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 pipeline includes 213 projects in development: 151 new molecular entities and 62 product-line extensions. They span multiple therapeutic areas, and we are leveraging our status as the industry’s partner of choice to expand our licensing operations. In addition, we have more than 320 projects in discovery research. During 2007, 34 new compounds were advanced from discovery research into preclinical development, 22 preclinical development candidates progressed into Phase 1 human testing and 16 Phase 1 clinical development candidates advanced into Phase 2 proof-of- concept trials and safety studies.

We will continue to focus on reducing attrition as a key component of our R&D productivity improvement effort. For several years, we have been revising the quality hurdles for candidates entering development, as well as throughout the development process. As the quality of candidates has improved, the development attrition rate has begun to fall. Two new molecular entities and multiple new indication programs for in-line products advanced into Phase 3 development during 2007. We expect a significant number of new molecular entities and new indication programs to advance to Phase 3 by the end of 2009. With the progress we are seeing in our pipeline — as well as our efforts in reducing our attrition rate — we are also continuing to target having a steady stream of new medicines from our internal R&D, four a year, starting in 2011.

• While a significant portion of R&D is done internally, we will continue to seek to expand our pipeline by entering into agreements with other companies to develop, license or acquire promising compounds, technologies or capabilities. Co- development, alliance and license agreements and acquisitions allow us to capitalize on these compounds to expand our pipeline of potential future products.

 Duetoourstrengthinmarketingandourglobalreach,weare able to attract other organizations that may have promising compounds and that can benefit from our strength and skills. We have more than 400 alliances across the entire spectrum of the discovery, development and commercialization process.

 In the second quarter of 2007, we entered into a collaboration agreement with Bristol-Myers Squibb Company (BMS) to further develop and commercialize apixaban, an oral anticoagulant compound discovered by BMS, and in a separate agreement, we are also collaborating with BMS on the research, development and commercialization of DGAT-1 inhibitors. (See further discussion in the “Our Strategic Initiatives—Strategy and Recent Transactions: Acquisitions, Licensing and Collaborations” section of this Financial Review.)

 Wearebuildingamajorpresenceinbiologicsbyrecognizing that our core strength with small molecules must be complemented by large molecules, as they involve some of the most promising R&D technology and cutting-edge science in medical research, as well as integrating our investments, R&D and existing internal capabilities with disciplined