savings, we have reduced operating costs and improved service levels by standardizing, regionalizing, and/or outsourcing a wide array of transactional accounting activities. Examples include accounts payable, general accounting, accounts receivable, travel and entertainment processing and inventory accounting. In addition, a standard global platform for tax operations was developed, which leverages technology, standardizes processes, and focuses on colleague alignment and skill sets. This effort includes regionalization of tax operations for Europe and the U.S.

Global Sourcing—

• Leveraging Purchasing Power—To achieve cost savings on purchased goods and services, we have focused on rationalizing suppliers, leveraging the approximately $16 billion of goods and services that Pfizer purchases annually and improving demand management to optimize levels of outside services needed and strategic sourcing from lower-cost sources. For example, savings from demand management are being derived in part from reductions in travel, entertainment, consulting and other external service expenses. Facilities savings are being found in site rationalization, energy conservation and renegotiated service contracts.

Our Strategic Initiatives—Strategy and Recent Transactions

Acquisitions, Licensing and Collaborations

We are committed to capitalizing on new growth opportunities by advancing our own new-product pipeline, as well as through licensing, co-promotion agreements and acquisitions. Our business development strategy targets a number of growth opportunities, including biologics, oncology, Alzheimer’s disease, vaccines and other products and services that complement and supplement our internal pipeline and that add value to our customers and patients, and that seek to provide innovative healthcare solutions.

• In December 2006, we entered into a collaboration agreement with Kosan Biosciences Inc. (Kosan) to develop a gastrointestinal disease treatment. In 2006, we expensed a payment of $12 million, which was included in Research and development expenses. Additional significant milestone payments of up to approximately $238 million may be made to Kosan based upon the successful development and commercialization of a product.

• In September 2006, we entered into a license agreement with Quark Biotech Inc. (Quark) for exclusive worldwide rights to a compound for the treatment of neovascular (wet) age-related macular degeneration (AMD).

• In September 2006, we entered into a license and collaboration agreement with TransTech Pharma Inc. (TransTech) to develop and commercialize small- and large-molecule compounds for treatment of Alzheimer’s disease and diabetic neuropathy. Under the terms of the agreement, Pfizer received exclusive worldwide rights to TransTech’s portfolio of compounds. In 2006, we expensed a payment of $101 million, which was included in Research and development expenses. Additional significant milestone payments may be made to TransTech based upon the successful development and commercialization of a product.

• In June 2006, we entered into a license agreement with Bayer Pharmaceuticals Corporation (Bayer) to acquire exclusive worldwide