<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, 1996

                                       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.)

              7000 Portage Road, Kalamazoo, Michigan 49001 U.S.A.
              (Address of principal executive offices) (Zip Code)


     Registrant's telephone number,
          including area code                       616/833-4000

          Securities registered pursuant to Section 12(b) of the Act:

    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)

          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.    [X]

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, 1997 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 $18,896,356,006.

The number of shares of Common Stock, $.01 par value, outstanding as of January
31, 1997 is 508,673,725 shares.
<PAGE>   2


                      DOCUMENTS INCORPORATED BY REFERENCE

Portions of the 1997 Proxy Statement are incorporated into Parts III and IV of
this report.

Portions of the 1997 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 merger integration 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 in connection with the combination  (the "Combination") of Pharmacia
Aktiebolag ("Pharmacia") and The Upjohn Company ("Upjohn").  The Combination
sought to take advantage of certain synergies between Pharmacia and Upjohn in
fundamental research, product development, manufacturing, sales and marketing,
in order both to increase the Company's combined revenues and to reduce its
costs.  In 1996, the Company had a product portfolio with sales in excess of
$500 million in each of six therapeutic areas:  infectious disease, metabolic
disease, central nervous system disorders ("CNS"), oncology, women's health and
inflammation.  The Company's total research and development expenditures
exceeded $1 billion in 1996.  Discovery research is being focused on five core
areas:  infectious disease, metabolic disease, CNS, oncology and inflammation.

                 In addition to prescription human pharmaceuticals, the Company
manufactures and sells certain nonprescription drugs; manufactures
pharmaceutical chemicals and intermediates for use in its own products and for
sale to others; researches, develops, manufactures and markets pharmaceutical
and vaccine products for both food and companion animals; and markets specialty
products in hospital care, diagnostics and biotechnology supply and nutritional
supplements.

INDUSTRY BACKGROUND

                 The world market for advanced 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 expenditure.
Pharmaceuticals are increasingly chosen according to the therapeutic benefit in
relation to cost, such that 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 likely to
be key competitive factors in the pharmaceutical industry.

PRESCRIPTION PHARMACEUTICAL PRODUCTS

                 The Company researches, develops, manufactures and markets
high-value human pharmaceutical products to healthcare providers worldwide.
The following summary discusses the principal products within each therapeutic
area:

Infectious Disease

                 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 VAGINAL CREAM(R) is used to treat
bacterial vaginosis.  LINCOCIN is used in the treatment of serious infections
caused by





                                      -1-
<PAGE>   4

many strains of gram-positive bacteria.  The Company has exclusive U.S.
marketing rights to VANTIN(R) Tablets and Oral Suspension, an advanced
cephalosporin antibiotic, under patents licensed from Sankyo Company, Ltd.,
which rights will become semi-exclusive in 1997.

                 The Company markets MYCOBUTIN(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.  MYCOBUTIN is
marketed to specialists in infectious diseases and to internists.  The relevant
patent rights in the U.S. have recently been extended until 1999.  Such patent
rights expire in Europe in 2001.

Metabolic Disease

                 The Company's main activities in this area are related to
growth hormones, growth factors and anti-diabetes agents.  The Company's
primary product in the area of growth hormones and growth factors is
GENOTROPIN(R), a recombinant human growth hormone identical to the body's own
hormone.  GENOTROPIN has been marketed for several years in Europe and Japan,
and was recently launched in the U.S., including in a form called the
GENOTROPIN Pen, a self-administered injection form.  GENOTROPIN, which promotes
longitudinal bone growth, is used for the treatment of children of short
stature whose condition is due to growth hormone deficiency and patients with
renal insufficiency.  Management believes that the indications for adult growth
hormone deficiency may represent a significant market opportunity if the
patient and medical community can be convinced of the benefits of this product
for these indications.

                 The Company's major oral antidiabetes agents are MICRONASE(R)
Tablets, containing glyburide, and GLYNASE(R) PresTab Tablets, also containing
glyburide, for the treatment of non-insulin-dependent diabetes.  The Company is
experiencing increased levels of competition from generic substitutes in this
area with respect to MICRONASE Tablets and challenges to its formulation patent
position with respect to GLYNASE PresTab Tablets.

                 FRAGMIN(R) is a low molecular weight heparin for the
prevention of thrombosis (blood clots) in connection with surgery, during
hemodialysis (the removal of waste substances by circulating blood through a
dialyzer that functions as an artificial kidney), in the treatment of acute
deep vein thrombosis and (in the U.K.) in the treatment of unstable angina.

Central Nervous System

                 The Company produces major 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.

                 The Company has a joint marketing agreement with Solvay & Cie
to market in the U.S. and certain European countries Solvay's LUVOX
(fluvoxamine), a product for treatment of obsessive-compulsive disorder and
depression (the product is approved for depression in Europe and Canada but not
yet in the U.S.).  Under the same agreement, Solvay jointly markets HALCION and
XANAX in the U.S. and certain European countries.





                                      -2-
<PAGE>   5

Oncology

                 The Company is one of the world's leading producers of
anticancer drugs.  Its most important products in the oncology area are
FARMORUBICIN(R) (or PHARMORUBICIN) and ADRIAMYCIN(R) for use in chemotherapy.
Each of these products is used in the treatment of breast cancer as well as
other solid tumors.  Both are among the world's most frequently prescribed
anticancer drugs.  ADRIAMYCIN was the Company's first anthracycline
preparation.  The related patent expired in 1990.  Subsequent research efforts
to reduce the toxicity and increase the efficacy of ADRIAMYCIN led to the
development of FARMORUBICIN, a second generation anthracycline used primarily
to treat solid tumors (primarily breast and bladder cancer) and lymphomas.
Although a number of product patents relating to FARMORUBICIN expire in the
late 1990s, patents on the best-selling formulation of FARMORUBICIN do not
expire until after the year 2000.

                 CAMPTOSAR(R) (irinotecan hydrochloride), a recently approved
injectable DNA topoisomerase-I inhibitor pro-drug licensed from Yakult Honsha
for the U.S. and certain other territories, is marketed in the U.S. for
refractory colorectal cancer.

                 The Company also produces ZAVEDOS(R)/IDAMYCIN(R) (idarubicin),
an anthracycline used to treat acute leukemia that can be administered both
intravenously and orally, as well as ESTRACYT(R), which is used for the
treatment of advanced prostate cancer.  Based on clinical tests to date,
ZAVEDOS is superior to standard therapy in extending the survival of certain
patients who suffer from acute myeloblastic leukemia.  Although a number of
product patents relating to ZAVEDOS expire in the late 1990s, patents on its
most valuable commercial formulations do not expire until 2002.  ESTRACYT has
no patent protection and is subject to competition from other products and
therapies.  ZINECARD(R), sold in the U.S. and Canada, is a preparation for
reducing cardiac side effects in women with metastatic breast cancer who are
undergoing treatment with ADRIAMYCIN.

Women's Health

                 The Company markets several steroid hormones having a variety
of uses, including the treatment of allergic reactions, inflammation, asthma
and certain hormone deficiencies.  The Company's most important synthetic
hormone 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, licensed from
Abbott Laboratories.  The Company intends to increase its marketing in this
area directed towards the patient or ultimate consumer, who is increasingly
participating in the choice of product.

                 The Company also markets certain prostaglandin products,
including PROSTIN E2(R) Vaginal Suppository, which is generally used for
pregnancy disorders, and PROSTIN VR PEDIATRIC(R) Sterile Solution, for
cardiovascular use.  PREPIDIL(R) Gel, used for cervical ripening, is protected
by U.S. patents until 2003.

                 ESTRING(R), a local hormone replacement therapy for
post-menopausal women, is a soft intravaginal plastic ring that secretes a low
dose of natural estrogen over a period of three months.  The product was
recently introduced in the U.S. and in several European countries.

                 During 1996, DOSTINEX(R) Tablets, an oral medication for
hyperprolactinemia, a condition that can cause absence of menstruation
(amenorrhea) and excessive breast milk discharge (galactorrhea), was granted
market clearance in the United States and completed the regulatory approval
process in Europe.  DOSTINEX is effective and better tolerated than
bromocriptine, the only other product indicated for hyperprolactinemia.





                                      -3-
<PAGE>   6


                 In the area of bleeding control, the Company has marketed
CYKLOKAPRON(R), primarily in Europe, for over 25 years for the treatment of
menorrhagia (excessive menstruation).

Inflammation

                 The Company markets ANSAID(R) Tablets, a nonsteroidal
anti-inflammatory product containing flurbiprofen, for treatment of
osteoarthritis and rheumatoid arthritis, and MOTRIN(R) Tablets, a nonsteroidal
anti-inflammatory product containing ibuprofen, used in the treatment of
rheumatoid arthritis and osteoarthritis and as a general analgesic for mild to
moderate pain, including dysmenorrhea.  Neither product is subject to
significant patent protection.

                 Within the autoimmunity field, the Company focuses on
treatments for rheumatoid arthritis and inflammatory bowel diseases ("IBD"),
including ulcerative colitis and Crohn's disease.  SALAZOPYRIN(R)
(sulfasalazin) or AZULFIDINE(R), introduced in 1942 and widely used in the
treatment of IBD, has had no patent protection since the 1960s and is subject
to competition from other products and therapies, as well as to some generic
competition.  SALAZOPYRIN, in the form of SALAZOPYRIN EN-tabs, is used for the
treatment of rheumatoid arthritis.  SALAZOPYRIN is marketed in Europe, the U.S.
and Japan, primarily to rheumatologists.

                 DIPENTUM(R), another product for the treatment of patients
with IBD, with fewer observed side effects than SALAZOPYRIN, is currently
marketed by the Company in the U.S. (only for maintenance treatment of patients
in remission intolerant to sulfasalazin) and Europe and through independent
distributors in five other countries.  Although DIPENTUM has patent protection
in the countries in which it is marketed, it competes with other products.

                 The Company produces various forms of chemical modifications
of hormones 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.

Nutrition

                 This therapeutic area comprises a number of products for
intravenous nutrition, including products that meet the body's nutritional
needs for fats, amino acids, vitamins and trace elements.  The Company's
largest selling nutritional product is the fat emulsion INTRALIPID(R), launched
in 1962.  INTRALIPID has no patent protection and competes with a limited
number of other fat emulsions in all its major markets.  Although sales of
INTRALIPID in recent years have not shown significant growth, the emulsion is
increasingly being used in mixed products and as a vehicle for delivery of
third-party products.  The Company also markets KABIMIX(R) and VITRIMIX(R),
pre-mixed nutritional supplements, and GLAMIN(R) and VAMIN(R), amino acid
solutions.  Management believes that there are limited opportunities for growth
in this area except in developing countries such as China, where there are
developing healthcare systems and large patient populations.

Ophthalmology

                 In 1996, the Company received approval in the U.S., Sweden,
Switzerland and the U.K. to market XALATAN(R), a new drug 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.

                 HEALON(R) is a viscoelastic substance which includes sodium
hyaluronate and is used primarily in cataract surgery to facilitate the
implantation of plastic intraocular lenses ("IOLs")





                                      -4-
<PAGE>   7

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
believes that HEALON is the global market leader of viscoelastic products used
in ophthalmic surgery.  The U.S.  patent for HEALON expired in February 1996,
which adversely affected sales of HEALON.

                 The Company also produces IOLs made of polymethylmethacrylate,
which are surgically implanted in the eye to replace the natural lens when it
becomes cloudy and partly opaque because of cataracts.  Competition in the IOL
market is intense, causing pressure on prices and a slight decline in the
Company's sales volume and market share.  The Company's right to continue
marketing its CeeOn(R) Foldable Lenses in the U.S. is subject to the outcome of
a patent lawsuit.

Urology

                 DETRUSITOL(R) (tolterodine), for which a centralized European
Union regulatory application was filed in Sweden in late 1996 and a New Drug
Application was filed in the U.S. in early 1997, offers a remedy for urinary
incontinence by reducing overactivity in the bladder, thus reducing symptoms,
such as increased frequency and urge to urinate, as well as incontinence
episodes.  The Company is engaged in arbitration with Forest Laboratories
("Forest") in which Forest alleges that pursuant to an agreement with the
Company, Forest is entitled to exclusive U.S. marketing rights to DETRUSITOL.
The Company intends to vigorously defend this action, although it is not yet
able to predict the outcome of this proceeding.

                 The Company also markets DRIDASE(R)/DITROPAN(R) and CETRIPRIN
NOVUM(R) for urinary incontinence.

                 CAVERJECT(R), a treatment for erectile dysfunction due, among
other reasons, to diabetes, cardiovascular problems, injuries and aging, is
self-administered by intracavernosal injection and is sold in 59 countries.

CONSUMER HEALTH CARE PRODUCTS

                 The Company develops, manufactures and markets nonprescription
healthcare products to drug stores, food stores and mass merchandisers in the
U.S. and Europe.

                 The Company developed and manufactures NICORETTE(R) and
NICOTROL(R) for smokers who seek a medical product to aid in smoking cessation.
NICORETTE chewing gum is sold over-the-counter in the U.S. by SmithKline
Beecham Consumer Pharmaceuticals.  NICORETTE chewing gum has also been approved
for sale in France.  The Company's NICORETTE chewing gum and transdermal patch
administer nicotine to the body through slow-release formulations in order to
alleviate withdrawal symptoms.  Although the Company's U.S. patent covering
nicotine polacrilex, the active ingredient in NICORETTE chewing gum, expired in
August 1992, the Company has market exclusivity for NICORETTE chewing gum in
the U.S.  until 1999, during which time no abbreviated new drug applications
(ANDAs) for the product can be approved by the U.S. Food and Drug
Administration.  In other countries, the Company has no patent protection for
NICORETTE chewing gum; however, the NICORETTE transdermal patch is patented in
certain jurisdictions, and is sold in the U.S. by McNeil Consumer Products
Company.

                 In addition, the Company produces and sells ROGAINE(R) Topical
Solution, a 2% solution of minoxidil applied topically to treat hair loss in
men with male pattern baldness and in women with androgenetic alopecia or
hereditary hair loss.  The product is also sold in numerous





                                      -5-
<PAGE>   8

foreign countries.  The U.S. patents covering ROGAINE expired in February 1996.
ROGAINE is sold over-the-counter in the U.S. and competes with several generic
products not produced by the Company.

                 The Company also manufactures and distributes other
non-prescription products including MOTRIN IB(R) Tablets, Caplets and Gelcaps,
an analgesic; KAOPECTATE(R) products, for diarrhea; MICROLAX(R), for
constipation; CORTAID(R) products, anti-inflammatory topical products; the
family of UNICAP(R) vitamin products; DRAMAMINE(R), anti-motion sickness
medicines; and MYCITRACIN(R), an antibiotic ointment for treatment of minor
skin infections and burns.  The Company also holds a license from
Hoechst-Roussel Pharmaceuticals Inc. for exclusive U.S.  rights to the
nonprescription laxative products DOXIDAN(R) and SURFAK(R).  The Company also
has a U.S. marketing arrangement with McNeil Consumer Products Company whereby
the Company has certain rights to several ibuprofen-based products and other
products being developed by McNeil.

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 administrative 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 five medically
important therapeutic areas, including infectious disease, metabolic disease,
CNS, oncology and inflammation, and are conducted principally in the Company's
three regional centers in Kalamazoo, Michigan, Stockholm/Uppsala, 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.

                 As a result of the Combination, the Company has R&D resources
which enable it competitively to develop commercially attractive new products.
The research expertise of Pharmacia in molecular biology and Upjohn in advanced
chemistry strengthened research capabilities and will contribute to a reduction
in overall development time for new products.  As part of the Company's
increased focus on high priority projects, a thorough review of R&D projects
was undertaken.  As





                                      -6-
<PAGE>   9

a result, several projects then under development have been discontinued or
licensed out, enabling additional resources to be devoted to higher priority
projects.

Infectious Disease

                 A New Drug Application for RESCRIPTOR(R) (delavirdine
mesylate), a non-nucleoside reverse transcriptase inhibitor for the treatment
of AIDS and HIV seropositive/asymptomatic patients, was filed with the U.S. FDA
in 1996.

                 Oxazolidinones are a potentially important new class of
antibiotics that have a novel mechanism of action:  inhibition of mRNA
translation.  A compound (linezolide) is in Phase II clinical studies for
evaluation of efficacy, safety and human pharmacokinetics.  In vitro studies
show the oxazolidinones to be effective against gram-positive bacteria
including antibiotic-resistant strains of staphylococci, streptococci and
enterococci.  Management believes that oxazolidinones have the potential to
meet a significant unmet need due to the increasing incidence of resistant
bacterial infections.  A patent application is pending in the U.S.

Metabolic Disease

                 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
including use in adults as hormone replacement therapy (for which approval has
already been received in the major European countries, New Zealand and China),
and for uremia.  In addition, the Company is pursuing further development of
convenience products to administer GENOTROPIN as well as studying other
indications.

Central Nervous System

                 In the CNS area, the Company has three potential products in
late stage clinical development:  cabergoline, pramipexole and reboxetine.

                 Cabergoline has preferential D2 receptor agonist activity with
extremely long-lasting dopamine agonist effect.  Cabergoline has been approved
for marketing in the U.S. and several European countries under the trade name
DOSTINEX for the treatment of hyperprolactinemia.  The compound is also in late
development worldwide as a potential treatment for Parkinson's disease, a
relatively frequent and progressively disabling illness of the advanced age,
where the product, to be named CABASER(R), may be particularly useful for its
longer duration of action and more convenient administration compared with
other similar drugs.  A registration dossier has been filed in major European
countries and Japan, and the Company has received approval in the UK, Denmark
and Switzerland for use in treatment of Parkinson's disease.  Continued studies
with CABASER aim at documenting the product as a first line treatment for
Parkinson's disease, especially for patients with early onset of disease.

                 Pramipexole has preferential D3 receptor agonist activity and
is under development for Parkinson's disease and depression.  To date, studies
in depression have shown questionable efficacy and the schizophrenia indication
has been discontinued for the same reason.  The compound was licensed from, and
is being co-developed with, Boehringer-Ingelheim, with plans for worldwide
co-marketing.  The Company filed an NDA for Parkinson's disease in the U.S. in
late 1995.  The NDA includes three North American studies, which produced good
results at well- tolerated doses for





                                      -7-
<PAGE>   10

both early and late stage Parkinson's disease.  The European filing will be
dependent on finalization of a European early disease study (enrollment
completed) as well as a bromocriptine comparator trial.  A centralized EU
application was filed in late 1996 for Parkinson's disease.  The pramipexole
compound patent expires in 2005 in Europe and Japan, and in 2006 in the U.S.

                 Reboxetine is an antidepressant agent which has a different
mode of action compared with other drugs due to a different mechanism of
action.  Clinical Phase III studies have been completed in Europe and
regulatory submission in Europe took place in August 1996.

                 LINOMIDE(R) is an oral immunomodulator which is currently
being tested in multiple sclerosis studies, following positive animal studies
indicating potential efficacy in autoimmune disorders.  Phase II clinical
studies have also been encouraging and Phase III clinical studies are ongoing.

                 The Company is working to develop a chemical entity that would
be intended to have an improved efficacy/side-effect ratio in the treatment of
migraine.

                 In addition, the Company has several other projects under
development.  These include XANAX XR(R), a new formulation of the drug XANAX
which is indicated for the treatment of anxiety.  XANAX XR is a sustained
release formulation expected to offer convenience/compliance benefits and, in
addition, separate patent protection has been applied for this product.

Oncology

                 This area represents a major research commitment for the
Company with discovery and development efforts directed and focused on 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.

                 CAMPTOSAR(R) (irinotecan hydrochloride), an injectable DNA
topoisonmerase-I inhibitor pro-drug, was approved in the U.S. for treatment of
refractory colorectal cancer.  In the U.S. and Latin America, Phase II cervical
and non-small cell lung cancer studies have been conducted.  Phase III planning
is underway for colorectal and non-small cell lung trials.  Also, Phase I
studies for oral irinotecan are underway to determine the maximal tolerated
dose.

                 Exemestane is a hormonal anticancer agent that is being tested
as a potential treatment for advanced breast cancer.  Phase III studies are
being performed in Europe and the U.S, and Phase II clinical trials are in
progress in Japan.

                 SnET2 (tin ethyl etiopurpurin) is a novel agent for
photodynamic anticancer therapy, licensed from the U.S. company PDT Inc.  Phase
III clinical trials have begun in skin malignancies.  The photoreactive drug is
activated by nonthermal light from a medical laser, which leads to the
production of free oxygen radicals and the destruction of cancer cells.  For
most applications, only local anesthesia is required, indicating the potential
for outpatient use.

Ophthalmology

                 XALATAN (latanoprost), the Company's compound for the
treatment of open-angle glaucoma, has been approved in the U.S., U.K.,
Switzerland and Sweden and is awaiting registration in the remaining European
countries and Japan.  Glaucoma is the largest indication in ophthalmology.  The
Company believes that XALATAN represents a major advance in the treatment of
glaucoma.





                                      -8-
<PAGE>   11

XALATAN reduces intraocular pressure by means of a new mechanism of action.
The development program for XALATAN will be further expanded with combination
therapy and new formulations.

Other Prescription Pharmaceutical Products

                 FREEDOX(R) (tirilazad mesylate) is an antioxidant that limits
ischemia in animal models.  The product has been approved for severe
subarachnoid hemorrhage ("SAH") in males in several countries.  It has been
shown that pre-menopausal women and patients on anticonvulsants, particularly
phenytoin, have a faster rate of metabolism and thus are likely to need more
drug to demonstrate efficacy.  Accordingly, two Phase III trials are ongoing
(one in Europe and one in the U.S.) to evaluate efficacy of a higher dose in
women.  A U.S.  safety study using higher doses in males is also being
conducted.  Clinical studies for the stroke indication have been discontinued
due to questionable efficacy of FREEDOX.  A study for spinal cord injury
sponsored by the National Institute of Health has completed enrollment and
results have indicated positive outcomes.

Consumer Health Care Products

                 The Company is currently working on extending the range of
products for smoking cessation (NICORETTE) and a treatment for hair loss
(ROGAINE/REGAINE) to the over-the-counter market.

ANIMAL HEALTH

                 The Company researches, develops, manufactures and markets a
broad range of pharmaceutical and vaccine products for both food and companion
animals.  These products are sold worldwide to veterinarians, feed
manufacturers, distributors and growers who choose the Company's products
primarily because of their efficacy and suitability for particular uses, as
well as price and quality.  Major products include NAXCEL(R) Sterile Powder, an
antibiotic for bovine and swine respiratory disease and early chick mortality;
LINCO-SPECTIN(R) Soluble Powder and Premix, a combination
lincomycin/spectinomycin antibiotic; LINCOMIX(R) 20 and LINCOMIX 50 Feed
Medication, which are feed-additive antibiotics; MGA(R) Premix, which is a
growth-promoting feed additive for feedlot heifers; various products for the
treatment of mastitis, including PIRSUE(R); DELTA ALBAPLEX(R) Tablets and
LINCOCIN(R), which are small-animal antibiotics; and LUTALYSE(R) Sterile
Solution, which is used to synchronize breeding performance in mares and
cattle.

CHEMICAL AND CONTRACT MANUFACTURING

                 The Company researches, develops, manufactures and markets
bulk pharmaceutical chemicals and selected high-technology specialty
(nonpharmaceutical) chemicals.  In addition, the Company manufactures finished
dosage forms for sale to third parties.

BIOTECHNOLOGY

                 The Company is 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 business area's traditional products are for use in
laboratory-scale chromatography and electrophoresis, two key separation
technologies for biomolecules.  The Company also produces reagents, chemicals
and systems used by researchers to perform experiments in the areas of
molecular and cell biology, and media and systems devoted to large-scale
purification of substances prepared by biotechnological methods in the
pharmaceutical industry.  In recent years, the market for biotechnology
research instruments and other products has





                                      -9-
<PAGE>   12

been adversely affected by budgeting constraints in universities and publicly
funded research centers, resulting in increasing competition and downward price
pressure.

DIAGNOSTICS

                 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), was introduced by Pharmacia in 1989.  It is a highly
automated laboratory system that enables testing from patient blood samples for
allergenic sensitivity to nearly 500 substances.  The Company believes that no
competitor in the allergy diagnostic business markets a product that can test
allergenic sensitivity to as many different substances.  The Company markets
the Pharmacia CAP System to diagnostic laboratories worldwide.  Patents on the
Pharmacia CAP System expire in 2003.  During 1996, a new easy-to-use,
low-volume test instrument, UniCAP 100(R), was introduced 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.

DISEASE MANAGEMENT

                 The Company participates in the disease management business in
the U.S. through its Greenstone Healthcare Solutions subsidiary, providing
services in prevention, screening, diagnosis, treatment, case management,
education and outcome assessment.

PRODUCTION

                 The Company produces its 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 products are sold worldwide.  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.

                 The Company's marketing companies are organized by
geographical markets to meet the requirements of the markets in which they
operate.

COMPETITION

                 The pharmaceutical industry is highly competitive.  The
Company's principal competitors consist of major international corporations
with substantial resources.  A drug may be





                                      -10-
<PAGE>   13

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 foreign pharmaceutical markets, including
decreased pricing flexibility, restrictions on promotional and 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 longstanding
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.





                                      -11-
<PAGE>   14

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 Europe, the European Agency for the Evaluation of Medicinal
Products (the "Medicinal Products Agency") was created in July 1993 and opened
on January 1, 1995.  Based in London, the Medicinal Products Agency will give
opinions on medicinal products by using two new procedures, a centralized
community procedure and a decentralized procedure, the latter being based on
the principle of mutual recognition of assessments.

                 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, 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 products are closely
regulated in all major markets including the U.S. Department of Agriculture,
which regulates animal health products within the U.S.

                 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.





                                      -12-
<PAGE>   15

                 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.

                 Financial information about industry segments and financial
information about foreign and domestic operations and export sales is contained
in the Company's financial statements.


                                   EMPLOYEES

                 The Company has approximately 31,700 employees worldwide,
although the number is changing based on realignment of operations and related
reductions in force.

                 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.


                             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 $30 million in both 1997 and 1998.
Operating expenses for compliance with environmental protection laws and
regulations in 1996 are estimated to have been in excess of $60 million.  It is
estimated that such operating expenses for 1997 will be in excess of $55
million.  Cash payments charged to environmental reserves in 1996 were
approximately $17 million and are estimated to be approximately $15 million for
1997.


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
production and research facilities in Japan and Puerto Rico and leases its
primary





                                      -13-
<PAGE>   16

business offices in Windsor, England.  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.


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 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, including site clean-up at the Company's discontinued
industrial chemical operations in the state of Connecticut.  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 with
respect to potential cleanup remedies, the estimated cost of cleanup and the
Company's ultimate share of a site's cost.

                 Based on information currently available and the Company's
experience with lawsuits of the nature of those currently filed or anticipated
to be filed which have resulted from business activities to date, the amounts
accrued for product and environmental liabilities are considered to be
adequate.  Although the Company cannot predict and cannot make assurances with
respect to the outcome of individual lawsuits, the ultimate liability should
not have a material effect on its consolidated financial position; and unless
there is a significant deviation from the historical pattern of resolution of
such issues, the ultimate liability should not have a material adverse effect
on the Company's results of operations or liquidity.

                 In May 1994, the FDA established a Task Force to review the
FDA's prior inspection report on HALCION, including an assessment of the
conclusions of the report, the approval of the drug, related FDA processes and
procedures and the violation of any laws.  The U.S.  Attorney's Office in Grand
Rapids, Michigan, assisted in this review.  The Task Force found no evidence of
criminal wrongdoing, but suggested that the Justice Department is the
appropriate entity to determine and evaluate the facts and to determine whether
criminal offenses had occurred and should be pursued.  The Task Force also
concluded that the evidence supports the safety and efficacy of HALCION tablets
when used in accordance with its approved labelling.  However, the Task Force
recommended that a wide spectrum of experts review the safety and efficacy data
on HALCION tablets, and report their findings to the FDA's Psychopharmalogical
Drugs Advisory Committee.  The Task Force also recommended several improvements
in FDA practices and procedures.  Three current employees and one former
employee recently testified before a Grand Jury in Grand Rapids, Michigan, on
the subject of the Company's record keeping and tracking of capital assets and
computer disks and tapes, with the principal focus on tapes and disks
containing HALCION clinical data and analyses.  The Company cannot predict the
outcome of any continuing investigation by the Justice Department, the FDA or
the Grand Jury.  A subcommittee of the House of Representatives has instituted
a review of some of the conclusions of the original inspection report and is
reviewing the Task Force report.  The Company has furnished the subcommittee a
large number of documents in responding to the subcommittee's request.  The
Company cannot predict the nature, scope or timing of any further review by the
subcommittee.





                                      -14-
<PAGE>   17

                 The Company has been named along with at least 30 other
defendants (both manufacturers and wholesalers) in a number of federal civil
antitrust lawsuits which have been consolidated and transferred to the Federal
District Court for the Northern District of Illinois.  These suits allege that
the Company and the other named defendants violated (1) the Robinson-Patman Act
by giving substantial discounts and rebates to mail-order pharmacies and
managed health care organizations without according the same discounts to
retail pharmacies, and (2) Section 1 of the Sherman Antitrust Act by entering
into illegal agreements to deny such discounts and rebates to retailers.  The
federal court certified a national class of retail pharmacies in November 1994.
Similar actions by proposed retailer classes have been filed in the state
courts of Alabama, California, Minnesota and Wisconsin, and actions by proposed
consumer classes seeking damages based on the same alleged conduct are pending
in the state courts of Alabama, Arizona, California, Colorado, the District of
Columbia, Maine, Michigan, Minnesota, New York, Washington and Wisconsin.  The
California and Washington, D.C. courts have certified a retailer class.
Motions to certify the proposed classes are pending in several other states.
In April 1996, the Federal District Court denied motions by the Company and 12
other manufacturer defendants for summary judgment.  Appeals from the denial
are pending.  In July 1996, the Federal District Court approved a settlement
between 14 defendant manufacturers and the federal retailer class which
includes a release of the federal and state claims of class members against the
settling manufacturers.  The Company is not a party to this settlement.
However, due to the existence of a Judgment Sharing Agreement among the
defendant manufacturers, the settlement should not materially increase the
Company's liability exposure.

                 In March 1996, the Federal Trade Commission ("FTC") issued a
resolution authorizing an investigation to determine whether 22 prescription
drug manufacturers, including the Company, are engaging in unlawful concerted
activities to raise, fix, maintain or stabilize the prices of pharmaceutical
drugs in the United States.  In July 1996, the FTC issued document subpoenas to
each of the manufacturers, requesting pricing and marketing documents.  The
Company has produced documents to the FTC in response to the subpoena.


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, 1996.


                                    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, 1997, there were
36,327 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 1996 Annual Report to Shareholders (Exhibit 13)
is hereby incorporated by reference.





                                      -15-
<PAGE>   18

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 Jan
         Ekberg, 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
         29, 1997.

         In addition to J. Ekberg, the following are the Company's executive
officers:

                 Goran A. Ando, M.D., age 47, Executive Vice President,
         Worldwide Science and Technology.  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.

                 Kenneth M. Cyrus, age 58, Senior Vice President, General
         Counsel and Secretary.  He had been Executive Vice President,
         Secretary and General Counsel for Upjohn since 1994 and before that
         had been Senior Vice President, Secretary and General Counsel.

                 Robert C. Salisbury, age 53, Executive Vice President, Finance
         and Administration, and Chief Financial Officer.  He had been
         Executive Vice President and Chief Financial Officer for Upjohn since
         1994, and before that had been Senior Vice President for Finance and
         Chief Financial Officer.





                                      -16-
<PAGE>   19

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 29, 1997.

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 29, 1997.

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 29, 1997.


                                    PART IV

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

   (A)1.   FINANCIAL STATEMENTS

           The following are included in the 1996 Annual Report to
           Shareholders (Exhibit 13) and are incorporated by reference into this
           Form 10-K pursuant to Item 8.

           Report of Independent Accountants - Coopers & Lybrand, L.L.P.

           Consolidated Statements of Earnings, Years ended December 31, 1996,
           1995 and 1994.

           Consolidated Balance Sheets, December 31, 1996 and 1995.

           Consolidated Statements of Shareholders' Equity, Years ended
           December 31, 1996, 1995 and 1994.

           Consolidated Statements of Cash Flows, Years ended December 31,
           1996, 1995 and 1994.

           Note 22.  Segment and Geographic Information, Years ended December
           31, 1996, 1995 and 1994.

           Notes to Consolidated Financial Statements.

   (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.





                                      -17-
<PAGE>   20

(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

<TABLE>
<S>        <C>
(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 (filed as Exhibit 4.2 to the Registrant's Registration Statement on Form S-8 (Reg. No.
           333-03109), and incorporated herein by reference).

(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 form 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.

(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).

(10)(b)    Employment Agreement with J.L. Zabriskie dated March 7, 1996 (incorporated by reference to Exhibit (10)(b) to the
           Registrant's Form 10-K for the year ending December 31, 1995).

(10)(c)    Employment Agreement with G.A. Ando 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)(d)    Employment Agreement with R.C. Salisbury dated January 4, 1996 (incorporated by reference to Exhibit (10)(d) to the
           Registrant's Form 10-K for the year ending December 31, 1995).
</TABLE>





                                      -18-
<PAGE>   21


<TABLE>
<S>        <C>
(10)(e)    Consulting Agreement with J. Ekberg dated March 11, 1996 (incorporated by reference to Exhibit (10)(e) to the
           Registrant's Form 10-K for the year ending December 31, 1995).

(10)(f)    Employment Agreement with L.S. Smith dated February 25, 1997.

(10)(g)    Employment Agreement with K.M. Cyrus dated March 8, 1996.

(10)(h)    Registration Rights Agreement dated as of August 20, 1995, among Pharmacia & Upjohn, Inc., The Upjohn Company,
           Pharmacia Aktiebolag and AB Volvo (filed as Exhibit 10(b) to the Registrant's Registration Statement on Form S-4
           (Reg. No. 33-61969), and incorporated herein by reference).

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

(11)(a)    Computation of Earnings Per Share - Primary.

(11)(b)    Computation of Earnings Per Share - Fully Diluted.

(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.
</TABLE>

(B)        REPORTS ON FORM 8-K

           None.





                                      -19-
<PAGE>   22

                                   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/ Jan Ekberg
                                           ------------------------------------
                                           Jan Ekberg
                                           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/ Richard H. Brown                  Chairman of the Board and             February 25, 1997
 ---------------------------------         Director
          Richard H. Brown

     /s/ Jan Ekberg                        President and Chief Executive         February 25, 1997
 ---------------------------------
             Jan Ekberg                    Officer and Director

     /s/ Goran Ando                        Executive Vice President              February 25, 1997
 ---------------------------------
             Goran Ando

     /s/ Robert C. Salisbury               Executive Vice President (Chief       February 25, 1997
 ---------------------------------         Financial Officer)
        Robert C. Salisbury

     /s/ Frank C. Carlucci                 Director                              February 25, 1997
 ---------------------------------
         Frank C. Carlucci

     /s/ Gustaf Douglas                    Director                              February 25, 1997
 ---------------------------------
           Gustaf Douglas

     /s/ M. Kathryn Eickhoff               Director                              February 25, 1997
 ---------------------------------
        M. Kathryn Eickhoff

     /s/ Daryl F. Grisham                  Director                              February 25, 1997
 ---------------------------------
          Daryl F. Grisham

     /s/ Soren Gyll                        Director                              February 25, 1997
 ---------------------------------
             Soren Gyll

     /s/ William E. La Mothe               Director                              February 25, 1997
 ---------------------------------
        William E. La Mothe

     /s/ Goran Linden                      Director                              February 25, 1997
 ---------------------------------
            Goran Linden
</TABLE>





                                      -20-
<PAGE>   23
<TABLE>
<CAPTION>
             Signature                                Title                            Date
             ---------                                -----                            ----
     <S>                                   <C>                                   <C>
     /s/ Berthold Lindquist                Director                              February 25, 1997
 ---------------------------------
         Berthold Lindquist

     /s/ Olof Lund                         Director                              February 25, 1997
 ---------------------------------
             Olof Lund

                                           Director                              February 25, 1997
 ---------------------------------
       William D. Mulholland

     /s/ William U. Parfet                 Director                              February 25, 1997
 ---------------------------------
         William U. Parfet

     /s/ Ulla Reinius                      Director                              February 25, 1997
 ---------------------------------
            Ulla Reinius
     /s/ Bengt Samuelsson                  Director                              February 25, 1997
 ---------------------------------
          Bengt Samuelsson
</TABLE>





                                      -21-
<PAGE>   24





                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT NO.        DESCRIPTION
-----------        -----------
<S>           <C>
(10)(f)       Employment Agreement with L.S. Smith dated February 25, 1997

(10)(g)       Employment Agreement with K.M. Cyrus dated March 8, 1996

(11)(a)       Computation of Earnings Per Share - Primary

(11)(b)       Computation of Earnings Per Share - Fully Diluted

(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

</TABLE>