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, Operating Environment, Strategy and Outlook. This section, beginning on page 43, provides information about the following: our business; our performance during the first quarter of 2012; our operating environment; our strategy; our business development initiatives; and our financial guidance for 2012.

? Analysis of the Condensed Consolidated Statements of Income. This section begins on page 50, and consists of the following sub-sections:

o Revenues. This sub-section, beginning on page 50, provides an analysis of our products and revenues for the first quarter of 2012 and 2011, as well as an overview of research and development expenses and important biopharmaceutical product developments.

o Costs and Expenses. This sub-section, beginning on page 60, provides a discussion about our costs and expenses.

o Provision for Taxes on Income. This sub-section, on page 64, provides a discussion of items impacting our tax provisions.

o Discontinued Operations. This sub-section, beginning on page 64, provides an analysis of the financial statement impact of our discontinued operations.

o Adjusted Income. This sub-section, beginning on page 65, provides a discussion of an alternative view of performance used by management.

? Analysis of the Condensed Consolidated Balance Sheets. This section, on page 69, provides a discussion of changes in certain balance sheet accounts.

? Analysis of the Condensed Consolidated Statements of Cash Flows. This section, beginning on page 69, provides an analysis of our cash flows for the first quarter of 2012 and 2011.

? Analysis of Financial Condition, Liquidity and Capital Resources. This section, beginning on page 70, provides an analysis of our financial assets and liabilities as of April 1, 2012 and December 31, 2011 and a discussion of our outstanding debt and commitments that existed as of April 1, 2012 and December 31, 2011. Included in the discussion of outstanding debt is a discussion of the amount of financial capacity available to help fund Pfizer's future activities.

? New Accounting Standards. This section, beginning on page 73, discusses recently adopted accounting standards.

? Forward-Looking Information and Factors That May Affect Future Results. This section, beginning on page 73, 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 and operating performance, business plans and prospects, in-line products and product candidates, strategic review, capital allocation, and share-repurchase and dividend-rate plans. Such forward-looking statements are based on management's current expectations about future events, which are inherently susceptible to uncertainty and changes in circumstances.

Components of the Condensed Consolidated Statements of Income follow:

                                                              Three Months Ended
(millions of dollars, except per common share        April 1,        April 3,
data)                                                    2012            2011        % Change

Revenues                                          $    15,405     $    16,502              (7 )

Cost of sales                                           2,974           3,693             (19 )
% of revenues                                            19.3 %          22.4 %

Selling, informational and administrative
expenses                                                4,133           4,503              (8 )
% of revenues                                            26.8 %          27.3 %

Research and development expenses                       2,072           2,091              (1 )
% of revenues                                            13.5 %          12.7 %

Amortization of intangible assets                       1,420           1,376               3
% of revenues                                             9.2 %           8.3 %

Restructuring charges and certain
acquisition-related costs                                 596             894             (33 )
% of revenues                                             3.9 %           5.4 %

Other deductions--net                                   1,657             827             100
Income from continuing operations before
provision for taxes on income                           2,553           3,118             (18 )
% of revenues                                            16.6 %          18.9 %

Provision for taxes on income                             750             894             (16 )
Effective tax rate                                       29.4 %          28.7 %

Income from continuing operations                       1,803           2,224             (19 )
% of revenues                                            11.7 %          13.5 %

Discontinued operations--net of tax                        --              10            (100 )
Net income before allocation to noncontrolling
interests                                               1,803           2,234             (19 )
% of revenues                                            11.7 %          13.5 %

Less: Net income attributable to noncontrolling                                               )
interests                                                   9              12             (25
Net income attributable to Pfizer Inc.            $     1,794     $     2,222             (19 )
% of revenues                                            11.6 %          13.5 %

Earnings per common share--basic:
Income from continuing operations attributable
to Pfizer Inc.
common shareholders                               $      0.24     $      0.28             (14 )
Discontinued operations--net of tax                        --              --              --
Net income attributable to Pfizer Inc. common                                                 )
shareholders                                      $      0.24     $      0.28             (14

Earnings per common share--diluted:
Income from continuing operations attributable
to Pfizer Inc.
common shareholders                               $      0.24     $      0.28             (14 )
Discontinued operations--net of tax                        --              --              --
Net income attributable to Pfizer Inc. common                                                 )
shareholders                                      $      0.24     $      0.28             (14

Cash dividends paid per common share              $      0.22     $      0.20              10

* Calculation not meaningful. Certain amounts and percentages may reflect rounding adjustments.

OVERVIEW OF OUR PERFORMANCE, OPERATING ENVIRONMENT, STRATEGY AND OUTLOOK

Our Business

Our mission is to apply science and our global resources to improve health and well-being at every stage of life. We strive to set the standard for quality, safety and value in the discovery, development and manufacturing of medicines for people and animals. Our diversified global healthcare portfolio includes human and animal biologic and small molecule medicines and vaccines, as well as nutritional products and many of the world's best-known consumer products. Every day, we work across developed and emerging markets to advance wellness, prevention, treatments and cures that challenge the most feared diseases of our time. We also collaborate with healthcare providers, governments and local communities to support and expand access to reliable, affordable healthcare around the world. 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 July 7, 2011, we announced our decision to explore strategic alternatives for our Animal Health and Nutrition businesses and noted that they may include, among other things, a full or partial separation of each of these businesses from Pfizer through a spin-off, sale or other transaction. On April 23, 2012, we announced that we have entered into an agreement to sell our Nutrition operating segment to Nestlé for $11.85 billion in cash. The transaction is expected to close by the first half of 2013, assuming the receipt of the required regulatory clearances and satisfaction of the other closing conditions. As a result of our decision to divest this business, the Nutrition business will be presented as a discontinued operation in the consolidated financial statements for all periods presented on a retroactive basis beginning in the second quarter of 2012. Therefore, all revenues and expenses related to the Nutrition business will be presented in a single line, Discontinued operations--net of tax. Additionally, the assets and liabilities associated with this business will be classified as Assets of discontinued operations and other assets held for sale and Liabilities of discontinued operations, as appropriate, in the condensed consolidated balance sheets. We expect to finalize a strategic decision for our Animal Health business in 2012 and to complete any separation of this business by July 2013. (For more information, see the "Our Business Development Initiatives" section of this MD&A).

On August 1, 2011, we completed the sale of our Capsugel business. In connection with our decision to sell, the operating results associated with the Capsugel business are classified as Discontinued operations--net of tax in our condensed consolidated statements of income for the three months ended April 3, 2011. (For more information, see the "Our Business Development Initiatives" and "Discontinued Operations" sections of this MD&A.)

Our First Quarter 2012 Performance

Revenues in the first quarter of 2012 were $15.4 billion, a decrease of 7% compared to the same period in 2011, due to an operational decline of $1.0 billion, or 6%, primarily as the result of the impact of the U.S. loss of exclusivity of Lipitor on November 30, 2011, and the unfavorable impact of foreign exchange of $57 million, or less than 1%.

The significant impacts on revenues for the first quarter of 2012, compared to the same period in 2011, are as follows:

                                                                     Three Months Ended
                                            April 1, 2012 vs.
                                                April 3, 2011
                                                    Worldwide         % Change        % Change            % Change
(millions of dollars)                           Incr./(Decr.)        Worldwide            U.S.       International

Lyrica                                    $               129               16               9                  21
Celebrex                                                   43                7               6                   9
Enbrel (outside the U.S. and Canada)                       29                3              --                   3
Viagra                                                     26                6              13                  (2 )
Premarin family                                            26               11              11                   9
Sutent                                                     24                9              25                   3
EpiPen(a)                                                  23               66              59                 133
Pristiq                                                    22               17              12                  43
BeneFIX                                                    19               12              20                   5
Prevnar/Prevenar (7-valent)                               (15 )            (10 )            --                 (10 )
Vfend(b)                                                  (17 )             (9 )           (46 )                 3
Chantix/Champix                                           (21 )            (11 )            (2 )               (18 )
Norvasc                                                   (22 )             (6 )            56                  (8 )
BMP2                                                      (26 )            (28 )           (24 )                 *
Detrol/Detrol LA                                          (30 )            (13 )           (13 )               (14 )
Geodon/Zeldox(b)                                          (51 )            (22 )           (26 )                --
Zosyn/Tazocin(b)                                          (51 )            (28 )           (40 )               (11 )
Prevnar 13/Prevenar 13                                    (55 )             (6 )           (15 )                12
Aromasin(b)                                               (58 )            (51 )           (89 )               (32 )
Effexor(b)                                                (75 )            (37 )           (59 )               (15 )
Caduet(b)                                                 (77 )            (54 )           (89 )                (8 )
Xalatan/Xalacom(b)                                       (165 )            (42 )           (92 )               (16 )
Lipitor(b)                                               (990 )            (42 )           (71 )                (6 )
Alliance revenue(b)                                       (48 )             (5 )             5                 (23 )
All other biopharmaceutical products(c)                   224               12              27                   4
Animal Health products                                     44                4              10                   1
Nutrition products                                         43                9              --                   9
Consumer Healthcare products                              (10 )             (1 )           (10 )                 7
Other(d)                                                  (15 )             19              17                 (28 )

(a) Legacy King product.
(b) Lipitor lost exclusivity in the U.S. in November 2011, Japan in June 2011, Canada in May 2010, Spain in July 2010, Brazil in August 2010 and Mexico in December 2010. Xalatan lost exclusivity in the U.S. in March 2011 and in the majority of European markets in January 2012. Caduet lost exclusivity in the U.S. in November 2011. Effexor XR lost exclusivity in the U.S. in July 2010. Aromasin lost exclusivity in the U.S. in April 2011 and in the majority of European markets and Japan in July 2011. Vfend tablets lost exclusivity in the U.S. in February 2011. Zosyn lost exclusivity in the U.S. in September 2009. Geodon lost exclusivity in the U. S. in March 2012. We lost exclusivity for Aricept 5mg and 10mg tablets, which are included in Alliance revenues, in the U.S. in November 2010 and in many of the major European markets in February 2012.
(c) Includes the "All other" category included in the Revenues-Major Biopharmaceutical Products table presented in this MD&A, which includes sales of generic atorvastatin.
(d) Includes revenues generated primarily from Pfizer CentreSource, our contract manufacturing and bulk pharmaceutical chemical sales organization.
* Calculation not meaningful.

Income from continuing operations for the first quarter of 2012 was $1.8 billion, compared to $2.2 billion in the first quarter of 2011, primarily reflecting, in addition to the factors discussed above relating to Revenues:

? charges for certain legal matters that were approximately $313 million higher in the first quarter of 2012 than in the same period in 2011 (see further discussion in the "Costs and Expenses--Other (Income)/Deductions--Net" section of this MD&A and Notes to Condensed Consolidated Financial Statements-Note 4. Other Deductions--net);

? asset impairment charges that were approximately $275 million higher in the first quarter of 2012 than in the same period in 2011 (see further discussion in the "Costs and Expenses--Other (Income)/Deductions--Net" section of this MD&A and Notes to Condensed Consolidated Financial Statements-Note 4. Other Deductions--net);

? higher charges of $245 million in 2012 compared to 2011 related to our non-acquisition related cost-reduction and productivity initiatives; and

partially offset by:

? lower purchase accounting impacts of $326 million in 2012 compared to the same period in 2011; and

? lower acquisition-related costs of $393 million in 2012 compared to the same period in 2011.

Our Operating Environment

U.S. Healthcare Legislation

In March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act (together, the U.S. Healthcare Legislation), was enacted in the U.S. As explained more fully in our 2011 Annual Report on Form 10-K, this legislation has resulted in both current and longer-term impacts on us. Our 2012 financial guidance (see the "Our Financial Guidance for 2012" section of this MD&A for additional information) reflects the expected full-year impact of the U.S. Healthcare Legislation.

In each of the first quarters of 2012 and 2011, we recorded the following amounts as a result of the U.S. Healthcare Legislation:

? approximately $123.4 million and $166.2 million, respectively, recorded as a reduction to Revenues, related to the higher, extended and expanded rebate provisions and the Medicare "coverage gap" discount provision; and

? approximately $103.4 million and $69.3 million, respectively, recorded in Selling, informational and administrative expenses, related to the annual fee payable to the federal government (which is payable annually through 2018 and is not deductible for U.S. income tax purposes) based on our prior-calendar-year share relative to other companies of branded prescription drug sales to specified government programs.

The U.S. Supreme Court is considering whether the requirement in the U.S. Healthcare Legislation for Americans to have insurance (called the individual mandate) is constitutional, whether other portions of the U.S. Healthcare Legislation should stand if the individual mandate is found unconstitutional, whether the courts have jurisdiction to consider these issues before the individual mandate takes effect in 2014, and whether the U.S. Healthcare Legislation's expansion of Medicaid unconstitutionally encroaches on states' autonomy. We cannot predict the outcome of these proceedings. In addition, Congress may withhold all or a portion of the funding necessary to implement the U.S. Healthcare Legislation or may attempt to amend or repeal it. Given the extent of the possible changes and the uncertainties concerning the interpretation, implementation and timing of the changes, the U.S. Healthcare Legislation and any amendments thereto or any repeal of all or portions thereof could impact our business and results of operations in the near term and over the next several years.

The budget proposal submitted to Congress by President Obama in February 2012 includes a provision that would reduce the base exclusivity period for a biologics product from 12 years to seven years. There was no corresponding pending bill designed to amend the U.S. Healthcare Legislation to alter the biologics provisions. The budget proposal was voted down 414-0 in the U.S. House of Representatives. No vote has yet been held in the U.S. Senate.

Industry-Specific Challenges

The majority of our revenues come from the manufacture and sale of biopharmaceutical products. As explained more fully in our 2011 Annual Report on Form 10-K, the biopharmaceutical industry is highly competitive and we face a number of industry-specific challenges, which can significantly impact our results. These factors include, among others: the loss or expiration of intellectual property rights and the expiration of co-promotion and licensing rights, pipeline productivity and the regulatory environment, pricing and access pressures and competition among branded products.

As more fully explained in our 2011 Annual Report on Form 10-K, the loss or expiration of intellectual property rights and the expiration of co-promotion and licensing rights can have a significant adverse effect on our revenues. Our 2012 financial guidance reflects the anticipated impact in 2012 of the loss of such rights as described below (see the "Our Financial Guidance for 2012" section of this MD&A for additional information).

Our 2012 results have been and/or will be adversely impacted by the following recent developments:

? Lipitor in the U.S.-Lipitor lost exclusivity in the U.S. in November 2011.
Following the end of the 180-day generic exclusivity period in late May 2012, we expect the entry of multi-source generic competition in the U.S., with attendant increased competitive pressures. Beginning in 2012, sales of Lipitor in the U.S. are reported in our Established Products business unit.

Lipitor in international markets--Lipitor lost exclusivity in Japan in 2011, Australia in February 2012 and certain European markets in March 2012, and it will lose exclusivity in certain other European markets in May 2012.

? Other recent loss of exclusivity impacts--In the U.S., we lost exclusivity for Vfend tablets in February 2011, for Xalatan in March 2011, for Caduet in November 2011 and for Geodon in March 2012. The basic U.S. patent (including the six-month pediatric exclusivity period) for Protonix expired in January 2011. The basic patent for Vfend tablets in Brazil expired in January 2011. We lost exclusivity for Aromasin in the U.S. in April 2011 and in the majority of European markets and Japan in July 2011. We lost exclusivity for Xalatan and Xalacom in the majority of European markets in January 2012. We lost exclusivity for Aricept in many of the major European markets in February 2012.

In addition, we expect to lose exclusivity for the following other products in 2012:

? Revatio tablet in the U.S. in September 2012, which reflects the extension of the exclusivity period from March to September 2012 as the result of a pediatric extension; and

Our 2012 results also have been and/or will be adversely impacted by the following impacts on Alliance revenues:

? Aricept--Our rights to Aricept in Japan will return to Eisai Co., Ltd. in December 2012.

? Spiriva-- Our collaboration with Boehringer Ingelheim (BI) for Spiriva will expire on a country-by-country basis between 2012 and 2016, including the expiration in certain EU markets in 2012.

For additional information, including with regard to the expiration of the patents and of co-promotion and licensing rights for various products in the U.S., EU and Japan in 2012 and subsequent years, see the "Patents and Intellectual Property Rights" section of our 2011 Annual Report on Form 10-K and the "The Loss or Expiration of Intellectual Property Rights" section of our 2011 Financial Report, which is filed as Exhibit 13 to our 2011 Annual Report on Form 10-K.

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

In August 2011, the federal Budget Control Act of 2011 (the Act) was enacted in the U.S. The Act includes provisions to raise the U.S. Treasury Department's borrowing limit, known as the debt ceiling, and provisions to reduce the federal deficit by $2.4 trillion between 2012 and 2021. Deficit-reduction targets include $900 billion of discretionary spending reductions associated with the Department of Health and Human Services and various agencies charged with national security, but those discretionary spending reductions do not include programs such as Medicare and Medicaid or direct changes to pharmaceutical pricing, rebates or discounts. The Office of Management and Budget (OMB) is responsible for identifying the remaining $1.5 trillion of deficit reductions, which will be divided evenly between defense and non-defense spending. Under this OMB review process, Social Security, Medicaid, Veteran Benefits and certain other spending categories are excluded from consideration, but reductions in payments to Medicare providers may be made, although any such reductions are prohibited by law from exceeding 2%. Additionally, certain payments to Medicare Part D plans, such as low-income subsidy payments, are exempt from reduction. While we do not know the specific nature of the spending reductions under the Act that will affect Medicare, we do not expect that those reductions will have a material adverse impact on our results of operations. However, any significant spending reductions affecting Medicare, Medicaid or other publicly funded or subsidized health programs that may be implemented, and/or any significant additional taxes or fees that may be imposed on us, as part of any broader deficit-reduction effort could have an adverse impact on our results of operations.

The Global Economic Environment

In addition to the industry-specific factors discussed above, we, like other businesses, continue to face the effects of the challenging economic environment, which have impacted our biopharmaceutical operations in the U.S. and Europe, affecting the performance of products such as Lipitor, Celebrex and Lyrica and in a number of emerging markets. We believe that patients, experiencing the effects of the challenging economic environment, including high unemployment levels, and increases in co-pays, sometimes are switching to generics, delaying treatments, skipping doses or using less effective treatments to reduce their costs. Challenging economic conditions in the U.S. also have 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, including ours. In addition, during the first quarter of 2012, we continued to experience pricing pressure as a result of the economic environment in Europe and in a number of emerging markets, with government-mandated reductions in prices for certain biopharmaceutical products in certain European and emerging market countries.

Significant portions of our revenues and earnings are exposed to changes in foreign exchange rates. We seek to manage our foreign exchange risk in part through operational means, including managing same-currency revenues in relation to same-currency costs and same-currency assets in relation to same-currency liabilities. Depending on market conditions, foreign exchange risk also is managed through the use of derivative financial instruments and foreign currency debt. As we operate in multiple foreign currencies, including the euro, the U.K. pound, the Japanese yen, the Canadian dollar and approximately 100 other currencies, changes in those currencies relative to the U.S. dollar will impact our revenues and expenses. If the U.S. dollar weakens against a specific foreign currency, our revenues will increase, having a positive impact, and our overall expenses will increase, having a negative impact, on net income. Likewise, if . . .