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 26, provides information about the following: our business; our performance during the second quarter and first six months of 2009; our operating environment; our strategic initiatives; and our cost-reduction initiatives.

· Revenues. This section, beginning on page 31, provides an analysis of our products and revenues for the three-and six-month periods ended June 28, 2009 and June 29, 2008, as well as an overview of important product developments.

· Costs and Expenses. This section, beginning on page 40, provides a discussion about our costs and expenses.

· Provision for Taxes on Income. This section, beginning on page 42, provides a discussion of items impacting our tax provision for the periods presented.

· Adjusted Income. This section, beginning on page 43, provides a discussion of an alternative view of performance used by management.

· Financial Condition, Liquidity and Capital Resources. This section, beginning on page 47, provides an analysis of our balance sheets as of June 28, 2009 and December 31, 2008 and cash flows for the first six months of 2009 and 2008, as well as a discussion of our outstanding debt and commitments that existed as of June 28, 2009, and December 31, 2008. 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, on page 51, provides a discussion of our expectations for full-year 2009.

· Forward-Looking Information and Factors That May Affect Future Results. This section, beginning on page 52, 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.

                                       Three Months Ended                            Six Months Ended
(MILLIONS OF DOLLARS,
EXCEPT PER COMMON SHARE        June 28,      June 29,             %         June, 28,      June 29,             %
DATA)                              2009          2008        Change              2009          2008        Change
Revenues                      $  10,984     $  12,129            (9 ) %   $    21,851     $  23,977            (9 ) %

Cost of sales                     1,756         2,289           (23 )           3,164         4,275           (26 )
% of revenues                      16.0 %        18.9 %                          14.5 %        17.8 %

Selling, informational and
administrative expenses           3,350         3,863           (13 )           6,226         7,355           (15 )
% of revenues                      30.5 %        31.8 %                          28.5 %        30.7 %

Research and development
expenses                          1,695         1,966           (14 )           3,400         3,757            (9 )
% of revenues                      15.4 %        16.2 %                          15.6 %        15.7 %

Amortization of intangible
assets                              583           663           (12 )           1,161         1,442           (19 )
% of revenues                       5.3 %         5.5 %                           5.3 %         6.0 %

Acquisition-related
in-process research and
development charges                  20           156           (87 )              20           554           (96 )
% of revenues                       0.2 %         1.3 %                           0.1 %         2.3 %

Restructuring charges and
acquisition-related costs           459           569           (19 )           1,013           747            36
% of revenues                       4.2 %         4.7 %                           4.6 %         3.1 %

Other
(income)/deductions - net            72          (167 )           *                15          (500 )           *

Income from continuing
operations before provision
for taxes on income               3,049         2,790             9             6,852         6,347             8
% of revenues                      27.8 %        23.0 %                          31.4 %        26.5 %

Provision for taxes on
income                              786            25             *             1,860           788           136

Effective tax rate                 25.8 %         0.9 %                          27.1 %        12.4 %

Income from continuing
operations                        2,263         2,765           (18 )           4,992         5,559           (10 )
% of revenues                      20.6 %        22.8 %                          22.8 %        23.2 %

Discontinued
operations - net of tax               3            17           (85 )               4            13           (71 )

Net income before
allocation to
noncontrolling interests          2,266         2,782           (19 )           4,996         5,572           (10 )
% of revenues                      20.6 %        22.9 %                          22.9 %        23.2 %

Less: Net income
attributable to
noncontrolling interests              5             6           (28 )               6            12           (51 )
Net income attributable to
Pfizer Inc.                   $   2,261     $   2,776           (19 )     $     4,990     $   5,560           (10 )

% of revenues                      20.6 %        22.9 %                          22.8 %        23.2 %

Earnings per common share -
basic:
Income from continuing
operations attributable to
Pfizer Inc. common
shareholders                  $    0.34     $    0.41           (17 )     $      0.74     $    0.82           (10 )
Discontinued
operations - net of tax               -             -             -                 -          0.01          (100 )
Net income attributable to
Pfizer Inc. common
shareholders                  $    0.34     $    0.41           (17 )     $      0.74     $    0.83           (11 )

Earnings per common share -
diluted:
Income from continuing
operations attributable to
Pfizer Inc. common
shareholders                  $    0.34     $    0.41           (17 )     $      0.74     $    0.82           (10 )
Discontinued
operations - net of tax               -             -             -                 -             -             -
Net income attributable to
Pfizer Inc. common
shareholders                  $    0.34     $    0.41           (17 )     $      0.74     $    0.82           (10 )

Cash dividends paid per
common share                  $    0.16     $    0.32                     $      0.48     $    0.64

* Calculation not meaningful.

Certain amounts and percentages may reflect rounding adjustments.

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.

On January 26, 2009, we announced that we entered into a definitive merger agreement under which we will acquire Wyeth in a cash-and-stock transaction valued on that date at $50.19 per share, or a total of $68 billion. While we have taken actions and incurred costs associated with the pending transaction that are reflected in our financial statements, the acquisition of Wyeth will not be reflected in our financial statements until consummation. (See also the "Our Strategic Initiatives - Strategy and Recent Transactions" and "Costs and Expenses - Acquisition-Related Costs" sections of this MD&A.)

Our 2009 Performance

Revenues decreased 9% for both the second quarter and for the first six months
of 2009, compared to the same periods in 2008. The significant human
pharmaceutical product, alliance revenue and Animal Health impacts on revenues
for the second quarter and first six months of 2009, compared to the same
periods in 2008, are as follows:

                                             Three Months Ended                           Six Months Ended
                                     June 28, 2009 vs.                            June 28, 2009 vs.
                                         June 29, 2008                                June 29, 2008
                                             Increase/                  %                 Increase/                 %
(millions of dollars)                       (decrease)             Change                (decrease)            Change
Lipitor(a)                         $              (291 )              (10 ) %   $              (707 )             (12 ) %
Norvasc(b)                                        (109 )              (17 )                    (141 )             (12 )
Camptosar(b)                                       (52 )              (38 )                    (135 )             (41 )
Zyrtec/Zyrtec D(b)                                  (8 )             (100 )                    (125 )            (100 )
Chantix/Champix(c)                                 (15 )               (7 )                    (115 )             (24 )
Celebrex                                           (41 )               (7 )                     (88 )              (7 )
Viagra                                             (40 )               (9 )                     (46 )              (5 )
Xalatan/Xalacom                                    (41 )               (9 )                     (39 )              (5 )
Revatio                                             21                 30                        62                42
Lyrica                                              15                  2                       116                10
Alliance revenues                                   35                  6                       129                12
Animal Health                                      (67 )               (9 )                    (149 )             (11 )

(a) Lipitor was unfavorably impacted primarily by foreign exchange, as well as competitive pressures and other factors.
(b) 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. Norvasc lost exclusivity in Japan in July 2008.

(c) Chantix/Champix has been negatively impacted by the changes to its label in 2008. Additional label changes were made in July 2009 (see "Revenues - Pharmaceutical - Selected Product Descriptions" section of this MD&A).

Foreign exchange unfavorably impacted revenues by approximately $1.1 billion, or 9%, in the second quarter of 2009 and approximately $1.7 billion, or 7%, during the first six months of 2009, compared to the same periods in 2008.

In the U.S., revenues decreased 5% in the second quarter of 2009 and 7% in the first six months of 2009, compared to the same periods in 2008, while international revenues decreased 12% in the second quarter of 2009 and 10% in the first six months of 2009, compared to the same periods in 2008.

The impact of rebates in the second quarter of 2009 decreased revenues by approximately $920 million, compared to approximately $759 million in the prior-year second quarter. The impact of rebates in the first six months of 2009 decreased revenues by approximately $1.9 billion, compared to approximately $1.7 billion for the first six months of 2008. The increase in rebates in each of the periods was due primarily to the impact of our contracting strategies with both government and non-government entities in the U.S.

Income from continuing operations for the second quarter of 2009 was $2.3 billion, compared to $2.8 billion in the second quarter of 2008, and $5.0 billion in the first six months of 2009, compared to $5.6 billion in the first six months of 2008.

The decreases were primarily due to:

· the unfavorable impact of foreign exchange;

· the increase in the effective tax rate attributable mainly to increased tax costs associated with certain business decisions executed to finance the pending acquisition of Wyeth;

· the decrease in Other (income)/deductions - net attributable mainly to lower interest income and to higher interest expense; and

· costs incurred in connection with the pending Wyeth acquisition;

partially offset by:

· savings related to our cost-reduction initiatives;

· lower costs associated with implementing our-cost reduction initiatives; and

· lower acquisition-related in-process research and development charges of $20 million in the second quarter and first six months of 2009 compared to $156 million in the second quarter of 2008 and $554 million in the first six months of 2008.

We have made significant progress with our cost-reduction initiatives, launched in early 2005, which are broad-based, company-wide efforts to improve performance and efficiency (see further discussion in the "Our Cost-Reduction Initiatives" section of this MD&A).

During the first six months of 2009 and 2008, we expensed Acquisition-related in-process research and development charges (IPR&D) of $20 million related to a 2008 acquisition (see further discussion in the "Our Strategic Initiatives - Strategy and Recent Transactions: Acquisitions, Licensing and Collaborations" section of this MD&A). As a result of adopting Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards (SFAS) No. 141R, Business Combinations, as amended, beginning January 1, 2009, IPR&D related to future acquisitions will be recorded on our consolidated balance sheet as indefinite-lived intangible assets. No acquisitions were consummated in the first half of 2009.

Our Operating Environment

General Economic Conditions
While the global recession has affected our business, the impact so far has been consistent with the expectations reflected in our financial guidance for 2009 (see the "Outlook" section of this MD&A). The impact on our human pharmaceutical business has been largely in the U.S. market, affecting products such as Lipitor, Lyrica, Celebrex, Xalatan and Geodon. Health insurers and benefit plans continue to impose formulary restrictions in favor of generics. We believe that patients, experiencing the effects of the weak economy and facing increases in co-pays, are sometimes switching to generics, delaying treatments or skipping doses to reduce their costs. And the recession has increased the number of patients in the Medicaid program, under which sales of pharmaceuticals are subject to substantial rebates and, in many states, to formulary restrictions limiting access to brand-name drugs. Our Animal Health business also has been impacted by the recession, which has adversely affected global spending on veterinary care.

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 by both Standard & Poor's and Moody's Investors Service. As market conditions change, we continue to monitor our liquidity position. 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, 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 (see further discussion in the "Financial Condition, Liquidity and Capital Resources" section of this MD&A).

Industry-Specific Challenges
In addition to general economic conditions, we and other pharmaceutical companies continue to face significant industry-specific 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, 2008. 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 operate our Pharmaceutical and other businesses. Effective January 1, 2009, we changed our operating model within the Pharmaceutical segment, which is now comprised of five customer-focused units-Primary Care, Specialty Care, Oncology, Established Products and Emerging Markets-with clear, single points of accountability to enable the segment to more effectively anticipate and respond to the diverse needs of physicians, customers and patients. As in the past, the Pharmaceutical segment continues to be managed inclusive of our research and manufacturing organizations and supported by administrative functions.

We will continue to aggressively defend our patent rights against increasing incidents of infringement whenever appropriate. For more detailed information about our significant products, see discussion in the "Revenues - Pharmaceutical
- Selected Product Descriptions" section of this MD&A. Also, 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.

U.S. Policy Issues
Healthcare reform in the U.S., if enacted, could have a significant impact on our business. Although we cannot predict the outcome of pending and possible future U.S. healthcare reform initiatives, we remain committed and actively engaged in discussions to reform healthcare in a way that expands coverage for those currently uninsured, does not erode coverage for those currently insured, improves quality, rewards innovation and provides value for patients. During the second quarter of 2009, the Pharmaceutical Research and Manufacturers of America (PhRMA), of which we are a member, announced an $80 billion commitment over the next decade to support healthcare reform in the U.S. Among other things, that commitment includes reducing the cost of medicines for seniors and disabled Americans who are affected by the coverage gap in the Medicare prescription drug program. The PhRMA commitment is intended to be part of any federal healthcare reform legislation in the U.S.

Comprehensive tax reform in the U.S., if enacted, also could have a significant impact on our business. Although we cannot predict the outcome of pending and possible future U.S. tax reform proposals, we remain engaged in discussions with policymakers. Specifically, if legislation were enacted that ends the deferral of U.S. taxation of income earned overseas by U.S. companies, it may adversely impact our ability to compete against other companies in our industry, many of which are not based in the U.S.

These and other factors that may affect our businesses should be considered along with 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 more significant business-development transactions during the first six months of 2009 and 2008 are described below:

· In the first quarter of 2009, we entered into a five-year agreement with Bausch & Lomb to co-promote prescription pharmaceuticals in the U.S. for the treatment of ophthalmic conditions. The agreement covers prescription ophthalmic pharmaceuticals, including our Xalatan product and Bausch & Lomb's Alrex®, Lotemax® and Zylet® products, as well as Bausch & Lomb's investigational anti-infective eye drop, besifloxacin ophthalmic suspension, 0.6%, which is currently under review by the U.S. Food and Drug Administration (FDA).

· In the second quarter of 2008, we acquired Encysive Pharmaceuticals Inc. (Encysive), a biopharmaceutical company whose main asset is Thelin, which is used for the treatment of pulmonary arterial hypertension. 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 outstanding $130 million 2.5% convertible notes were triggered and, as a result, 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, whose main asset is SNX-5422, an oral Heat Shock Protein 90 (Hsp90) for the potential treatment of solid tumors and hematological malignancies and an extensive Hsp90 inhibitor compound library, which has potential uses in treating cancer, inflammatory and neurodegenerative diseases. In connection with these acquisitions, through second-quarter 2008, we recorded $156 million in Acquisition-related in-process research and development charges and approximately $450 million in intangible assets.

The following transactions were not completed as of the end of the second quarter of 2009, and our consolidated financial statements as of June 28, 2009 do not assume their completion. However, we have incurred costs related to the pending acquisition of Wyeth that are reflected in our financial statements.

· On April 16, 2009, we announced that we entered into an agreement with GlaxoSmithKline plc (GSK) to create a new company focused solely on research, development and commercialization of HIV medicines. We and GSK will contribute certain product and pipeline assets to the new company. The new company will have a broad product portfolio of 11 marketed products, including innovative leading therapies such as GSK's Combivir and Kivexa products and our Selzentry/Celsentri (maraviroc) product. The company will have a pipeline of six innovative and targeted medicines, including four compounds in Phase 2 development. The new company will contract R&D and manufacturing services directly from GSK and us and will also enter into a new research alliance agreement with GSK and us. Under this new alliance, the new company will invest in our and GSK's programs for discovery research and development into HIV medicines. The new company will have exclusive rights of first negotiation in relation to any new HIV-related medicines developed by either GSK or us. We will initially hold a 15% equity interest in the new company, and GSK will hold an 85% equity interest. The equity interests will be adjusted in the event that specified sales and regulatory milestones are achieved. Our equity interest in the new company could vary from 9% to 30.5%, and GSK's equity interest in the new company could vary from 69.5% to 91%, depending upon the milestones achieved with respect to the original pipeline assets contributed by us and by GSK to the new company. Each company may also be entitled to preferential dividend payments to the extent that specific sales thresholds are met in respect of the marketed products and pipeline assets originally contributed. We will account for our share of the new company as an equity method investment. The closing of the transaction and commencement of the new company's business are conditional upon certain matters, including receiving certain regulatory and tax clearances, and no material adverse change occurring in respect of either GSK's or our HIV business prior to closing. We and GSK will conduct consultations with works councils in accordance with applicable employment legislation. The transaction is expected to close in the fourth quarter of 2009.

· On January 26, 2009, we announced that we entered into a definitive merger agreement under which we will acquire Wyeth in a cash-and-stock transaction valued on that date at $50.19 per share, or a total of $68 billion. The Boards of Directors of both Pfizer and Wyeth have approved the transaction. Under the terms of the merger agreement, each outstanding share of Wyeth common stock will be converted into the right to receive $33 in cash and 0.985 of a share of Pfizer common stock, subject to adjustment as set forth in the merger agreement. Each outstanding Wyeth stock option, and each outstanding share of Wyeth restricted stock, deferred stock unit award and restricted stock unit . . .