<PAGE>   1





                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K

   X   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
  ---  SECURITIES EXCHANGE ACT OF 1934 

       For the fiscal year ended December 31, 1998
                            OR
  ---  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
       EXCHANGE ACT OF 1934
       For the transition period from____________to__________

                         Commission file number 1-11557

                            PHARMACIA & UPJOHN, INC.
             (Exact name of Registrant as specified in its charter)

                   Delaware                                       98-0155411
                   --------                                       ----------
        (State or other jurisdiction of                        (I.R.S. Employer
        incorporation or organization)                       Identification No.)

            95 Corporate Drive, Bridgewater, New Jersey 08807 U.S.A.
            --------------------------------------------------------
               (Address of principal executive offices) (Zip Code)

          Registrant's telephone number,
              including area code                                888/768-5501

           Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<S><C>                                                
    Common Stock (par value $.01)                       New York Stock Exchange
 Rights to Purchase Preferred Stock                     New York Stock Exchange
         (Title of class)                       (Name of each exchange on which registered)
</TABLE>


           Securities registered pursuant to Section 12(g) of the Act:
                                      None.

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
                                    Yes   X      No
                                         ---         ---

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

The registrant estimates the aggregate market value of the voting stock held by
non-affiliates of the registrant (based upon the NYSE--Composite Transactions
closing price on January 31, 1999 as reported in The Wall Street Journal and
treating all executive officers and directors of the Company and all beneficial
owners of 5% or more of the Registrant's voting stock as affiliates) was
approximately $29,015,207,825.

The number of shares of Common Stock, $.01 par value, outstanding as of January
31, 1999 is 506,689,393 shares.
<PAGE>   2



                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the 1999 Proxy Statement are incorporated into Parts III and IV of
this report. Portions of the 1998 Annual Report to Shareholders are incorporated
into Parts II and IV of this report.

Certain statements contained in this report, such as statements concerning the
Company's anticipated financial or product performance and other non-historical
facts, are "forward-looking statements" (as such term is defined in the Private
Securities Litigation Reform Act of 1995). Since these statements are based on
factors that involve risks and uncertainties, actual results may differ
materially from those expressed or implied by such forward-looking statements.
Such factors include, among others: management's ability to make further
progress under the Company's turnaround plan; the Company's ability to
successfully market new and existing products in new and existing domestic and
international markets; the success of the Company's research and development
activities and the speed with which regulatory authorizations and product
rollouts may be achieved; fluctuations in foreign currency exchange rates; the
effects of the Company's accounting policies and general changes in generally
accepted accounting practices; the Company's exposure to product liability
lawsuits and contingencies related to actual or alleged environmental
contamination; domestic and foreign social, legal and political developments,
especially those relating to healthcare reform and product liabilities; general
economic and business conditions; the Company's ability to attract and retain
current management and other employees of the Company; and other risks and
factors detailed in the Company's other Securities and Exchange Commission
filings.





                                      -2-
<PAGE>   3


                                     PART I

ITEM 1.  BUSINESS

OVERVIEW

              Pharmacia & Upjohn, Inc. ("the Company") is a global
pharmaceutical group engaged in the research, development, manufacture and sale
of pharmaceutical and healthcare products. The Company was formed in November
1995 through the combination of Pharmacia Aktiebolag ("Pharmacia") and The
Upjohn Company ("Upjohn"). The Company is engaged in the research, development,
manufacturing, sales and marketing of various prescription human pharmaceutical
products, nonprescription drugs, pharmaceutical chemicals and intermediates, and
pharmaceutical products for both food and companion animals. These are
considered the Company's core business and are reported as the pharmaceutical
segment.

              The Company's other businesses are reported as the
nonpharmaceutical segment, consisting of specialty products for hospital care,
diagnostics and nutritional supplements, as well as the Company's investment in
its biotechnology affiliates. These businesses together constituted about 9% of
1998 total consolidated sales. The major portion of the Company's nutrition
business was sold in late 1998, and the remaining nutrition businesses in
Germany and China will be sold later.

                             PHARMACEUTICAL SEGMENT

INDUSTRY BACKGROUND

              The world market for human pharmaceuticals is concentrated in the
U.S., Western Europe and Japan. Regulatory pressures and pricing constraints
have intensified as governmental and private healthcare providers strive to
control the rapid growth in healthcare expenditures. Pharmaceuticals are
increasingly chosen according to their therapeutic benefit in relation to cost,
for example, pharmaceuticals that minimize hospital stays and reduce treatment
costs are increasingly preferred. It is therefore essential for pharmaceutical
companies to develop new improved and more efficient products that increase the
total value both for buyers and patients. The Company believes that these
developments have also led to more intense competition in the pharmaceutical
industry worldwide. Innovation, high-quality research and development focused on
unmet medical needs, rapid product introduction, wide geographical distribution
and cost efficiency are key competitive factors in the pharmaceutical industry.

PHARMACEUTICAL PRODUCT DESCRIPTIONS

              The Company researches, develops, manufactures and markets
prescription human pharmaceutical products, nonprescription drugs,
pharmaceutical chemicals and intermediates, and pharmaceutical products for both
food and companion animals. The following summary discusses the Company's
principal pharmaceutical products.

              DETROL(R)/DETRUSITOL(R) Tablets (tolterodine tartrate tablets) 
were introduced in the U.S. in 1998 and are also sold in 22 other countries.
This product offers a treatment for overactivity in the bladder, thus reducing
symptoms such as increased frequency and urge to urinate, as well as urge
incontinence episodes. The U.S. patent covering DETROL Tablets expires in 2012,
and in 2009 in Europe and Japan, although patent term extensions may be
possible.





                                      -1-
<PAGE>   4

              GENOTROPIN(TM), a recombinant human growth hormone identical to
the body's own hormone, is the Company's largest selling product. GENOTROPIN,
which promotes longitudinal bone growth, is used for the treatment of growth
hormone deficiency in children and adults and for patients with renal
insufficiency. It is marketed in Europe, Japan and the U.S. In 1998, the Company
began selling GENOTROPIN directly in Japan after reacquiring exclusive sales and
marketing rights to GENOTROPIN from Sumitomo Pharmaceuticals. GENOTROPIN
products are not covered by product patents, but patents covering processes to
manufacture the product and delivery systems for the products offer some level
of exclusivity for the specific presentations sold by the Company. 

              XALATAN(R) (latanoprost ophthalmic solution) is used for the
treatment of open-angle glaucoma and ocular hypertension in patients who are
either intolerant of, or insufficiently responsive to, other intraocular
pressure-lowering medications. The product is approved for marketing in the U.S.
and 40 other countries. Regulatory clearance in Japan is expected later this
year. XALATAN is covered by a patent in the U.S. expiring in 2011 and in Europe
and Japan in 2009, and patent term extensions in Europe and Japan may be
possible.

              The Company produces several drugs for CNS disorders, including
XANAX(R), HALCION(R) and SERMION(R), none of which have significant patent
protection and are subject to intense generic competition. XANAX Tablets,
containing alprazolam, are used for symptomatic relief of anxiety with and
without depressive symptoms and for the treatment of panic disorder. The use
patent for the panic disorder indication for XANAX expires in 2002. HALCION
Tablets, containing triazolam, are a hypnotic agent used for the treatment of
insomnia. SERMION Tablets are used primarily to treat cognitive and behavioral
disorders related to senile dementia.

              EDRONAX(R) (reboxetine), for the treatment of major depression,
has been approved for marketing in several European countries and was submitted
for U.S. approval in 1998. European patents provide protection until 2001, but
U.S. patents expire in 1999, although patent term extensions may be possible.

              HEALON(R) Solution for Intraocular Use is a viscoelastic product
which includes sodium hyaluronate and is used primarily in cataract surgery to
facilitate the implantation of plastic intraocular lenses ("IOLs") without
injuring the sensitive cells lining the cornea and functions as a soft surgical
instrument. The Company markets HEALON and HEALON GV(R), a more viscous fluid
form, directly to ophthalmologists in Europe, the U.S. and Japan and through
independent distributors in certain other countries.

              The Company is one of the world's leading producers of anticancer
drugs. CAMPTOSAR(R) (irinotecan hydrochloride injection) is marketed in the
U.S. as a second-line treatment for metastatic colorectal cancer. CAMPTOSAR 
Injection is protected by a patent in the U.S. until 2004, with a patent term
extension until 2007. FARMORUBICIN(R) (or PHARMORUBICIN(R)) and ADRIAMYCIN(R)
are used in the treatment of breast cancer as well as other solid tumors.
ADRIAMYCIN was the Company's first anthracycline preparation and is no longer
subject to patent protection. Although the product patents on FARMORUBICIN have
generally expired, patents on the best selling formulation of FARMORUBICIN do
not expire until 2006. In 1998, the Company submitted applications for U.S.
approval of two therapies for the treatment of breast cancer: epirubicin
hydrochloride injection, widely used in Europe, and AROMASIN(R), an oral
hormonal enzyme required to produce estrogen. 

              FRAGMIN(R) Injection is a low molecular weight heparin product for
the prevention of thrombosis in connection with surgery, unstable angina
(outside the U.S.), and hemodialysis, and is used in the treatment of acute deep
vein thrombosis. FRAGMIN is approved in more than 40 countries and is protected 
by patents in the U.S., Europe and Japan, with patent expiration dates ranging 
from the year 2000 in some European countries to 2005 in the U.S.







                                      -2-
<PAGE>   5

              The Company provides a broad line of antibiotic products including
CLEOCIN(R) (or DALACIN(R)) and LINCOCIN(R) products. CLEOCIN PHOSPHATE(R) is an
injectable form of clindamycin that is used in the treatment of certain
life-threatening anaerobic infections. CLEOCIN T(R) is a topical formulation for
treatment of acne. CLEOCIN(R) Vaginal Cream is used to treat bacterial
vaginosis. LINCOCIN is used in the treatment of serious infections caused by
many strains of gram-positive bacteria. The Company has semi-exclusive U.S.
marketing rights to VANTIN(R) Tablets and Oral Suspension, an advanced
cephalosporin antibiotic, under patents licensed from Sankyo Company, Ltd., the
last of which expires in the U.S. in late 2001.

              The Company produces various forms of chemical modifications of
hormone products under the trademark MEDROL(R) or DEPO-MEDROL(R), which are used
to treat a number of inflammatory and allergic conditions. SOLU-CORTEF(R)
Sterile Powder and SOLU-MEDROL(R) Sterile Powder are injectable corticosteroid
products.

              The Company markets several steroid hormone products having a
variety of uses, including the treatment of allergic reactions, inflammation,
asthma and certain hormone deficiencies. The Company's most important synthetic
hormone product is PROVERA(R) Tablets, which is a female sex hormone replacement
agent. The Company also markets DEPO-PROVERA(R) Contraceptive Injection and
OGEN(R) Tablets and Vaginal Cream, an estrogen replacement product.

              CAVERJECT(R) (alprostadil injection), a treatment for erectile
dysfunction due, among other reasons, to diabetes, cardiovascular problems,
injuries and aging, is self-administered by intracavernosal injection. CAVERJECT
is no longer covered by patents.

              MIRAPEX(R)/MIRAPEXIN(R) (pramipexole tablets) is approved for
marketing in the U.S. and Europe for the treatment of the signs and symptoms of
Parkinson's disease. The product was licensed from Boehringer-Ingelheim, which
has co-promotion rights in the U.S. The compound patent expires in 2005 in
Europe and Japan and in 2006 in the U.S. CABASER(R) (cabergoline) has also been
approved in several European countries for treatment of Parkinson's disease and
is subject to European patent protection until at least 2002.

              The Company markets several HIV-positive and AIDS products,
including MYCOBUTIN Capsules(R), for the prevention of Mycobacterium Avium
Complex, a fatal bacterial infection that is a common cause of death in
HIV-positive individuals and people with AIDS, which will lose U.S. patent
protection in late 1999 and in Europe from 2000 to 2003; RESCRIPTOR(R)
(delavirdine mesylate tablets), a non-nucleoside reverse transcriptase
inhibitor, launched in the U.S. in 1997 for the treatment of HIV-1 infection in
combination with appropriate antiretroviral agents, which is protected by a U.S.
patent until 2013; and VISTIDE(R) (cidofovir injection), indicated for the
treatment of cytomegalovirus (CMV) infection in the retina in AIDS patients
unsuitable for other therapy.

              The Company's major oral antidiabetes agents are MICRONASE(R)
Tablets, containing glyburide, and GLYNASE(R) PresTab(R) Tablets, also
containing glyburide, for the treatment of non-insulin-dependent diabetes,
neither of which is subject to significant patent protection. The Company has
also licensed GLYSET(R) Tablets, from Bayer AG, for the treatment of Type II
diabetes.

              The Company also markets AZULFIDINE/SALAZOPYRIN for the treatment
of inflammatory bowel disease and rheumatoid arthritis.









                                      -3-
<PAGE>   6
              The Company developed and manufactures nonprescription
NICORETTE(R) and NICOTROL(R) products for smokers who seek a medical product to
aid in smoking cessation. These products are sold in several forms and in many
countries. NICORETTE Chewing Gum is sold in the U.S. by SmithKline Beecham
Consumer Pharmaceuticals. NICORETTE Transdermal Patch is sold in the U.S. by
McNeil Consumer Products Company. NICORETTE is also available in inhaler and
nasal spray formulations.

              The Company produces and sells nonprescription ROGAINE(R) Extra
Strength for Men and ROGAINE(R) Regular Strength, a 5% and 2%, respectively,
solution of minoxidil applied topically to treat hair loss in men with male
pattern baldness and, in the Regular Strength formulation, in women with
androgenetic alopecia or hereditary hair loss. The product is also sold in
numerous foreign countries. ROGAINE Extra Strength for Men is covered by an ANDA
moratorium until 2000. ROGAINE Regular Strength competes in the U.S.
nonprescription market with several generic 2% topical minoxidil products.

              The Company also manufactures and distributes other
non-prescription products including KAOPECTATE(R) products, for diarrhea;
MICROLAX(R) Enema, for constipation; CORTAID(R) products, anti-inflammatory
topical products; the family of UNICAP(R) vitamin products; DRAMAMINE(R),
anti-motion sickness products, NASALCROM, a nasal spray for allergic rhinitis,
PEDIACARE, a line of children's cough and cold products, and MICATIN, an
antifungal to treat athlete's foot.

              NAXCEL(R) (or EXCENEL(R)) Sterile Powder is an antibiotic for
treating bovine and swine respiratory disease and early chick mortality;
LINCO-SPECTIN(R) Soluble Powder and Premix is a combination
lincomycin/spectinomycin antibiotic; LINCOMIX(R) 20 and LINCOMIX 50 Feed
Medication are feed-additive antibiotics; MGA(R) Premix is a growth-promoting
feed additive for feedlot heifers; LINCOCIN(R) is a line of small-animal
antibiotics; and LUTALYSE(R) (or DINOLYTIC(R)) Sterile Solution is used to
synchronize breeding performance in mares and cattle. The Company also markets
various products for the treatment of mastitis. 

                           NONPHARMACEUTICAL SEGMENT


              The Company owns 45% of Amersham Pharmacia Biotech, Ltd., one of
the world's leading suppliers of biotechnology equipment, systems, reagents and
chemicals for pharmaceutical and biotechnology companies and for life science
research in the public and private sectors.

              The Company also owns 41% of Biacore International AB, which
develops, manufactures and markets advanced scientific instruments employing
affinity-based biosensor technology.


              The Company is the world leader in the area of in vitro allergy
diagnostics. The Company's main allergy diagnostic product, the Pharmacia CAP
System(R), is a highly automated laboratory system that enables testing from
patient blood samples for allergenic sensitivity to nearly 500 substances.
Patents on the Pharmacia CAP System expire in 2004. The Company also markets an
easy-to-use, low-volume test instrument, UniCAP 100(R), for use by small to
medium size laboratories and family physicians. 

              The Company's largest market for allergy diagnostics is Japan,
while sales in the U.S. are relatively low because of the relatively high
incidence of more traditional in vivo (skin prick) diagnostic testing by medical
professionals in the U.S.

                            RESEARCH AND DEVELOPMENT

              The Company aims to direct its R&D efforts to develop new
innovative pharmaceuticals and other healthcare products offering high
therapeutic benefits in a number of therapeutic areas in which the Company
believes it has the ability to establish a leading global position. The Company
also seeks to expand the markets for its existing products by identifying new
indications and administration forms as well as by expanding their international
market penetration and extending product life, including by converting suitable
patented products to over-the-counter products. The Company concentrates its R&D
resources on selected areas both where it has in-house expertise and where there
are identified substantial unmet medical needs. The Company's research
activities are being focused on four medically important therapeutic areas,
including infectious disease, metabolic disease, central nervous system disease 
and oncology, and are conducted principally in the Company's three regional 
centers in Kalamazoo, Michigan, Stockholm, Sweden and Milan, Italy.

              The R&D process has historically taken from 10 to 15 years from
discovery to initial product launch and is conducted in various stages. During
each stage of development, there is a substantial risk that the desired
objectives will not be achievable and that the product will therefore have to be
abandoned or the objectives modified. During the "preclinical" stage, generally
the first two to four years, research is carried out in order to identify an
active substance in the laboratory and then perform pharmacology and toxicology
studies of its effects in various animals. Before testing in humans, an
application for the compound must be filed and processed by the requisite
regulatory authorities. Testing in humans is performed in different clinical
phases to assure the safety and efficacy of the new compound. In clinical Phase
I, studies to establish the tolerance, absorption, distribution, metabolism and
excretion of the compound are performed on healthy human subjects. Clinical
Phase II studies are performed on a limited number of patients to determine
efficacy and to define an effective dose. Clinical Phase III comparative studies
are then performed on a larger number of patients in order to further establish
efficacy and safety. Together, Phases I, II and III typically take from three to
five years to complete. Thereafter, an application containing all data for the
proposed drug is sent to regulatory authorities for approval, which may take an
additional one to two years. Further clinical trials, called Phase IV trials,
are generally carried out after product launch to continue to monitor the
efficacy and safety of a new drug.








                                      -4-
<PAGE>   7

              Among the Company's most important research compounds in the 
area of infectious diseases are a new class of antimicrobials called
oxazolidinones, which have a novel mechanism of action: inhibition of mRNA
translation. The lead compound in this class, linezolid, is in Phase III
clinical studies to evaluate the safety and efficacy of the compound in treating
infections caused by gram-positive bacteria including antibiotic-resistant
strains of staphylococci, streptococci and enterococci. Linezolid is claimed in
a U.S. patent currently set to expire in 2014, but which could be extended
depending on the date of NDA approval. Patents issuing on patent applications
filed in various other countries will similarly expire generally in 2014, but
may be subject to extension in certain countries.

              The Company is pursuing clinical development of tipranavir, a
protease inhibitor being evaluated for treatment of HIV-1 infection.

              The Company's primary research area in the field of metabolic
disease concerns growth disorders. In addition, research projects are currently
in process in the field of obesity, diabetes, arteriosclerosis and vascular
disease. Research and development in the area of growth and growth factors is
concentrated on a broader spectrum of indications for GENOTROPIN. In addition,
the Company is pursuing further development of convenience products to
administer GENOTROPIN.

              Oncology is another major research focus for the Company with
discovery and development efforts aimed at finding effective treatments for
various forms of tumors, particularly those which respond poorly, or are
resistant, to currently available therapy. The research programs cover
chemotherapy, hormone therapy, immunotherapy of cancer as well as novel
approaches and mechanisms of antitumor action which are being pursued mainly in
discovery phase.

              Development candidates in-licensed by the Company during 1998 
include almotriptan, an anti-migraine compound for which the Company will have
exclusive U.S. marketing rights; thrombopoietin (TPO), a compound in Phase
II/III testing being evaluated for use in treating cancer patients suffering
from chemotheraphy, for which the Company has worldwide rights; and JTT-501, a
compound in Phase II testing for treatment of diabetes, for which the Company
has worldwide rights.






                                      -5-
<PAGE>   8

                                   PRODUCTION

              The Company produces its pharmaceutical products mainly in the
U.S., Sweden, Italy, Belgium, Ireland and Puerto Rico.

              The Company purchases a variety of raw materials for use in its
manufacturing processes. When available, the Company has a policy of maintaining
multiple sources of supply for materials. The Company obtains its supplies of
raw materials from several companies in a number of countries. The Company has
not experienced any difficulty in obtaining a sufficient supply of raw materials
in recent years and believes that it will be able to obtain them in sufficient
quantities in the future. However, the price of its raw materials may vary from
year to year.

                           MARKETING AND DISTRIBUTION

              The Company's pharmaceutical products are sold worldwide to 
healthcare providers, veterinarians, drug stores, food stores, mass 
merchandisers, distributors and wholesalers. The Company markets its products 
through its own marketing companies or through local distributors and licensees.
As part of its ongoing commitment to its customers, the Company periodically 
organizes educational programs to provide specialist doctors with information 
on the most recent product innovations and scientific advances.

                                  COMPETITION

              The pharmaceutical industry is highly competitive. The Company's
principal competitors consist of major international corporations with
substantial resources. A drug may be subject to competition from alternative
therapies during the period of patent protection and thereafter it will be
subject to further competition from generic products. The manufacturers of
generic products typically do not bear the related research and development
costs and consequently are able to offer generic products at considerably lower
prices than the branded equivalents. A research-based pharmaceutical company
will therefore normally seek to achieve a sufficiently high profit margin and
sales volume during the period of patent protection to justify the original
investment and to fund research for the future. There are, however, a number of
factors which may enable products to remain profitable once patent protection
has ceased. These include the establishment of a strong brand image with the
prescriber or the consumer, supported by an active trademark registration and
enforcement policy, and the development of a broader range of alternative
formulations than the generic manufacturer typically supplies.

              As is the case for the pharmaceutical industry in general, the
introduction of new products and processes by competitors may affect pricing
levels or result in product replacement for existing products, and there can be
no assurances that any of the Company's products may not become outmoded,
notwithstanding patent or trademark protection. In addition, increasing
governmental and other pressures towards the dispensing of generic products in
substitution for brand-name drugs may increase competition for products no
longer covered by patents.

              Over the last few years, the pharmaceutical industry has
experienced increased vertical and horizontal consolidation, and the breadth of
products offered and distribution capabilities of a company may become a
competitive feature. The Company competes with other pharmaceutical companies in
discovering or licensing new chemical entities useful in treating medical
conditions. In addition, significant changes in marketing conditions are
occurring in the U.S., Swedish and other pharmaceutical markets, including
decreased pricing flexibility, restrictions on promotional and






                                      -6-
<PAGE>   9


marketing practices and the impact of managed care, particularly with respect to
product selections and pricing concessions.

              The Company's competitive position depends in part upon its
ability to develop innovative, cost-effective new products, as well as new
indications for, and improvements in, existing products. Its competitive
position also depends upon, among other things, its ability to compete on the
basis of price as well as to maintain a reputation for quality, efficacy and
cost-effectiveness with the specialist doctors and hospital purchasing groups to
which its products are targeted, as well as with the wider group of customers
which includes pharmacies, wholesalers, hospitals and insurers.

              In addition, the Company's ability to maintain long-standing and
interactive relationships with specialist doctors and its ability to attract and
retain qualified scientific and other personnel, develop and implement
production and marketing plans, obtain and maintain patent protection for
selected products in its significant markets and secure adequate capital
resources are also important competitive factors.

PRICING

              In addition to the normal competitive forces that affect the level
of prices, a further constraint exists in the form of price controls in most
countries in which the Company sells its products. These controls arise either
by law or because the government or other healthcare providers in a particular
jurisdiction are the principal purchasers of the product or reimburse purchasers
for the cost of the product. Price control mechanisms operate differently from
jurisdiction to jurisdiction and can result in large price differentials between
markets, which may be aggravated by currency fluctuations. These price
differentials are exploited by traders (parallel importers) who purchase branded
products in lower-priced markets for resale in higher-priced markets.

PRODUCT REGULATION

              Like other pharmaceutical companies, the Company is subject to
strict controls on the manufacture, labeling, distribution and marketing of its
products. Further controls exist on the non-clinical and clinical development of
pharmaceutical products. Of particular importance is the requirement to obtain
and maintain regulatory approval for a pharmaceutical product from a country's
national regulatory authority before such product may be marketed in a
particular country.

              The submission of an application to a regulatory authority does
not guarantee that a license to market the product will be granted. Furthermore,
each regulatory authority may impose its own requirements and may delay or
refuse to grant, or may require additional data before granting, an approval,
even though the relevant product has been approved in another country.
Regulatory authorities also have administrative powers that include product
recalls, seizure of products and other sanctions.

              The U.S., Europe, Japan, Australia and Canada have very high
standards for technical appraisal and consequently, in most cases, a lengthy
approval process. The time taken to obtain approval varies by country, but
generally takes from six months to four years from the date of application,
depending upon the quality of the data produced, the degree of control exercised
by the regulatory authority, the efficiency of its review procedure and the
nature of the product. The trend in recent years has been toward greater
regulation and higher standards with higher levels of standardization among
jurisdictions.

              In the U.S., most human and animal pharmaceutical products
manufactured or sold by the Company are subject to regulation by the FDA as well
as by other federal and state agencies. The FDA regulates the introduction of
new drugs, advertising of prescription drug products, manufacturing,







                                      -7-
<PAGE>   10


laboratory and clinical practices, labeling, packaging and record-keeping with
respect to drug products. The FDA also reviews the safety and effectiveness of
marketed drugs and may require withdrawal of products from the market and
modification of labeling claims where necessary. In addition, the manufacturing,
marketing and use of Animal Health drug products are closely regulated by the
FDA.

              Government approval of new drugs under the federal Food, Drug and
Cosmetic Act requires substantial evidence of safety and efficacy. As a result
of this requirement, as interpreted by the FDA, the length of time and the
laboratory and clinical information required for approval of an NDA is
considerable.

              The FDA has adopted streamlined procedures for the approval of
duplicate drugs (drugs containing the same active ingredient as the originator's
product), including abbreviated NDAs. Approval of abbreviated NDAs may not be
made effective prior to expiration of valid patents. The FDA has established a
similar expedited approval process for antibiotics. The availability of the
abbreviated NDA and expedited antibiotic approval processes has reduced the time
required to obtain FDA approval of some competing products and has facilitated
generic competition.

              At the state level, so-called "generic substitution" legislation
permits the dispensing pharmacist to substitute a different manufacturer's
version of a drug for the one prescribed. In a number of states, such
substitution is mandatory unless precluded by the prescribing physician.

              U.S. pharmaceutical manufacturers are required to provide rebates
to state governments for prescriptions covered by Medicaid. The issue of further
price controls on sales of prescription drugs continues to be considered in
Congress and various states, and additional federal or state legislation to
limit prices of prescription drugs is possible.

              It is difficult to predict the ultimate effect of streamlined
approval of duplicate or generic drugs, "generic substitution," the Medicaid
reimbursement and rebate programs and possible price limitations. However, the
Company believes that its development of patented and exclusively licensed
products may moderate the impact of programs and legislation focusing mainly on
products available from multiple suppliers.








                                      -8-
<PAGE>   11

                              FINANCIAL INFORMATION

              Financial information about industry segments and financial
information about foreign and domestic operations and export sales is contained
in the Company's financial statements, incorporated herein by reference to the 
Registrant's Annual Report to Shareholders filed as Exhibit 13 hereto.


                                    EMPLOYEES

              The Company has approximately 30,000 employees worldwide, although
the number is continually changing based on realignment of operations and 
workforce needs.

              The Company believes that it has good relations with its
employees. Employees at several non-U.S. locations are represented either by
freely elected unions or by legally mandated workers' councils or similar
organizations.


                                    YEAR 2000

              The Company has established a global Year 2000 program to review
its information technology ("IT") systems and to develop plans to correct Year
2000 date recognition problems in computers. The program consists of assessment
and remediation of IT systems and embedded systems, assessment of business risks
and the development of contingency plans to address these risks. The Company 
expects to complete compliance measures for its IT and embedded systems by 
mid-1999 and to test these systems in the second half of 1999. The
Company anticipates total spending of $150 million between 1997 and 2000, of
which $110 million has already been spent, largely on replacement of
applications that, for reasons other than Year 2000 noncompliance, had been
previously selected for replacement. The Company believes that its Year 2000
program will prevent the Year 2000 problem from having a material adverse effect
on the Company's business, financial position, results of operations and 
liquidity. However, there can be no assurance that the Year 2000 problem will 
not have such an impact on the Company.


                             CONVERSION TO THE EURO

              On January 1, 1999, several European countries began operating
with a new common currency, the euro. The euro will completely replace these
countries' national currencies by January 1, 2002. The conversion to the euro
will require the Company to modify some of its systems and certain commercial
arrangements. The cost of this is not expected to be material. The conversion to
the euro may have competitive implications on pricing and marketing strategies,
but any such impact is not







                                      -9-
<PAGE>   12
known at this time. The Company expects the conversion to have a limited impact
on its outstanding derivatives and other financial instruments, and a limited
impact on currency risk.

          The euro conversion is not expected to have a significant impact on
the Company; however, it is uncertain what effects the new euro currency will
have on the marketplace. There can be no assurance that all problems will be
foreseen and corrected, or that there will not be a material disruption of the
Company's business.


                          FOREIGN EXCHANGE FLUCTUATIONS

          The Company records its transactions and prepares its financial
statements in U.S. dollars, but a significant portion of its earnings and
expenditures are in other currencies. Changes in exchange rates between the U.S.
dollar and such currencies can result in increases or decreases in the Company's
costs and earnings. Fluctuations in exchange rates between the U.S. dollar and
other currencies may also affect the book value of the Company's assets outside
the United States and the amount of shareholders' equity. The Company seeks to
minimize its currency exposure by engaging in hedging transactions, where deemed
appropriate.


                              ENVIRONMENTAL MATTERS

          The Company is subject to extensive environmental legislation and
regulation, requiring substantial environmental compliance costs, including
capital expenditures related to future production. Projects related to the
prevention, mitigation and elimination of environmental effects are implemented
worldwide.

          Since several capital projects are undertaken for both environmental
control and other business purposes, such as production process improvements, it
is difficult to estimate the specific capital expenditures for environmental
control. However, it is estimated that capital expenditures for environmental
protection will exceed $20 million in 1999 and $25 million in 2000. Operating
expenses for compliance with environmental protection laws and regulations in
1998 are estimated to have been in excess of $45 million. Management estimates
that such operating expenses will be in excess of $50 million in each of years
1999 and 2000. Cash payments charged to environmental reserves in 1998 were
approximately $10 million and are anticipated to approximate $5 million in 1999.

          With regard to its discontinued industrial chemical facility in North
Haven, Connecticut, the Company may soon be required to submit a corrective
measures study report to the U.S. Environmental Protection Agency (EPA). As the
corrective action process progresses, it may become appropriate to reevaluate
the existing reserves designated for remediation in light of changing
circumstances. It is reasonably possible that a material increase in accrued
liabilities will be required, but it is not possible to determine what, if any,
exposure exists at this time or when the expenditures might be made.

ITEM 2.       PROPERTIES

          The Company's various businesses operate through a number of offices,
research laboratories and production facilities throughout the world with
principal locations in Kalamazoo, Michigan; Stockholm, Uppsala and Helsingborg,
Sweden; Milan, Italy; and Puurs, Belgium. The Company also has major facilities
in Japan and Puerto Rico. The Company headquarters is located in Bridgewater,
New Jersey. The Company believes its properties to be adequately maintained and
suitable for their intended use and its production facilities to have a capacity
adequate for its current needs.








                                      -10-

<PAGE>   13

ITEM 3.       LEGAL PROCEEDINGS

              Various suits and claims arising in the ordinary course of
business, primarily for personal injury alleged to have been caused by the use
of the Company's products, are pending against the Company and its subsidiaries.
Product liability is a significant commercial risk for the Company. Substantial
damage awards have been made in certain jurisdictions against pharmaceutical
companies based upon claims for injuries allegedly caused by the use of their
products.

              The Company has been a party, along with many other U.S. drug
manufacturers and wholesalers, in numerous related federal and state civil
antitrust lawsuits brought by U.S. independent and chain retail pharmacies and
consumers. These suits claim violations of antitrust and pricing laws as a
result of the defendants providing discounts and rebates to allegedly favored
managed care customers that were not offered to the plaintiffs. The Company
reached settlement with plaintiffs in the federal class action cases that had
been consolidated in federal court in Chicago, Illinois. The Company believes
that any potential remaining liability above amounts accrued will not have a
material adverse effect on the Company's consolidated financial position, its
results of operations, or liquidity.

              The Company is involved in several administrative and judicial
proceedings relating to environmental concerns, including actions brought by the
U.S. EPA and state environmental agencies for remedial cleanup at approximately
50 sites. The Company's estimate of the ultimate cost to be incurred in 
connection with these environmental situations could change due to uncertainties
at many sites, such as potential cleanup remedies, the estimated cost of cleanup
and the Company's ultimate share of a site's cost.

              While it is not possible to predict or determine the outcome of
legal actions brought against the Company, or the ultimate cost of environmental
matters, the Company believes that any unaccrued costs and liabilities
associated with such matters will not have a material adverse effect on the
Company's consolidated financial position, and unless there is a significant
deviation from the historical pattern of resolution of these issues, there
should not be a material adverse effect on the Company's results of operations
or liquidity.

              Please see the third paragraph of the section captioned
"Environmental Matters" for information concerning the Company's discontinued
industrial chemical facility in North Haven, Connecticut.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

              No matters were submitted to a vote of security holders during the
quarter ended December 31, 1998.







                                      -11-

<PAGE>   14


                                     PART II

ITEM 5.       MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
              MATTERS

              The Company

              The Common Stock is listed and traded on the New York Stock
Exchange (the "NYSE") under the symbol PNU. As of January 31, 1999, there were
36,809 holders of record of the Common Stock. Swedish Depositary Shares, each
representing one share of Common Stock, are traded on the Stockholm Stock
Exchange under the symbol PH&U.

              Information regarding the market prices and dividends for the
Company's Common Stock and related stockholder matters appearing under the
caption "Quarterly Data" in the 1998 Annual Report to Shareholders (Exhibit 13)
is hereby incorporated by reference.

ITEM 6.       SELECTED FINANCIAL DATA

              Incorporated herein by reference to the Registrant's Annual
              Report to Shareholders filed as Exhibit 13 hereto.

ITEM 7.       MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
              RESULTS OF OPERATIONS

              Incorporated herein by reference to the Registrant's Annual
              Report to Shareholders filed as Exhibit 13 hereto.

ITEM 8.       FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

              Incorporated herein by reference to the Registrant's Annual
              Report to Shareholders filed as Exhibit 13 hereto.

ITEM 9.       CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
              FINANCIAL DISCLOSURE

              None.


                                    PART III

ITEM 10.      DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         Background information for the Board of Directors, including Fred
         Hassan, the Company's President and Chief Executive Officer, is
         incorporated herein by reference from the Company's definitive proxy
         statement for the annual meeting of shareholders to be held on April
         20, 1999.

         In addition to Fred Hassan, the following are the Company's executive
         officers:

              Goran A. Ando, M.D., age 49, Executive Vice President and
         President, Research & Development. He had been Executive Vice President
         and Deputy Chief Executive Officer of Pharmacia since February 1995,
         and before that had been at Glaxo Holdings p.l.c., where he was
         director of research and development activities.






                                      -12-

<PAGE>   15

              Hakan Astrom, age 51, Senior Vice President, Strategic Planning
         and Investor Relations. He had been Group Vice President of Pharmacia
         since 1993.

              Richard T. Collier, age 45, Senior Vice President and General
         Counsel. He had been Senior Vice President, General Counsel and Member
         of the Executive Council of Rhone-Poulenc Rorer until December 1997. He
         joined Rhone-Poulenc Rorer in 1986 as Assistant Counsel and held
         various positions including Vice President and Assistant to the
         Chairman from 1991 to 1992.

              Christopher J. Coughlin, age 46, Executive Vice President and
         Chief Financial Officer. He had been Executive Vice President and
         Chief Financial Officer of Nabisco since 1996, and prior to that, he 
         was Chief Financial Officer at Sterling Winthrop, Inc.

              Paul L. Matson, age 50, Senior Vice President, Human Resources. He
         had been Vice President, Human Resources, of Moore Corporation Limited
         until 1998. Prior to that he was a senior human resources executive
         with Miles, Inc., the U.S. subsidiary of Bayer Corporation.

              Mats G. Pettersson, age 53, Senior Vice President, Business
         Development. He had been Group Vice President of Pharmacia since 1993
         and prior to that he was Chief Financial Officer of KabiVitrum AB,
         Stockholm, Sweden.

              Timothy G. Rothwell, age 47, Executive Vice President and
         President, Global Pharmaceutical Operations. He had been President of
         Rhone-Poulenc Rorer since 1996 and was a member of that Board of
         Directors since January 1997. He joined Rhone-Poulenc Rorer in 1995 as
         Executive Vice President and President, Pharmaceutical Operations.
         Prior to that he was CEO and President of the U.S. pharmaceutical
         business for Sandoz Pharmaceuticals.

              Carrie Smith Cox, age 41, Senior Vice President and Head, Global
         Business Management. She had been Vice President, Women's Health Care
         at Wyeth-Ayerst Laboratories division of American Home Products until
         August 1997.







                                      -13-
<PAGE>   16


ITEM 11.      EXECUTIVE COMPENSATION

              Incorporated herein by reference from the Company's definitive
              proxy statement for the annual meeting of stockholders to be held
              on April 20, 1999.

ITEM 12.      SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

              Incorporated herein by reference from the Company's definitive
              proxy statement for the annual meeting of stockholders to be held
              on April 20, 1999.

ITEM 13.      CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

              Incorporated herein by reference from the Company's definitive
              proxy statement for the annual meeting of stockholders to be held
              on April 20, 1999.


                                     PART IV

ITEM 14.      EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

       (a)1.  FINANCIAL STATEMENTS

              The following are included in the 1998 Annual Report to
              Shareholders (Exhibit 13) and are incorporated by reference into
              this Form 10-K pursuant to Item 8.

              Report of Independent Accountants - PricewaterhouseCoopers LLP

              Consolidated Statements of Earnings, Years ended December 31,
              1998, 1997 and 1996.

              Consolidated Balance Sheets, December 31, 1998 and 1997.

              Consolidated Statements of Shareholders' Equity, Years ended
              December 31, 1998, 1997 and 1996.

              Consolidated Statements of Cash Flows, Years ended December 31,
              1998, 1997 and 1996.

              Note 7. Earnings Per Common Share, Years ended December 31, 1998,
              1997 and 1996.

              Note 21. Segment and Geographic Information, Years ended December
              31, 1998, 1997 and 1996.

              Notes to Consolidated Financial Statements.








                                      -14-
<PAGE>   17



       (A)2.  FINANCIAL STATEMENT SCHEDULES

       NOTES:

       (1)    Schedules are omitted because they are either not required, are
              not applicable or because equivalent information has been included
              in the financial statements, the notes thereto or elsewhere
              herein.

       (2)    Financial statements of 50 percent-or-less-owned affiliated
              persons are omitted because such persons, in the aggregate, do not
              constitute a significant subsidiary.

       (A)3.  EXHIBITS

              (3)(i)    Restated Certificate of Incorporation of the Registrant
                        (filed as Exhibit 4.1 to the Registrant's Registration
                        Statement on Form S-8 (Reg. No. 333-03109), and
                        incorporated herein by reference).

              (3)(ii)   By-laws of the Registrant.

              (4)(a)    Loan Agreement between Puerto Rico Industrial,
                        Medical and Environmental Pollution Control Facilities
                        Financing Authority and The Upjohn Company, dated as of
                        December 1, 1983, and Trust Agreement between Puerto
                        Rico Industrial, Medical and Environmental Pollution
                        Control Facilities Financing Authority and The Chase
                        Manhattan Bank (National Association), Trustee, dated as
                        of December 1, 1983 (not filed pursuant to Regulation
                        S-K, Item 601 (b)(4)(iii)(A); the Registrant agrees to
                        furnish a copy of these documents to the Securities and
                        Exchange Commission upon request).

              (4)(b)    Indenture dated as of February 1, 1990, with
                        respect to debt securities issued by the Upjohn Employee
                        Stock Ownership Trust and 9.79% Amortizing Notes, Series
                        A, Due February 1, 2004, issued by the Upjohn Employee
                        Stock Ownership Trust and guaranteed by the Registrant
                        (not filed pursuant to Regulation S-K, Item 601
                        (b)(4)(iii)(A); the Registrant agrees to furnish a copy
                        of these documents to the Securities and Exchange
                        Commission upon request).

              (4)(c)    Indenture dated as of August 1, 1991 between the
                        Company and The Bank of New York, as trustee, with
                        respect to Debt Securities to be issued thereunder from
                        time to time (not filed pursuant to Regulation S-K, Item
                        601(b)(4)(iii)(A); the Registrant agrees to furnish a
                        copy of these documents to the Securities and Exchange
                        Commission upon request.

              (4)(d)    Rights Agreement, which includes as Exhibit A the
                        forms of Rights Certificate and Election to Exercise and
                        as Exhibit B the form of Certificate of Designation and
                        Terms of the Participating Preferred Stock (filed as
                        Exhibit 4 to the Registrant's Current Report on Form 8-K
                        dated February 25, 1997 and incorporated herein by
                        reference).

              (10)(a)   Form of Indemnification Agreement entered into with
                        each Officer and Director (incorporated by reference to
                        Exhibit (10)(a) to the Registrant's Form 10-K for the
                        year ending December 31, 1995).








                                      -15-

<PAGE>   18

              (10)(b)   Form of Employment Agreement with original
                        executive officers of Registrant, including G.A. Ando,
                        H. Astrom and M. Pettersson, dated January 4, 1996
                        (incorporated by reference to Exhibit (10)(c) to the
                        Registrant's Form 10-K for the year ending December 31,
                        1995).

              (10)(c)   Employment Agreement with Fred Hassan dated May 7,
                        1997 (incorporated by reference to Exhibit (10) to the
                        Registrant's Form 10-Q for the quarter ending June 30,
                        1997).

              (10)(d)   Employment Agreement with Richard T. Collier
                        (incorporated by reference to Exhibit (10)(h) to the
                        Registrant's Form 10-K for the year ending December 31,
                        1997).

              (10)(e)   Employment Agreement with Timothy G. Rothwell
                        (incorporated by reference to Exhibit (10)(i) to the
                        Registrant's Form 10-K for the year ending December 31,
                        1997).

              (10)(f)   Employment Agreement with Christopher J. Coughlin dated
                        February 10, 1998.

              (10)(g)   Employment Agreement with Carrie Smith Cox dated August
                        26, 1997.

              (10)(h)   Employment Agreement with Paul L. Matson dated February 
                        17, 1998.

              (10)(i)   Long-Term  Incentive Plan  (incorporated  by reference
                        to Exhibit (10)(h) to the Registrant's Form 10-K for the
                        year ending December 31, 1995).

              (10)(j)   Annual Incentive Plan  (incorporated by reference to
                        Exhibit (10)(i) to the Registrant's Form 10-K for the
                        year ending December 31, 1995).

              (12)      Computation of Ratio of Earnings to Fixed Charges.

              (13)      Annual Report to Shareholders.

              (21)      Subsidiaries of the Registrant.

              (23)      Consent of Independent Accountants.

              (27)      Financial Data Schedule.

         (B)  REPORTS ON FORM 8-K

              None.















                                      -16-
<PAGE>   19


                                   SIGNATURES

              Pursuant to the requirements of the Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.

                                         PHARMACIA & UPJOHN, INC.




                                  By:      /s/ Fred Hassan
                                       -----------------------------------------
                                       Fred Hassan
                                       President and Chief Executive
                                       Officer and Director


              Pursuant to the requirements of the Securities Exchange Act of
1934, this Registration Report has been signed by the following persons on
behalf of the Registrant in the capacities and on the dates indicated.


<TABLE>
<CAPTION>
               Signature                                Title                                      Date
               ---------                                -----                                      ----


<S>                                          <C>                                            <C>
    /s/ /Soren Gyll                          Chairman of the Board and Director             February 16, 1999
----------------------------------
         Soren Gyll

    /s/ Fred Hassan                          President and Chief Executive Officer and      February 16, 1999
----------------------------------           Director
        Fred Hassan

    /s/ Christopher J. Coughlin              Executive Vice President (Chief Financial      February 16, 1999
----------------------------------           Officer)
      Christopher J. Coughlin                

    /s/ Robert G. Thompson                   Senior Vice President (Chief Accounting        February 16, 1999
----------------------------------           Officer)
        Robert G. Thompson                   

     /s/ Richard H. Brown                    Director                                       February 16, 1999
----------------------------------
           Richard H. Brown

----------------------------------           Director                                       February 16, 1999
        Frank C. Carlucci

    /s/ Gustaf Douglas                       Director                                       February 16, 1999
----------------------------------
        Gustaf Douglas

    /s/ M. Kathryn Eickhoff                  Director                                       February 16, 1999
----------------------------------
        M. Kathryn Eickhoff

    /s/ Berthold Lindquist                   Director                                       February 16, 1999
---------------------------------- 
        Berthold Lindquist

    /s/ Olof Lund                            Director                                       February 16, 1999
----------------------------------
        Olof Lund

    /s/ C. Steven McMillan                   Director                                       February 16, 1999
----------------------------------
        C. Steven McMillan
</TABLE>













                                      -17-

<PAGE>   20
<TABLE>
<CAPTION>

         Signature                            Title                                      Date
         ---------                            -----                                      ----



<S>                                          <C>                                     <C>
    /s/ William U. Parfet                    Director                                February 16, 1999
----------------------------------
        William U. Parfet

    /s/ Ulla Reinius                         Director                                February 16, 1999
----------------------------------
        Ulla Reinius

    /s/ Bengt Samuelsson                     Director                                February 16, 1999
----------------------------------
        Bengt Samuelsson
</TABLE>


























                                      -18-
<PAGE>   21
                                  EXHIBIT INDEX

EXHIBIT NO.                        DESCRIPTION
-----------                        -----------

(3)(ii)                    By-laws of the Registrant

(10)(f)                    Employment Agreement with Christopher J. Coughlin

(10)(g)                    Employment Agreement with Carrie Smith Cox

(10)(h)                    Employment Agreement with Paul L. Matson

(12)                       Computation of Ratio of Earnings to Fixed Charges

(13)                       Annual Report to Shareholders

(21)                       Subsidiaries of the Registrant

(23)                       Consent of Independent Accountants

(27)                       Financial Data Schedule