about future events, which are inherently susceptible to uncertainty and changes in circumstances. Also included in this section are discussions of Financial Risk Management and Legal Proceedings and Contingencies.

Overview of Our Performance and Operating Environment

Our Business

We are a global, research-based company that is dedicated to better health and greater access to healthcare for people and their valued animals. Our purpose is to help people live longer, healthier, happier and more productive lives. Our efforts in support of that purpose include the discovery, development, manufacture and marketing of breakthrough medicines; the exploration of ideas that advance the frontiers of science and medicine; and the support of programs dedicated to illness prevention, health and wellness, and increased access to quality healthcare. Our value proposition is to demonstrate that our medicines can effectively treat disease, including the associated symptoms and suffering, and can form the basis for an overall improvement in healthcare systems and their related costs. This improvement can be achieved by increasing effective prevention and treatment and by reducing the need for hospitalization. Our revenues are derived from the sale of our products, as well as through alliance agreements, under which we co-promote products discovered by other companies.

Our Pharmaceutical segment represented 93% of our total revenues in 2006 and, therefore, developments relating to the pharmaceutical industry can have a significant impact on our operations.

Our 2006 Performance

We showed a solid performance in 2006, with our in-line products in the aggregate performing well in a tough operating environment and many of our new products making important contributions as well, largely offset by revenue declines from the loss of U.S. exclusivity on Zithromax in November 2005 and Zoloft at the end of June 2006, and other factors.

Specifically, in 2006:

• Revenues increased 2% to $48.4 billion over 2005, due primarily to the solid aggregate performance of our broad portfolio of patent-protected medicines and an aggregate year-over-year increase in revenues from new products launched since 2004, largely offset by the impact of the loss of U.S. exclusivity on Zithromax in November 2005 and Zoloft in June 2006. Those two products collectively experienced a decline in revenues of about $2.5 billion in 2006 compared to 2005. These declines were offset by an aggregate revenue increase in the balance of our portfolio of patent-protected products, such as Lipitor (up 6%), Norvasc (up 3%), Caduet (up 99%), Geodon/Zeldox (up 29%), Celebrex (up 18%), Zyvox (up 27%), Vfend (up 30%), Detrol/Detrol LA (up 11%), Aromasin (up 30%), Xalatan (up 6%), and Zyrtec (up 15%), as well as the successful launches of several new medicines since 2004. As of October 2006, our portfolio of medicines included three of the world’s 25 best-selling medicines, with seven medicines that led their therapeutic areas. (See further discussion in the “Analysis of the Consolidated Statement of Income” section of this Financial Review.)

• Income from continuing operations before cumulative effect of