Financial Review); • a shift in geographic and business mix; and

• the unfavorable impact of foreign exchange of 2% in 2011

2010 vs. 2009

Cost of sales increased 87% in 2010, compared to 2009, primarily as a result of:

• purchase accounting charges of approximately $2.9 billion in 2010, compared to approximately $970 million in 2009, primarily reflecting the fair value adjustments to inventory acquired from Wyeth that was subsequently sold;

• a write-off of inventory of $212 million (which includes a purchase accounting fair value adjustment of $104 million), primarily related to biopharmaceutical inventory acquired from Wyeth that became unusable after the acquisition date;

 • the inclusion of Wyeth’s manufacturing operations for a full year in 2010, compared to part of the year in 2009; and

• the change in the mix of products and businesses as a result of the Wyeth acquisition, partially offset by:

• lower costs as a result of our cost-reduction and productivity initiatives.

Foreign exchange had a minimal impact on cost of sales during 2010.

Selling, Informational and Administrative (SI&A) Expenses

(MILLIONS OF DOLLARS)

Selling, informational and administrative expenses

2011 vs. 2010

YEAR ENDED DECEMBER 31, 2010 2009

INCR./(DECR.) 10/09

32%

          SI&A expenses were largely unchanged in 2011, compared to 2010, primarily as a result of: • the fee provided for under the U.S. Healthcare Legislation beginning in 2011;

• the addition of legacy King operating costs; and

• the unfavorable impact of foreign exchange of 2%,

offset by:

• savings associated with our cost-reduction and productivity initiatives.

2010 vs. 2009

SI&A expenses increased 32% in 2010, compared to 2009, primarily as a result of:

• the inclusion of Wyeth operating costs for a full year in 2010, compared to part of the year in 2009; and • the unfavorable impact of foreign exchange of $236 million.

           R&D expenses decreased 3% in 2011, compared to 2010, primarily as a result of:

• savings associated with our cost-reduction and productivity initiatives,

partially offset by:

• higher charges related to implementing our cost-reduction and productivity initiatives; • the addition of legacy King expenses; and

• the unfavorable impact of foreign exchange of 1%.

2010 vs. 2009

R&D expenses increased 20% in 2010, compared to 2009, primarily as a result of:

• the inclusion of Wyeth operating costs for a full year in 2010, compared to part of the year in 2009; and

• continued investment in the late-stage development portfolio.

Foreign exchange had a minimal impact on R&D expenses during 2010.

 R&D expenses also include payments for intellectual property rights of $306 million in 2011, $393 million in 2010 and $489 million in 2009 (for further discussion, see the “Our Business Development Initiatives” section of this Financial Review).

Acquisition-Related In-Process Research and Development Charges

In 2010 and 2009, we resolved certain contingencies and met certain milestones associated with the CovX acquisition and recorded $125 million in 2010 and $68 million in 2009 of Acquisition-related in-process research and development charges. As