and Legal Proceedings and Contingencies.

Overview of Consolidated Operating Results

Our Business

We are a research-based, global pharmaceutical company that discovers, develops, manufactures and markets leading prescription medicines for humans and animals, as well as many of the world’s best known consumer healthcare products. Our longstanding value proposition has been to prove that our medicines cure or treat disease, including symptoms and suffering, and this remains our core mission. We have expanded our value proposition to also show that not only can our medicines cure or treat disease, but that they can also markedly improve health systems by reducing overall healthcare costs, improving societies’ economic well-being and increasing effective prevention and treatment of disease. We generate revenue through the sale of our products, as well as through alliance agreements by co- promoting products discovered by other companies.

Our Human Health segment represented 86% of our total revenues in 2005 and, therefore, developments relating to the pharmaceutical industry can have a significant impact on our operations.

Our 2005 Performance

Our performance in 2005 was impacted by the loss of exclusivity in the U.S. of certain key medicines (Diflucan, Neurontin, Accupril/Accuretic and Zithromax), uncertainty related to Celebrex and the suspension of Bextra sales, which collectively reduced our worldwide revenues by $5.7 billion compared with 2004. Partially offsetting these impacts was the solid aggregate performance of the balance of our portfolio of patent-protected medicines.

Specifically, in 2005,

• Our total revenues decreased 2% to $51.3 billion from 2004. Revenues of major products with lost exclusivity in the U.S. (Diflucan, Neurontin and Accupril/Accuretic during 2004 and Zithromax in November 2005) declined by 44% from 2004. These four products represented 8% of our Human Health revenues and 7% of our total revenues for the year ended December 31, 2005 compared to 13% of our Human Health revenues and 12% of our total revenues for the year ended December 31, 2004. Uncertainty related to Celebrex and the suspension of Bextra sales have resulted in a significant decline in prescription volume in the arthritis and pain market, resulting in a 63% decline in revenues in those products from 2004. These declines were partially offset by an aggregate revenue increase of 11% in the balance of our portfolio of our patent- protected products. Our portfolio of medicines includes four of the world’s 25 best-selling medicines, with six medicines that lead their therapeutic areas (see further discussion in the “Human Health-Selected Product Descriptions” section of this Financial Review).

• Our net income was $8.1 billion compared with $11.4 billion in 2004. Our 2005 results reflect in-process research and development (IPR&D) charges of $1.7 billion, primarily related to our acquisitions of Vicuron Pharmaceuticals, Inc. (Vicuron) and Idun Pharmaceuticals, Inc. (Idun); asset impairment and other charges of $1.2 billion associated with the suspension of sales of Bextra; restructuring charges and merger-related costs of $943 million associated