0
ZERIT		24	0.8		26		0.8


	September 30, 2005			June 30, 2005				March 31, 2005
	Net Sales (dollar in millions)		Months on Hand	Net Sales (dollar in millions)			Months on Hand	Net Sales (dollar in millions)		Months on Hand
ABILIFY* (total revenue)	$	214	0.9	$	200		0.7	$	161	0.7
AVAPRO/AVALIDE		147	0.5		157		0.6		102	0.8
CEFZIL		27	0.7		30		0.8		50	0.7
COUMADIN		49	0.6		42		0.7		42	1.0
DOVONEX		31	0.6		36		0.7		30	0.6
ERBITUX*		106	—		97		—		87	*	*
GLUCOPHAGE* Franchise		38	0.7		44		0.8		39	1.0
PARAPLATIN		9	1.1		(1	)	0.8		15	0.9
PLAVIX*		833	0.4		823		0.6		673	0.8
PRAVACHOL		297	0.5		353		0.7		258	0.8
REYATAZ		105	0.6		98		0.8		92	0.8
SUSTIVA		101	0.6		97		0.8		103	0.8
TEQUIN		21	0.9		22		0.8		38	0.7
VIDEX/VIDEX EC		7	1.1		5		1.0		10	1.2
ZERIT		24	0.8		26		0.8		26	0.8