decision-makers in several large European markets and the growing power of managed care organizations in the U.S. has increased the pressure on pharmaceutical prices and access.

• A rise in consumer-directed health plans, as well as tiered co- pay in managed care plans, has increased end-customer sensitization to the cost of healthcare. Consumers have become aware of global price differences that result from price controls imposed by certain governments and have become more willing to seek less expensive alternatives, such as sourcing medicines across national borders, despite the increased risk of receiving inferior or counterfeit products, and switching to generics.

Our response:

• We will continue to work within the current legal and pricing structures, as well as continue to review our pricing arrangements and contracting methods with payers, to maximize access to patients and minimize the impact on our revenues.

• We will continue to actively engage payers, patients and physicians in dialogues about the value of our products and how we can best work with them to fight disease and improve outcomes.

• We will continue to encourage payers to work with us early in the development process to ensure that our approved products will deliver the value expected by those payers.

• We will continue to be a constructive force in helping to shape healthcare policy and regulation of our products.

Intellectual Property Rights

Our business model is highly dependent on intellectual property rights, primarily in the form of government-granted patent rights, and on our ability to enforce and defend those rights around the world.

• Intellectual property legal protections and remedies are a significant factor in our business. Many of our products are protected by a wide range of patents, such as composition-of- matter patents, compound patents, patents covering processes and procedures and/or patents issued for additional indications or uses. As such, many of our products have multiple patents that expire at varying dates, thereby strengthening our overall patent protection. However, once the patent protection period has expired, generic pharmaceutical manufacturers generally produce similar products and sell those products for a lower price. This price competition can substantially decrease our revenues for products that lose exclusivity, often by as much as 80% in the U.S. in the first year after patent expiration.

• The loss of patent protection with respect to any of our major products can have a material adverse effect on future revenues and our results of operations. As mentioned above, our performance in 2006 was significantly impacted by the loss of U.S. exclusivity of Zithromax in November 2005 and Zoloft at the end of June 2006. Further, we face a substantial adverse impact on our performance from the loss of U.S. exclusivity for Norvasc and Zyrtec in 2007 and Camptosar in 2008. These five products represented 26% of our total revenues for the year ended December 31, 2005, and 21% of our total revenues for the year ended December 31, 2006.

• Patents covering our products are also subject to legal challenges. Increasingly, generic