Introduction

Our MD&A is provided in addition to the accompanying condensed consolidated financial statements and footnotes to assist readers in understanding Pfizer's results of operations, financial condition and cash flows. The MD&A is organized as follows:

• Overview of Our Performance and Operating Environment. This section, beginning on page 21, provides information about the following: our business; certain charges related to product litigation, an adjustment to prior years' liabilities for product returns and Exubera; our performance during the three months and nine months ended September 28, 2008; our operating environment; our strategic initiatives, such as acquisitions and our cost-reduction initiatives.

• Revenues. This section, beginning on page 26, provides an analysis of our products and revenues for the three months and nine months ended September 28, 2008, and September 30, 2007, as well as an overview of important product developments.

• Costs and Expenses. This section, beginning on page 36, provides a discussion about our costs and expenses.

• Provision for Taxes on Income. This section, on page 38, provides a discussion of items impacting our tax provision for the periods presented.

• Adjusted Income. This section, beginning on page 38, provides a discussion of an alternative view of performance used by management.

• Financial Condition, Liquidity and Capital Resources. This section, beginning on page 43, provides an analysis of our balance sheets as of September 28, 2008, and December 31, 2007, and cash flows for the nine months ended September 28, 2008, and September 30, 2007, as well as a discussion of our outstanding debt and commitments that existed as of September 28, 2008, and December 31, 2007. Included in the discussion of outstanding debt is a discussion of the amount of financial capacity available to help fund Pfizer's future activities.

• Outlook. This section, beginning on page 47, provides a discussion of our expectations for full-year 2008.

• Forward-Looking Information and Factors That May Affect Future Results. This section, beginning on page 48, provides a description of the risks and uncertainties that could cause actual results to differ materially from those discussed in forward-looking statements set forth in this MD&A relating to our financial results, operations and business plans and prospects. Such forward-looking statements are based on management's current expectations about future events, which are inherently susceptible to uncertainty and changes in circumstances. Also included in this section is a discussion of Legal Proceedings and Contingencies.

Components of the Condensed Consolidated Statements of Income follow:

                                     Three Months Ended                     Nine Months Ended
(millions of dollars,
except per common share     Sept. 28,      Sept. 30,               Sept. 28,      Sept. 30,
data)                            2008           2007    % Change        2008           2007    % Change

Revenues                  $    11,973    $    11,990         --  $    35,950    $    35,548          1

Cost of sales                   2,122          4,618        (54)       6,397          8,614        (26)
% of revenues                    17.7  %        38.5  %                 17.8  %        24.2  %

Selling, informational
and administrative
expenses                        3,523          3,768         (7)      10,878         10,973         (1)
% of revenues                    29.4  %        31.4  %                 30.3  %        30.9  %

Research and development
expenses                        1,885          1,999         (6)       5,642          5,829         (3)
% of revenues                    15.7  %        16.7  %                 15.7  %        16.4  %

Amortization of
intangible assets                 621            774        (20)       2,063          2,372        (13)
% of revenues                     5.2  %         6.5  %                  5.7  %         6.7  %

Acquisition-related
in-process research and
development charges                13             --          *          567            283        100
% of revenues                     0.1  %           *                     1.6  %         0.8  %

Restructuring charges and
acquisition-related costs         366            455        (20)       1,113          2,318        (52)
% of revenues                     3.1  %         3.8  %                  3.1  %         6.5  %

Other
(income)/deductions - net         721           (260)         *          221         (1,149)         *

Income from continuing
operations before
provision for taxes on
income, and minority
interests                       2,722            636        328        9,069          6,308         44
% of revenues                    22.7  %         5.3  %                 25.2  %        17.7  %

Provision /(benefit) for
taxes on income                   463           (161)         *        1,251            800         56

Effective tax rate               17.0  %       (25.4) %                 13.8  %        12.7  %

Minority interests                  6              1        378           18              6        199

Income from continuing
operations                      2,253            796        183        7,800          5,502         42
% of revenues                    18.8  %         6.6  %                 21.7  %        15.5  %

Discontinued
operations - net of tax            25            (35)         *           38            (82)         *

Net income                $     2,278    $       761        199  $     7,838    $     5,420         45
% of revenues                    19.0  %         6.3  %                 21.8  %        15.2  %

Earnings per common share
- basic:
Income from continuing
operations                $      0.34    $      0.12        183  $      1.16    $      0.79         47
Discontinued
operations - net of tax            --          (0.01)         *           --          (0.01)         *
Net income                $      0.34    $      0.11        209  $      1.16    $      0.78         49

Earnings per common share
- diluted:
Income from continuing
operations                $      0.33    $      0.12        175  $      1.16    $      0.79         47
Discontinued
operations - net of tax          0.01          (0.01)         *           --          (0.01)         *
Net income                $      0.34    $      0.11        209  $      1.16    $      0.78         49

Cash dividends paid per
common share              $      0.32    $      0.29             $      0.96    $      0.87

* Calculation not meaningful

OVERVIEW OF OUR PERFORMANCE AND OPERATING ENVIRONMENT

Our Business

We are a global, research-based company applying innovative science to improve world health. Our efforts in support of that purpose include the discovery, development, manufacture and marketing of safe and effective 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 prevent and treat disease, including the associated symptoms and suffering, and can form the basis for an overall improvement in healthcare systems and their related costs. 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.

Certain Charges

A. Product Litigation - Celebrex and Bextra

In October 2008, we reached agreements in principle to resolve the pending U.S. consumer fraud purported class action cases and more than 90% of the known U.S. personal injury claims involving Celebrex and Bextra, and we reached agreements to resolve substantially all of the cases and claims of state attorneys general involving Celebrex and Bextra. In connection with these actions, we recorded litigation-related charges of approximately $900 million in Other (income)/deductions - net in the third quarter of 2008. Virtually all of this amount is included in Other current liabilities on the condensed consolidated balance sheet as of September 28, 2008.

(See Part II - Other information, Item 1. Legal Proceedings, of this Form 10-Q for a discussion of certain recent developments with respect to litigation related to Celebrex and Bextra.)

B. Adjustment of Prior Years' Liabilities for Product Returns

Revenues in the third quarter of 2008 include a reduction of $217 million to adjust our prior years' liabilities for product returns. After a recent detailed review of our returns experience, we determined that our previous methodology needed to be revised, as the lag time between product sale and return was actually longer than we had previously assumed. Although fully recorded in the current period, virtually all of the adjustment relates back several years. We have also reviewed our expense calculations for the prior years and determined that the expense recorded in those years was not materially different from what would have been recorded under our revised approach.

C. Exubera

In the third quarter of 2007, we exited Exubera, an inhalable form of insulin for the treatment of diabetes. Total pre-tax charges for the third quarter and first nine months of 2007 were $2.8 billion and were included primarily in Cost of sales ($2.6 billion), Selling, informational and administrative expenses ($83 million), and Research and development expenses ($131 million). The charges were comprised of asset write-offs of $2.2 billion (intangibles, inventory and fixed assets) and other exit costs, primarily severance, contract and other termination costs. As of September 28, 2008, the remaining accrual for other exit costs is approximately $220 million. Substantially all of this cash spending is expected to be completed in 2009.

Since our decision in the third quarter of 2007 to exit Exubera, patients have been transitioning to other diabetes therapies. On September 16, 2008, we announced an agreement with MannKind Corporation (Mannkind) to transition certain Exubera patients with a continuing need for inhaled insulin to Mannkind's inhaled insulin product. Pfizer has agreed to reimburse some of Mannkind's costs up to $1.6 million for transitioning the patients.

Our Performance for the Three Months and Nine Months Ended September 28, 2008

Revenues in the third quarter of 2008 were approximately $12.0 billion,
comparable to the same period in 2007. Revenues in the first nine months of 2008
increased 1% to $36.0 billion, compared to the same period in 2007. The
significant product and alliance revenue impacts on revenues for the third
quarter and first nine months of 2008, compared to the same periods in 2007, are
as follows:

                            Third Quarter              Nine Months
                         Increase/                 Increase/
                        (decrease)   % Change     (decrease)   % Change
(millions of dollars)        08/07      08/07          08/07      08/07

Zyrtec/Zyrtec D(a)    $      (428)         *  % $    (1,149)       (90) %
Camptosar(a)                 (121)       (50)          (262)       (37)
Norvasc(b)                    (78)       (12)          (649)       (28)
Chantix/Champix(c)            (59)       (24)            63         10
Lipitor(d)                    (28)        (1)             8         --
Lyrica                        210         45            606         48
Sutent(e)                      75         49            228         57
Viagra                         59         13            166         13
Zyvox                          49         21            140         20
Xalatan/Xalacom                48         12            140         12
Geodon/Zeldox                  30         13            109         18
Vfend                          27         17             92         20
Alliance revenues             114         25            375         30

* Calculation not meaningful.
(a) Zyrtec/Zyrtec D lost U.S. exclusivity in late January 2008, at which time we ceased selling this product. Camptosar lost U.S. exclusivity in February 2008.
(b) Norvasc lost U.S. exclusivity in March 2007.
(c) Chantix/Champix is a new product that was launched since 2006 and has been negatively impacted by the changes to its U.S. label in prior 2008 quarters.
(d) Lipitor has been impacted by competitive pressures and other factors.
(e) Sutent is a new product that was launched since 2006.

Revenues benefited from favorable foreign exchange impacts of approximately $620 million, or 5%, in the third quarter of 2008 and $2.0 billion, or 6%, in the first nine months of 2008. In addition, revenues in the third quarter of 2008 and first nine months of 2008 were negatively impacted by a $217 million adjustment to the prior years' liabilities for product returns (see the "Certain Charges: B. Adjustment of Prior Years' Liabilities for Product Returns" section of this MD&A). In the U.S., revenues decreased 15% in the third quarter of 2008 and decreased 13% in the first nine months of 2008, compared to the same periods in 2007, while international revenues increased 13% in the third quarter of 2008 and increased 15% in the first nine months of 2008, compared to the same periods in 2007.

The impact of rebates in the third quarter of 2008 decreased revenues by approximately $780 million, compared to approximately $645 million in the third quarter of 2007. The increase in rebates was due primarily to:

• the impact of our contracting strategies with both government and non-government entities in the U.S.,

partially offset by:

• changes in product mix, among other factors.

The impact of rebates in the first nine months of 2008 decreased revenues by approximately $2.4 billion, compared to approximately $1.9 billion in the first nine months of 2007. The increase in rebates was due primarily to:

• the impact of our contracting strategies with both government and non-government entities in the U.S.; and

• a favorable adjustment recorded in the first quarter of 2007 based on the actual claims experienced under the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (the Medicare Act), which went into effect in 2006,

partially offset by:

• changes in product mix, among other factors.

(See further discussion in the "Revenues - Pharmaceutical Revenues" section of this MD&A.)

Income from continuing operationsfor the third quarter of 2008 was $2.3 billion, compared to $796 million in the third quarter of 2007, and $7.8 billion in the first nine months of 2008, compared to $5.5 billion in the first nine months of 2007. The increases were primarily due to:

• a $2.1 billion after-tax charge recorded in the third quarter of 2007 related to our decision to exit Exubera;

• lower restructuring costs associated with our cost-reduction initiatives;

• the favorable impact of foreign exchange;

• tax benefits in the second quarter of 2008 related to favorable effectively settled tax issues and the sale of one of our biopharmaceutical companies (Esperion Therapeutics, Inc.);

• savings related to our cost-reduction initiatives; and

• the payment recorded in the second quarter of 2007 to Bristol-Myers Squibb Company (BMS) in connection with our collaboration to develop and commercialize apixaban,

partially offset by:

• the $640 million after-tax charge related to the resolution of certain non-steroidal anti-inflammatory drugs (NSAID) litigation;

• the $150 million after-tax charge to adjust our prior years' liabilities for product returns; and

• the increase in Acquisition-related in-process research and development charges.

(See further discussion in the "Certain Charges," "Costs and Expenses" and "Provision for Taxes on Income" sections of this MD&A.)

In the second quarter of 2008, we acquired Serenex, Inc. and Encysive Pharmaceuticals Inc. In the first quarter of 2008, we acquired CovX and Coley Pharmaceutical Group, Inc. and completed two smaller acquisitions related to Animal Health. In the first quarter of 2007, we acquired Embrex, Inc. and BioRexis Pharmaceutical Corp. (See further discussion in the "Our Strategic Initiatives - Strategy and Recent Transactions: Acquisitions, Licensing and Collaborations" section of this MD&A.)

We have also made progress with our cost-reduction initiatives, which comprise a broad-based, company-wide effort to leverage our scale and strength more robustly and increase our productivity. (See further discussion in the "Our Cost-Reduction Initiatives" section of this MD&A.)

Our Operating Environment

Despite the challenging financial markets, Pfizer maintains a strong financial position. We have a strong balance sheet and excellent liquidity that provides us with financial flexibility. Our long-term debt is rated high quality and investment grade. We have and will continue to take a conservative approach to our investments. Both short-term and long-term investments consist primarily of high-quality, highly liquid, well-diversified, investment-grade, available-for-sale debt securities. As a result, we continue to believe that we have the ability to meet our financing needs for the foreseeable future. However, as market conditions change, we will continue to monitor our liquidity position. (For further discussion of our financial condition, see the "Financial Condition, Liquidity and Capital Resources section of this MD&A.)

We and our industry continue to face significant challenges in a profoundly changing business environment, as explained more fully in Pfizer's Annual Report on Form 10-K for the year ended December 31, 2007. Industry-wide factors, including pharmaceutical product pricing and access, intellectual property rights, product competition, the regulatory environment, pipeline productivity and the changing business environment, can significantly impact our businesses. In order to meet these challenges and capitalize on opportunities in the marketplace, we are taking steps to change the way we run our businesses.

Generic competition and patent expirations significantly impact our business. We lost U.S. exclusivity for Camptosar in February 2008 and Norvasc in March 2007 and, as expected, significant revenue declines followed. Zyrtec/Zyrtec D lost its U.S. exclusivity in late January 2008, at which time we ceased selling this product. Lipitor began to face competition in the U.S. from generic pravastatin (Pravachol) in April 2006 and generic simvastatin (Zocor) in June 2006, in addition to other competitive pressures. The volume of patients who start on or switch to generic simvastatin continues to negatively impact Lipitor prescribing trends, particularly in the managed-care environment. (For more detailed information about Lipitor, Norvasc, Zyrtec, Camptosar and other significant products, see further discussion in the "Revenues - Pharmaceutical - Selected Product Descriptions" section of this MD&A.)

We will continue to aggressively defend our patent rights against increasingly aggressive infringement whenever appropriate.

(See Part II - Other Information; Item 1. Legal Proceedings, of this Form 10-Q for a discussion of certain recent developments with respect to patent litigation.)

These and other industry-wide factors that may affect our businesses should be considered along with the information presented in the "Forward-Looking Information and Factors That May Affect Future Results" section of this MD&A.

Our Strategic Initiatives - Strategy and Recent Transactions

Acquisitions, Licensing and Collaborations

We are committed to capitalizing on new growth opportunities by advancing our new-product pipeline, and maximizing the value of our in-line products, as well as through opportunistic licensing, co-promotion agreements and acquisitions. Our business development strategy targets a number of growth opportunities, including biologics, vaccines, oncology, diabetes, Alzheimer's disease, inflammation/immunology, pain, psychoses (schizophrenia) and other products and services that seek to provide valuable healthcare solutions. Some of our most significant business-development transactions during the first nine months of 2008 and 2007 are described below.

• In the second quarter of 2008, we acquired Encysive Pharmaceuticals Inc. (Encysive), a biopharmaceutical company, whose main product (Thelin), for the treatment of pulmonary arterial hypertension, is commercially available in much of the E.U., is approved in certain other markets, and is under review by the Food and Drug Administration (FDA). The cost of acquiring Encysive, through a tender offer and subsequent merger, was approximately $200 million, including transaction costs. Upon our acquisition of Encysive, Encysive's change of control repurchase obligations under its $130 million, 2.5% convertible notes came into effect and as such, Encysive repurchased the convertible notes in consideration for their par value plus accrued interest in June 2008. In addition, in the second quarter of 2008, we acquired Serenex, Inc. (Serenex), a privately held biotechnology company with SNX-5422, an oral Heat Shock Protein
90 (Hsp90) inhibitor currently in Phase I trials for the potential treatment of solid tumors and hematological malignancies, and an extensive Hsp90 inhibitor compound library, which has potential uses in treating cancer and inflammatory and neurodegenerative diseases. In connection with these acquisitions, in the first nine months of 2008, we recorded approximately $170 million in Acquisition-related in-process research and development charges and approximately $450 million in intangible assets.

• In the second quarter of 2008, we entered into an agreement with a subsidiary of Celldex Therapeutics Inc. (Celldex) for an exclusive worldwide license to CDX-110, an experimental therapeutic vaccine in Phase II development for the treatment of glioblastoma multiforme, and exclusive rights to the use of EGFRvIII vaccines in other potential indications. Under the license and development agreement, an up-front payment of approximately $40 million in Research and development expenses and an equity investment of approximately $10 million were recorded in the second quarter of 2008. Additional payments exceeding $390 million could potentially be made to Celldex based on the successful development and commercialization of CDX-110 and additional EGFRvIII vaccine products.

• In the first quarter of 2008, we acquired CovX, a privately held biotherapeutics company specializing in preclinical oncology and metabolic research and the developer of a biotherapeutics technology platform that we expect will enhance our biologic portfolio. Also in the first quarter of 2008, we acquired all the outstanding shares of Coley Pharmaceutical Group, Inc.
(Coley), a biopharmaceutical company specializing in vaccines and drug candidates designed to fight cancers, allergy and asthma disorders, and autoimmune diseases, for approximately $230 million. In connection with these and two smaller acquisitions related to Animal Health, we recorded $398 million in Acquisition-related in-process research and development charges.

• In the second quarter of 2007, we entered into a collaboration agreement with BMS to further develop and commercialize apixaban, an oral anticoagulant compound discovered by BMS. We made an up-front payment to BMS of $250 million and additional payments to BMS related to product development efforts, which are included in Research and development expenses for the nine months ended September 30, 2007. We may also make additional payments of up to $750 million to BMS based on development and regulatory milestones. In a separate agreement, we are also collaborating with BMS on the research, development and commercialization of a Pfizer discovery program, which includes preclinical compounds with potential applications for the treatment of metabolic disorders, including diabetes. We exited research efforts in the area of obesity during the third quarter of 2008.

• In the second quarter of 2007, we agreed with OSI Pharmaceuticals, Inc. (OSI) to terminate a 2002 collaboration agreement to co-promote Macugen, for the treatment of age-related macular degeneration, in the U.S. We also agreed to amend and restate a 2002 license agreement for Macugen, and to return to OSI all rights to develop and commercialize Macugen in the U.S. In return, OSI granted us an exclusive right to develop and commercialize Macugen in the rest of the world.

• In the first quarter of 2007, we acquired BioRexis Pharmaceutical Corp. (BioRexis), a privately held biopharmaceutical company with a novel technology platform for developing new protein drug candidates, and Embrex, Inc. (Embrex), an animal health company that possesses a unique vaccine delivery system known as Inovoject that improves consistency and reliability by inoculating chicks while they are still inside the egg. In connection with these and other small acquisitions, we recorded $283 million in Acquisition-related in-process research and development charges.

The following transactions were not completed as of the end of the third quarter of 2008, and are not reflected in our consolidated financial statements as of September 28, 2008:

• In October 2008, we received a one-time cash payment of $425 million, pre-tax, in exchange for the termination of a license agreement, including the right to receive future royalties. These proceeds will be included in Other (income)/deductions - net in the fourth quarter of 2008.

• In the fourth quarter of 2008, we concluded the acquisition of a number of animal health product lines from Schering-Plough Corporation for sale in the European Economic Area in the following categories: swine e.coli vaccines; equine influenza and tetanus vaccines; ruminant neonatal and clostridia vaccines; rabies vaccines; companion animal veterinary specialty products; and parasiticides and anti-inflammatories. The cost of acquiring these product lines was approximately $170 million.

• In September 2008, we announced an agreement with Medivation, Inc. (Medivation) to develop and commercialize Dimebon, Medivation's investigational drug for treatment of Alzheimer's disease and Huntington's disease. Following the expiration of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act, the agreement went into effect in October 2008. Dimebon currently is being evaluated in a Phase III trial in patients with mild-to-moderate Alzheimer's disease. Under the collaboration agreement with Medivation, we made an up-front payment of $225 million in October 2008, which will be included in Research and development expenses in the fourth quarter of 2008. We may also make additional payments of up to $500 million based upon development and regulatory milestones, as well as additional milestone payments based upon the successful commercialization of the product.

Our Cost-Reduction Initiatives

We have made significant progress with our multi-year productivity initiatives, which are designed to increase efficiency and streamline decision-making across the company.

We are generating net cost reductions through site rationalization in research and development (R&D) and manufacturing, reductions in our global sales force, streamlined organizational structures, staff function reductions, increased outsourcing and procurement savings and prioritizing our R&D portfolio. Projects in various stages of completion include:

• Reorganization of our Field Force - Since 2004, we have reduced our global field force by 13%. Additional savings are being generated from de-layering, eliminating duplicative work and strategically realigning various functions.

• Strategic Outsourcing - We are undergoing a reorganization within our information technology infrastructure and are also consolidating a number of third-party service providers, thereby reducing labor costs. We expect to generate considerable annual savings and provide consistent global service levels related to information technology.

• Supply Network Transformation - We are transforming our global manufacturing . . .