research. During 2006, 47 new compounds were advanced from discovery research into preclinical development, 29 preclinical development candidates progressed into Phase 1 human testing and 18 Phase 1 clinical development candidates advanced into Phase 2 proof-of-concept trials.

• 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. Our goal is to launch four new products a year from internal development beginning 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 allow us to capitalize on these compounds to expand our pipeline of potential future products.

Due to our strength in marketing and our global reach, we are able to attract other organizations that may have promising compounds and that can benefit from our strength and skills. We have more than 800 alliances across the entire spectrum of the discovery, development and commercialization process.

 Over the past three years, we have invested $6.7 billion in acquisitions for these purposes. For example, an area where we are expanding aggressively is in biologics, large-molecule approaches to treating disease when small molecules are not available or effective. In 2006, we acquired Rinat, a biologics company with several new central-nervous-system product candidates. In 2005, the acquisition of Vicuron built on Pfizer’s extensive experience in anti-infectives and demonstrates our commitment to strengthen and broaden our pharmaceutical business through strategic product acquisitions.

 By acquiring PowderMed Ltd. in 2006, we look forward to exploring vaccines across various therapeutic areas using the acquired vaccine technology and delivery device. (See further discussion in the “Our Strategic Initiatives—Strategy and Recent Transactions: Acquisitions, Licensing and Collaborations” section of this Financial Review.)

Our goal is to launch two new externally-sourced products each year beginning in 2010.

Changing Business Environment

With the business environment changing rapidly, as described above, we recognize that we must also fundamentally change the way we run our company to meet those challenges.

Our response:

• We will continue to streamline our company to reduce bureaucracy and enable us to move quickly.

• We will continue to restructure our cost base to drive efficiencies and enable greater agility and operating flexibility.

• We will continue to simplify our R&D organization and will improve productivity by consolidating each of the research teams focused on any given therapeutic area to one of four major sites.

• We will restructure our U.S. Pharmaceutical Operations into four business units to create a more focused and entrepreneurial