2008
• We recognized restructuring and other special charges of $88.9 million (pretax), primarily associated with previously-announced strategic exit activities related to manufacturing operations, which decreased earnings per share by $.05 in the second quarter.

• We recognized asset impairments associated with certain manufacturing operations (included in cost of sales) of $57.1 million (pretax), which decreased earnings per share by $.04 in the second quarter.

• We incurred in-process research and development (IPR&D) charges associated with the licensing arrangement with TransPharma Medical Ltd. of $35.0 million (pretax), which decreased earnings per share by $.02 in the second quarter.

• We recognized a discrete income tax benefit of $210.3 million as a result of the resolution of a substantial portion of the IRS audit of our federal income tax returns for years 2001 through 2004, which increased earnings per share by $.19 in the first quarter.

• We recognized asset impairments, restructuring, and other special charges of $145.7 million (pretax), primarily associated with certain impairment, termination, and wind-down costs resulting from the termination of the AIR Insulin program, which decreased earnings per share by $.09 in the first quarter.

• We incurred IPR&D charges associated with the licensing arrangement with BioMS Medical Corp. of $87.0 million (pretax), which decreased earnings per share by $.05 in the first quarter.

II. Late-Stage Pipeline Developments Second Quarter
• The U.S. Food and Drug Administration (FDA) approved Effient (prasugrel) tablets for the reduction of thrombotic cardiovascular events (including stent thrombosis) in patients with acute coronary syndromes (ACS) who are managed with an artery-opening procedure known as percutaneous coronary intervention (PCI). We and our partner, Daiichi Sankyo, Inc., plan to launch Effient in the U.S. by early August.

• The FDA approved Alimta as a maintenance therapy for locally advanced or metastatic non-small cell lung cancer (NSCLC), specifically for patients with a nonsquamous histology whose disease has not progressed after four cycles of platinum-based first-line chemotherapy.

• The European Commission granted approval for the use of Alimta as monotherapy for maintenance treatment of patients with other than predominantly squamous cell histology in locally-advanced or metastatic NSCLC, whose disease has not progressed immediately following platinum-based chemotherapy.

• Alimta received regulatory approval in Japan as both a first- and second-line treatment of NSCLC.

• We and our partners Amylin Pharmaceuticals, Inc., and Alkermes, Inc. submitted a New Drug Application (NDA) to the FDA for exenatide once weekly. Exenatide once weekly is an investigational sustained release medication for type 2 diabetes that is injected subcutaneously and administered only once a week.

• We resubmitted our supplemental New Drug Application (sNDA) for Cymbalta for the management of chronic pain to the FDA.

• We began enrolling patients in two separate but identical Phase III clinical trials of solanezumab, an anti-amyloid beta monoclonal antibody being investigated as a potential treatment to delay the progression of mild to moderate Alzheimer's disease. The trials each include a treatment period that lasts 18 months and are expected to enroll a total of 2,000 patients age 55 and over from 16 countries.

• We and our partner BioMS Medical Corp. discontinued Phase III clinical trials for dirucotide in patients with secondary progressive multiple sclerosis. Data showed that dirucotide did not meet the primary endpoint of delaying disease progression and there were no statistically significant differences between dirucotide and placebo on the secondary endpoints of the study.

First Quarter
• The European Commission granted marketing authorization for Efient (prasugrel) for the prevention of atherothrombotic events in patients with ACS undergoing PCI.

• The FDA approved two new combination indications for Zyprexa (olanzapine) and fluoxetine for the acute treatment of bipolar depression and TRD in adults.

• We received a complete response letter from the FDA for the first-line squamous cell carcinoma of the head and neck (SCCHN) supplemental Biologics License Application (sBLA) for Erbitux.

• We submitted a reply to the FDA regarding the agency's complete response letter for Zyprexa long-acting injection. We also launched this product under the tradename ZypadheraTM in several countries within the European Union.

III. Legal, Regulatory, and Other Matters In January 2009, we reached resolution with the Office of the U.S. Attorney for the Eastern District of Pennsylvania (EDPA), and the State Medicaid Fraud Control Units of 36 states and the District of Columbia, of an investigation related to our U.S. marketing and promotional practices with respect to Zyprexa. We recorded a charge of $1.42 billion for this matter in the third quarter of 2008. In 2009, we paid substantially all of this amount, as required by the settlement agreements. In addition, in October 2008, we reached a settlement with 32 states and the District of Columbia related to a multistate investigation brought under various state consumer protection laws, under which we paid $62.0 million. However, we have been served with lawsuits brought by Alaska, Arkansas, Connecticut, Idaho, Louisiana, Minnesota, Mississippi, Montana, New Mexico, Pennsylvania, South Carolina, Utah, and West Virginia, alleging that Zyprexa caused or contributed to diabetes or high blood-glucose levels, and that we improperly promoted the drug and seeking to recover the costs paid for Zyprexa through Medicaid and other drug-benefit programs, as well as the costs alleged to have been incurred and that will be incurred to treat Zyprexa-related illnesses. The Alaska case was settled in March 2008 for a payment of $15.0 million, plus terms designed to ensure, subject to certain limitations and conditions, that Alaska is treated as favorably as certain other states that may settle with us in the future over similar claims. We are in advanced discussions with the attorneys general for several states that were not part of the EDPA settlement, seeking to resolve their Zyprexa-related claims, and we have reached settlement with the state of West Virginia. In the second quarter of 2009, we incurred a pretax charge of $105.0 million, representing the currently probable and estimable exposures in connection with the states' claims. Discussions are ongoing, and it is possible that additional charges may occur in the future. The cases in Connecticut and South Carolina have been set for trial in 2009; the trial in Pennsylvania is scheduled for 2010. In the third quarter of 2008, we initiated a strategic review of our Tippecanoe manufacturing facility in Lafayette, Indiana. Options being considered for this site include continuing operations with a revised site mission, exploring opportunities to sell the facility, and ceasing operations altogether. The review is expected to last up to 12 months. No final decisions have been made at this time; however, depending on the decision, we could record significant charges.
In the United States, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) continues to provide an effective prescription drug benefit under the Medicare program (known as Medicare Part D). Uncertainty exists surrounding the new administration and Congress and the impact any government decisions or programs will have on the pharmaceutical industry. Various measures have been discussed and/or passed in both the U.S. House of Representatives and U.S. Senate that would impose additional pricing pressures on our products, including proposals that would increase the rebates we pay on sales to Medicaid patients or impose additional rebates on, or otherwise subsidize, sales to patients who receive their medicines through Medicare Part D or other government programs. Further, proposals to expand coverage to the uninsured could include some form of price rebates or tax on the pharmaceutical industry. Additionally, various proposals have been introduced to legalize the importation of prescription drugs and either allow, or require, the Secretary of Health and Human Services to negotiate drug prices within Medicare Part D directly with pharmaceutical manufacturers. In addition, many U.S. states are facing substantial budget difficulties due to the downturn in the economy and are expected to seek aggressive cuts or other offsets in

healthcare spending. We expect pricing pressures at the federal and state levels to become more severe, which could have a material adverse effect on our consolidated results of operations.
In its budget submission to Congress in May 2009, the new administration proposed changes to the manner in which the U.S. would tax the international income of U.S.-based companies. While it is uncertain how the U.S. Congress may address this issue, reform of U.S. taxation, including international income, continues to be a topic of discussion for the U.S. Congress. A significant change to the U.S. tax system, including changes to the taxation of international income, could have a material adverse effect on our consolidated results of operations.
In addition, the federal government is considering creating a regulatory pathway for biosimilars (copies of biological compounds) for the majority of biologic products in the U.S.; the proposals vary as to which biologic products would be eligible, how quickly a biosimilar might reach the market, and the ability to interchange the biosimilar and the original biologic product at the pharmacy. International operations also are generally subject to extensive price and market regulations, and there are many proposals for additional cost-containment measures, including proposals that would directly or indirectly impose additional price controls, limit access to or reimbursement for our products, or reduce the value of our intellectual property protection. Revenue
Revenue for the second-quarter and the first six months of 2009 increased 3 percent and 4 percent to $5.29 billion and $10.34 billion, respectively, and was driven primarily by the increase in net product sales related to the collective growth of Alimta, Cymbalta, and Humalog, and the increase in collaboration and other revenue due to the inclusion of Erbitux revenue as a result of the ImClone acquisition. Revenue in the U.S. increased by $334.4 million, or 12 percent, and $659.7 million, or 13 percent, for the second quarter and first six months of 2009, respectively, compared with the same periods of 2008. Revenue outside the U.S. decreased $191.9 million, or 8 percent, and $277.8 million, or 6 percent, for the second quarter and first six months of 2009, respectively. For the second quarter, worldwide sales volume increased 6 percent, while selling prices contributed 3 percent of revenue growth, partially offset by the unfavorable impact of foreign exchange rates of 7 percent (numbers do not add due to rounding). For the first six months of 2009, worldwide sales volume increased 6 percent, while selling prices contributed 3 percent of revenue growth, partially offset by the unfavorable impact of foreign exchange rates of 6 percent (numbers do not add due to rounding).

The following tables summarize our revenue activity for the three- and six-month periods ended June 30, 2009 and 2008:

                                                                                                Three Months
                                                      Three Months Ended                           Ended
                                                         June 30, 2009                            June 30,           Percent
                                                            Outside                                 2008              Change
Product                                   U.S.1              U.S.              Total3              Total            from 2008

                                                                        (Dollars in millions)
Zyprexa                                $   582.2          $   621.0          $ 1,203.2          $   1,239.7               (3 )
Cymbalta                                   621.3              123.2              744.4                654.4               14
Humalog                                    292.0              185.6              477.5                437.9                9
Alimta                                     198.5              186.8              385.3                275.0               40
Cialis                                     149.3              214.3              363.6                362.2                -
Gemzar                                     195.6              157.6              353.2                440.1              (20 )
Animal health products                     154.2              121.2              275.4                254.5                8
Evista                                     168.1               83.2              251.3                279.8              (10 )
Humulin                                     95.1              153.0              248.1                271.4               (9 )
Forteo                                     132.1               71.2              203.3                206.6               (2 )
Strattera                                  105.7               37.1              142.8                135.2                6
Other pharmaceutical products              173.1              291.9              465.2                477.0               (2 )

Total net product sales                  2,867.2            2,246.1            5,113.3              5,033.8                2
Collaboration and other revenue2           147.8               31.7              179.5                116.6               54

Total revenue                          $ 3,015.0          $ 2,277.8          $ 5,292.8          $   5,150.4                3

                                                                                                 Six Months
                                                        Six Months Ended                            Ended
                                                         June 30, 2009                            June 30,           Percent
                                                            Outside                                 2008              Change
Product                                   U.S.1              U.S.               Total3              Total           from 2008

                                                                         (Dollars in millions)
Zyprexa                                $ 1,117.6          $ 1,208.6          $  2,326.2         $   2,360.0               (1 )
Cymbalta                                 1,218.4              235.4             1,453.7             1,259.5               15
Humalog                                    578.2              349.9               928.0               845.3               10
Cialis                                     298.5              423.9               722.4               699.1                3
Gemzar                                     365.0              356.0               721.0               866.3              (17 )
Alimta                                     371.4              349.2               720.6               522.1               38
Animal health products                     307.8              231.7               539.5               489.9               10
Evista                                     331.9              176.3               508.2               540.9               (6 )
Humulin                                    194.2              294.5               488.7               529.1               (8 )
Forteo                                     253.8              136.9               390.7               391.5                -
Strattera                                  221.3               80.4               301.7               283.2                7
Other pharmaceutical products              345.9              558.3               904.4               956.3               (5 )

Total net product sales                  5,604.0            4,401.1            10,005.1             9,743.2                3
Collaboration and other revenue2           282.9               51.8               334.7               214.8               56

Total revenue                          $ 5,886.9          $ 4,452.9          $ 10,339.8         $   9,958.0                4

1 U.S. revenue includes revenue in Puerto Rico.

2 Collaboration and other revenue is primarily comprised of Erbitux royalties and 50 percent of Byetta's gross margin in the U.S.

3 Numbers may not add due to rounding.

Product Highlights
Zyprexa, our top-selling product, is a treatment for schizophrenia, acute mixed or manic episodes associated with bipolar I disorder, and bipolar maintenance. In the second quarter and first six months of 2009, Zyprexa sales in the U.S. increased 3 percent and 5 percent, respectively, compared with the same periods of 2008, due primarily to higher net effective selling prices. Sales outside the U.S. decreased 8 percent and 7 percent for the second quarter and first six months of 2009, respectively, driven primarily by the unfavorable impact of foreign exchange rates, partially offset by increased demand. Demand outside the U.S. was favorably impacted by the withdrawal of generic competition in Germany. U.S. sales of Cymbalta, a product for the treatment of major depressive disorder, diabetic peripheral neuropathic pain, generalized anxiety disorder, and fibromyalgia, increased 14 percent and 16 percent during the second quarter and first six months of 2009, respectively, driven primarily by higher net effective selling prices and increased demand. Sales outside the U.S. increased 10 percent and 15 percent during the second quarter and first six months of 2009, respectively, compared to the same periods in 2008, driven primarily by increased demand, partially offset by the unfavorable impact of foreign exchange rates.
U.S. sales of Humalog, our injectable human insulin analog for the treatment of diabetes, increased 17 percent and 18 percent for the second quarter and first six months of 2009,

respectively, driven primarily by higher net effect selling prices. Sales outside the U.S. decreased 2 percent for both periods, driven by the unfavorable impact of foreign exchange rates, partially offset by increased demand. U.S. sales of Cialis, a treatment for erectile dysfunction, increased 16 percent and 19 percent during the second quarter and first six months of 2009, respectively, driven by higher net effective selling prices and, to a lesser extent, increased demand. Sales outside the U.S. decreased 8 percent and 5 percent during the second quarter and first six months of 2009, respectively, driven primarily by the unfavorable impact of foreign exchange rates, partially offset by higher prices in both periods and increased demand for the first six months of 2009.
U.S. sales of Gemzar, a product approved to fight various cancers, increased 7 percent and 2 percent during the second quarter and first six months of 2009, respectively, with second quarter increases due primarily to higher net effective selling prices and the favorable impact of wholesaler buying patterns. The increase during the first six months of 2009 was due to small increases in both net effective selling prices and demand. Sales outside the U.S. decreased 39 percent and 30 percent during the second quarter and first six months of 2009, respectively, due to reduced demand and lower prices as a result of the entry of generic competition in most major markets, as well as the unfavorable impact of foreign exchange rates.
U.S. sales of Alimta, a treatment for various cancers, increased 53 percent and 48 percent during the second quarter and first six months of 2009, respectively, due to increased demand and, to a lesser extent, increased prices. Alimta sales outside the U.S. increased 28 percent and 29 percent for the same periods, due to increased demand, partially offset by the unfavorable impact of foreign exchange rates.
U.S. sales of Evista, a product for the prevention and treatment of osteoporosis in postmenopausal women and for risk reduction of invasive breast cancer in postmenopausal women with osteoporosis and postmenopausal women at high risk for invasive breast cancer, decreased 6 percent and 5 percent during the second quarter and first six months of 2009, respectively, as a result of decreased demand, partially offset by higher net effective selling prices. Evista sales outside the U.S. decreased 18 percent and 8 percent for the same periods, driven by the outlicensing of Evista in most European markets and by the unfavorable impact of foreign exchange rates.
U.S. sales of Humulin, an injectable human insulin for the treatment of diabetes, increased by 4 percent and 5 percent, for the second quarter and first six months of 2009, respectively, due primarily to higher net effective selling prices, partially offset by lower demand. Humulin sales outside the U.S. decreased 15 percent and 14 percent during the second quarter and first six months of 2009, respectively, due primarily to the unfavorable impact of foreign exchange rates.
U.S. sales of Forteo, an injectable treatment for osteoporosis in postmenopausal women and men at high risk for fracture, increased 2 percent during the second quarter and first six months of 2009, due primarily to higher net effective selling prices, partially offset by the impact of wholesaler buying patterns and lower demand. Forteo sales outside the U.S. decreased 8 percent and 5 percent during the second quarter and first six months of 2009, respectively, due to unfavorable impact of foreign exchange rates, partially offset by higher demand. U.S. sales of Strattera, a treatment of attention-deficit hyperactivity disorder in children, adolescents, and adults, increased 4 percent and 2 percent during the second quarter and first six months of 2009, respectively, due to higher net effective selling prices, partially offset by lower demand. Strattera sales outside the U.S. increased 10 percent and 21 percent during the second quarter and first six months of 2009, respectively, due to higher prices and increased demand, partially offset by the unfavorable impact of foreign exchange rates. Animal health product sales in the U.S. increased 32 percent and 37 percent during the second quarter and first six months of 2009, respectively, primarily due to the inclusion of Posilac sales from the acquisition of the product in October 2008.

Sales outside the U.S decreased 12 percent and 13 percent, respectively, compared to the same periods in 2008, driven primarily by the unfavorable impact of foreign exchange rates.
We market Byetta, an injectable product for the treatment of type 2 diabetes, with Amylin. For the second quarter and first six months of 2009, we recognized revenue for Byetta comprised of collaboration revenue related to our 50 percent share of Byetta's gross margin in the U.S., and product sales related to sales outside the U.S. and our sales of Byetta pen delivery devices to Amylin as follows:

                                           Three Months Ended            Six Months Ended
                                                June 30,                     June 30,
                                          2009           2008            2009        2008

                                                        (Dollars in millions)
    Net product sales                  $   34.7       $    22.7        $  62.1     $  39.1
    Collaboration and other revenue        79.9            78.5          150.2       144.8

    Total revenue                      $  114.6       $   101.2        $ 212.3     $ 183.9

Worldwide sales of Byetta increased 6 percent to $205.7 million and $387.2 million during the second quarter and first six months of 2009, driven by growth in international markets. U.S. sales of Byetta declined 1 percent during the second quarter and first six months of 2009, respectively to $175.1 million and $332.8 million. Sales outside the U.S. during the second quarter and first six months of 2009, respectively, were $30.6 million and $54.4 million. For the second quarter and first six months of 2009, we recognized revenue for Erbitux, a product approved to fight cancers, comprised of collaboration revenue related to the net royalties received from our collaboration partners, and product sales related to revenue from manufactured product as follows:

                                         Three Months Ended     Six Months Ended
                                              June 30,              June 30,
                                                2009                  2009

                                                  (Dollars in millions)
      Net product sales                   $         23.9         $         50.0
      Collaboration and other revenue               75.8                  143.9

      Total revenue                       $         99.7         $        193.9

Gross Margin, Costs, and Expenses
For the second quarter of 2009, gross margins as a percent of total revenue increased by 5.4 percentage points, to 82.1 percent. For the first six months of 2009, gross margins as a percentage of total revenue increased by 6.1 percentage points, to 82.9 percent. These increases were due to the impact of the decline in foreign currencies compared to the U.S. dollar on international inventories sold during the quarter, resulting in a benefit to cost of sales as compared to the same periods of 2008, and the inclusion in cost of sales of $57.1 million in expenses in the second quarter 2008 related to asset impairments at certain manufacturing facilities.
Operating expenses (the aggregate of research and development, marketing, selling and administrative expenses) increased 4 percent and 3 percent for the second quarter and first six months of 2009 compared with the second quarter and first six months of 2008, respectively. Marketing, selling, and administrative . . .