(the trade name for Eraxis in Europe).

During 2007, we or our development partners submitted two new drug applications (NDAs) to the U.S. Food and Drug Administration (FDA) for Fablyn (lasofoxifene) and Spiriva Respimat.

As the world’s largest privately funded biomedical operation, and through our global scale, we will continue to develop and deliver innovative medicines that will benefit patients around the world. We will continue to make the investments necessary to serve patients’ needs and to generate long-term growth. For example:

 We will refocus our investments on disease areas of major unmet medical needs and advance new technologies. We expect to become an industry leader in biotherapeutics and build best-in-class vaccine capabilities.

 2008. Lipitor began to face competition in the U.S. from generic pravastatin (Pravachol) in April 2006 and generic simvastatin (Zocor) in June 2006, in addition to other competitive pressures.

Our response:

• We will continue to highlight the benefits of our products, in terms of cost, safety and efficacy, as appropriate, as we seek to serve significantly more patients around the world. (For detailed information about Lipitor and other significant products, see further discussion in the “Revenues—Pharmaceutical—Selected Product Descriptions” section of this Financial Review.)

• We are committed to driving innovation in product life cycle management by taking a broader look at our business model and examining it from all angles. We believe there are opportunities to better manage our products’ growth and development throughout their entire time on the market and bring innovation to our “go to market” promotional and commercial strategies. We plan to develop ways to further enhance the value of mature products, as well as those close to losing their exclusivity, and to create product-line extensions where feasible. In connection with the production of these products, we are pursuing new ways to accelerate our high-quality, low-cost manufacturing initiatives.

Regulatory Environment and Pipeline Productivity

The discovery and development of safe, effective new products, as well as the development of additional uses for existing products, are necessary for the continued strength of our businesses.

• We are confronted by increasing regulatory scrutiny of drug safety and efficacy even as we continue to gather safety and other data on our products, before and after the products have been launched.

 Severalkeymedicinesreceivedapprovalfornewindications in 2007, including approvals in the U.S. for Lyrica for the treatment of fibromyalgia, Lipitor for secondary prevention of cardiovascular events in patients with established coronary heart disease and Fragmin for the prevention of blood clots in patients with cancer. In the E.U., medicines that received approval for new indications in 2007 were Celebrex, for the treatment of ankylosing spondylitis, and Sutent, for metastatic renal cell carcinoma (mRCC) as a first-line treatment and for gastrointestinal stromal tumors (GIST) as a second-line treatment.

 We continue to conduct research on a scale that can help redefine medical practice. Our R&D