<PAGE>

                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549

                                   FORM 10-Q
(Mark One)
[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934

     For the quarterly period ended June 30, 2001
                                               Or
[_]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934

                        Commission file number: 0-26190


                               US Oncology, Inc.
            (Exact name of registrant as specified in its charter)


                    Delaware                                    84-1213501
(State or other jurisdiction of incorporation or             (I.R.S. Employer
                  organization)                             Identification No.)


                      16825 Northchase Drive, Suite 1300
                                Houston, Texas
                                     77060
                   (Address of principal executive offices)
                                  (Zip Code)

                                (832) 601-8766
             (Registrant's telephone number, including area code)


     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 ___
                                              ---
     As of July 26, 2001, 94,717,589 shares of the Registrant's Common Stock
were outstanding. In addition, as of July 26, 2001, the Registrant had agreed to
deliver 9,529,867 shares of its Common Stock on certain future dates for no
additional consideration.
<PAGE>

                               US ONCOLOGY, INC.
                                   FORM 10-Q
                                 JUNE 30, 2001

                               Table of Contents

<TABLE>
<CAPTION>

                                                                                               Page No.
                                                                                               --------
<S>                                                                                            <C>
PART I.  FINANCIAL INFORMATION

         Item 1.   Condensed Consolidated Financial Statements................................      3

                   Condensed Consolidated Balance Sheet.......................................      3

                   Condensed Consolidated Statement of Operations and
                            Comprehensive Income..............................................      4

                   Condensed Consolidated Statement of Cash Flows.............................      5

                   Notes to Condensed Consolidated Financial Statements.......................      6

         Item 2.   Management's Discussion and Analysis of Financial
                            Condition and Results of Operations...............................      11

         Item 3.   Quantitative and Qualitative Disclosures about Market Risks................      19

PART II. OTHER INFORMATION

         Item 1.   Legal Proceedings..........................................................      21

         Item 2.   Changes in Securities......................................................      22

         Item 4.   Submission of Matters to a Vote of Security Holders........................      22

         Item 6.   Exhibits and Reports on Form 8-K...........................................      23

         SIGNATURES                                                                                 24
</TABLE>

                                      -2-
<PAGE>

PART I.  FINANCIAL INFORMATION

ITEM 1.  CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


                               US ONCOLOGY, INC.
                     CONDENSED CONSOLIDATED BALANCE SHEET
                       (in thousands, except par value)

<TABLE>
<CAPTION>
                                                                                      June 30,                    December 31,
                                                                                        2001                          2000
                                                                                   ---------------               --------------
<S>                                                                                <C>                            <C>
                                     ASSETS                                          (unaudited)
Current assets:

      Cash and equivalents......................................................   $        12,108               $        3,389
      Accounts receivable.......................................................           313,295                      337,360
      Prepaid expenses and other current assets                                             39,425                       44,904
      Due from affiliates ......................................................            51,165                       72,380
                                                                                   ---------------               --------------
                  Total current assets..........................................           415,993                      458,033
Property and equipment, net.....................................................           274,662                      270,299
Management service agreements, net..............................................           389,602                      398,397
Deferred income taxes...........................................................            29,493                       38,404
Other assets....................................................................            24,826                       25,929
                                                                                   ---------------               --------------
                                                                                   $     1,134,576               $    1,191,062
                                                                                   ===============               ==============

                      LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
      Current maturities of long-term indebtedness..............................   $        24,936               $       23,910
      Accounts payable..........................................................           148,909                      153,980
      Due to affiliates ........................................................            11,171                        8,044
      Income taxes payable......................................................            12,912                        9,154
      Other accrued liabilities.................................................            64,981                       73,933
                                                                                   ---------------               --------------
                  Total current liabilities.....................................           262,909                      269,021
Long-term indebtedness..........................................................           226,727                      300,213
                                                                                   ---------------               --------------
                  Total liabilities.............................................           489,636                      569,234
Minority interest...............................................................             1,507                        1,506

Stockholders' equity:
      Preferred Stock, $.01 par value, 1,500 shares authorized, none issued and
          outstanding...........................................................
      Series A Preferred Stock, $.01 par value, 500 shares authorized and
          reserved, none issued and outstanding.................................
      Common Stock, $.01 par value, 250,000 shares authorized, 94,659 and
          93,837 issued, 90,835 and 89,299 outstanding..........................               947                          939
      Additional paid in capital................................................           463,406                      457,348
      Common Stock to be issued, approximately 9,440 and 10,370 shares..........            62,962                       69,666
      Treasury Stock, 3,824 and 4,538 shares....................................           (18,271)                     (21,416)
      Retained earnings.........................................................           134,389                      113,785
                                                                                   ---------------               --------------
                  Total stockholders' equity....................................           643,433                      620,322
                                                                                   ---------------               --------------
                                                                                   $     1,134,576               $    1,191,062
                                                                                   ===============               ==============
</TABLE>

        The accompanying notes are an integral part of this statement.

                                      -3-
<PAGE>

                               US ONCOLOGY, INC.
    CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME
                     (in thousands, except per share data)
                                  (unaudited)

<TABLE>
<CAPTION>
                                                                 Three Months                         Six Months
                                                                Ended June 30,                     Ended June  30,
                                                                --------------                     ---------------
                                                            2001              2000              2001              2000
                                                          --------          --------          --------          --------
<S>                                                       <C>               <C>               <C>               <C>
Revenue.................................................  $380,828          $326,506          $746,479          $631,008

Operating expenses

      Pharmaceuticals and supplies......................   196,759           163,245           384,632           310,915

      Field compensation and benefits...................    80,659            70,332           158,978           131,526

      Other field costs.................................    47,077            36,654            92,076            73,800

      General and administrative........................    11,778            11,861            23,764            25,474

      Depreciation and amortization.....................    17,400            19,170            34,553            37,532

      Restructuring and other charges...................         -             3,166             5,868             3,166
                                                          --------          --------          --------          --------

                                                           353,673           304,428           699,871           582,413
                                                          --------          --------          --------          --------

Income from operations..................................    27,155            22,078            46,608            48,595

Interest expense, net...................................    (6,641)           (5,987)          (13,380)          (13,111)

Gain on investment in common stock......................         -                 -                --            27,566
                                                          --------          --------          --------          --------

Income before income taxes..............................    20,514            16,091            33,228            63,050

Income tax provision....................................     7,796             6,115            12,627            23,959
                                                          --------          --------          --------          --------

Net income and comprehensive income.....................  $ 12,718          $  9,976          $ 20,601          $ 39,091
                                                          ========          ========          ========          ========


Net income per share - basic............................  $   0.13          $   0.10          $   0.21          $   0.38
                                                          ========          ========          ========          ========

Shares used in per share calculations - basic...........   100,022           102,060            99,804           101,902
                                                          ========          ========          ========          ========

Net income per share - diluted..........................  $   0.13          $   0.10          $   0.21          $   0.38
                                                          ========          ========          ========          ========

Shares used in per share calculations - diluted.........   100,306           102,139           100,177           102,039
                                                          ========          ========          ========          ========
</TABLE>

        The accompanying notes are an integral part of this statement.

                                      -4-
<PAGE>

                               US ONCOLOGY, INC.
                CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
                                (in thousands)
                                  (unaudited)


<TABLE>
<CAPTION>
                                                                                               Six Months
                                                                                             Ended June 30,
                                                                                             --------------
                                                                                       2001                  2000
                                                                                     --------             ---------
<S>                                                                                  <C>                  <C>
Cash flows from operating activities:
   Net income......................................................................  $ 20,601             $  39,091
Non cash adjustments:
   Restructuring and other charges.................................................       331                 1,514
   Realized gain on investment in common stock.....................................         -               (27,566)
   Depreciation and amortization...................................................    34,553                37,532
   Deferred income taxes...........................................................     8,911                 3,910
   Undistributed earnings in joint ventures........................................         -                   349
   Changes in operating assets and liabilities:....................................    43,267                 1,422
                                                                                     --------             ---------
          Net cash provided by operating activities................................   107,663                56,252
                                                                                     --------             ---------
Cash flows from investing activities:
   Acquisition of property and equipment...........................................   (30,512)              (28,005)
   Net payments in affiliation transactions........................................      (565)             ( 11,674)
   Proceeds from sale of investment in common stock................................         -                54,824
                                                                                     --------             ---------

          Net cash (used) provided by investing activities.........................   (31,077)               15,145
                                                                                     --------             ---------
Cash flows from financing activities:
   Proceeds from Credit Facility...................................................    20,000                56,000
   Repayment of Credit Facility....................................................   (80,000)              (93,000)
   Repayment of other indebtedness.................................................   (10,926)              (14,750)
   Purchase of Treasury Stock......................................................         -               (14,554)
   Proceeds from exercise of options...............................................     3,059                   475
                                                                                     --------             ---------
          Net cash used by financing activities....................................   (67,867)              (65,829)
                                                                                     --------             ---------
Increase in cash and equivalents...................................................     8,719                 5,568
Cash and equivalents:
   Beginning of period.............................................................     3,389                11,381
                                                                                     --------             ---------

   End of period...................................................................  $ 12,108             $  16,949
                                                                                     ========             =========

Interest Paid......................................................................  $  7,887             $  16,512

Taxes Paid.........................................................................         -             $  16,988

Non cash transactions:
   Value of Common Stock to be issued in affiliation transactions..................  $    337             $   5,570
   Delivery of Common Stock in affiliation transactions............................     6,148                16,497
   Debt issued in affiliation transactions.........................................     1,145                 9,808
   Debt assumed in affiliation transactions........................................         -                   900
   Debt issued to finance insurance premiums.......................................         -                 1,315
</TABLE>

        The accompanying notes are an integral part of this statement.

                                      -5-
<PAGE>

                               US Oncology, Inc.
             NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  (unaudited)

NOTE 1 - Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial reporting and in accordance with Form 10-Q and Rule 10.01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, the unaudited condensed
consolidated financial statements contained in this report reflect all
adjustments that are normal and recurring in nature and considered necessary for
a fair presentation of the financial position and the results of operations for
the interim periods presented. The preparation of the Company's financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of
assets, liabilities, revenues and expenses, as well as disclosures on contingent
assets and liabilities. Because of inherent uncertainties in this process,
actual future results could differ from those expected at the reporting date.
These unaudited condensed consolidated financial statements, footnote
disclosures and other information should be read in conjunction with the
financial statements and the notes thereto included in US Oncology, Inc.'s Form
10-K filed with the Securities and Exchange Commission on March 28, 2001.

NOTE 2 - Revenue

Net patient revenue for services to patients by the practices affiliated with
the Company is recorded when services are rendered based on established or
negotiated charges reduced by contractual adjustments and allowances for
doubtful accounts. Differences between estimated contractual adjustments and
final settlements are reported in the period when final settlements are
determined. Net patient revenue of the practices is reduced by amounts retained
by the practices under the Company's service agreements to arrive at the
Company's service revenue.

Amounts retained by the affiliated physician groups for physician compensation
are primarily derived under two management service agreement models. Under the
first model (the net revenue model), amounts retained by physician groups are
based upon a specified amount (typically 23% of net revenue) and, if certain
financial criteria are satisfied, an incremental amount. Under the second model
(the earnings model), amounts retained by practices are based upon a percentage
(typically 65% - 75%) of the difference between net patient revenues less direct
expenses, excluding interest expense and taxes.


The following presents the amounts included in the determination of the
Company's revenue (in thousands):


<TABLE>
<CAPTION>
                                                          Three Months                    Six Months
                                                         Ended June 30,                  Ended June 30,
                                                         --------------                  --------------
                                                      2001           2000             2001           2000
                                                    --------       --------         --------       --------
        <S>                                         <C>            <C>              <C>            <C>
        Net patient revenue.......................  $489,126       $425,018         $960,711       $825,265

        Amounts retained by practices.............   108,298         98,512          214,232        194,257
                                                    --------       --------         --------       --------

        Revenue...................................  $380,828       $326,506         $746,479       $631,008
                                                    ========       ========         ========       ========
</TABLE>

The Company's most significant service agreement, which is the only service
agreement that represents more than 10% of revenue to the Company, is with Texas
Oncology, P.A. (TOPA). TOPA accounted for approximately 23.5% and 24.2% of the
Company's total revenue for the three months ended June 30, 2001 and 2000,
respectively, and 24.0% and 24.0% for the six months ended June 30, 2001 and
2000, respectively.

                                      -6-
<PAGE>

                               US Oncology, Inc.
       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued
                                  (unaudited)


NOTE 3 - Gain on Sale of Investment in Common Stock

In March 2000, the Company sold its equity investment in ILEX Oncology, Inc. in
a private sale transaction and realized proceeds of $54.8 million, or $38.8
million net of tax.  Included in other income for the first six months of 2000
is $27.6 million related to a gain on disposal of this stock.  A previous gain
of $14.4 million was recognized during the fourth quarter of 1999 as a result of
the Company's reclassification of the ILEX stock as a trading security.

NOTE 4 - Restructuring and Other Charges

In the fourth quarter of 2000, the Company comprehensively analyzed its
operations and cost structure, with a view to repositioning the Company to
effectively execute its strategic and operational initiatives.  This analysis
focused on non-core assets and activities of the Company to determine whether
they were still consistent with the Company's strategic direction.  As a result
of this analysis, during the fourth quarter of 2000, the Company recorded the
following charges (in thousands):

<TABLE>
<CAPTION>
                                Restructuring    Payments to                                      Payments to
                                  Expenses         Settle          Asset         Accrual at         Settle       Accrual at
                                   in 2000       Obligations    Write-downs   December 31, 2000   Obligations   June 30, 2001
                                -------------    -----------    -----------   -----------------   -----------   -------------
<S>                             <C>              <C>            <C>           <C>                 <C>           <C>
Abandonment of IT Systems             $ 6,557                     $ 6,557
Impairment of home
    health business                     6,463                       6,463
Severance of employment
    agreement                             466        $ 36                           $  430          $  108          $  322
Site closures                           2,636         562             655            1,419             205           1,214
                                      -------        ----         -------           ------          ------          ------
Total                                 $16,122        $598         $13,675           $1,849          $  313          $1,536
                                      =======        ====         =======           ======          ======          ======
</TABLE>

The Company has recognized a deferred income tax benefit for substantially all
of these charges, as many of these items will be deductible for income tax
purposes in subsequent periods.

In the first quarter of 2001, the Company announced plans to further reduce
overhead costs through reductions in corporate staff, consolidating
administrative offices, closing additional facilities and abandoning certain
software applications.  The Company has recognized and accounted for these costs
in accordance with the provisions of Emerging Issues Task Force Consensus No.
94-3 "Accounting for Restructuring Costs".  As a result, the Company recorded
the following pre-tax charges during the first quarter of 2001 (in thousands):

<TABLE>
<CAPTION>
                                                           Payments to                      Payments to
                                          Restructuring      Settle         Accrual at        Settle        Accrual at
                                            Expenses       Obligations    March 31, 2001    Obligations    June 30, 2001
                                          -------------    -----------    --------------    -----------    -------------
<S>                                       <C>              <C>            <C>               <C>            <C>
Costs related to personnel reductions        $3,113          $  1,868         $ 1,245                          $1,245
Closure of facilities                         2,455                73           2,382             181           2,201
Abandonment of software applications            300                 -             300             300               -
                                             ------          --------         -------            ----          ------
Total                                        $5,868          $  1,941         $ 3,927            $481          $3,446
                                             ======          ========         =======            ====          ======
</TABLE>

As indicated above, during the first quarter of 2001, the Company announced
plans to reduce corporate overhead and eliminated approximately 50 positions.
As a result, the Company recorded a charge of $3.1 million during the first
quarter.  The Company also determined that it will close several sites,
abandoning leased facilities, and recognized a charge of $2.5 million for
remaining lease obligations and related improvements.  In addition, the Company
decided to abandon certain software applications and recorded a charge of
$300,000.

                                      -7-
<PAGE>

                               US Oncology, Inc.
       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued
                                  (unaudited)


NOTE 5 - Capitalization

In March 2000, the Board of Directors of the Company authorized the repurchase
of up to 10,000,000 shares of the Company's Common Stock in public or private
transactions.   Through December 31, 2000, the Company acquired 5,057,786 shares
of Common Stock at an average price of $4.72 per share.  During the first six
months of 2001, the Company issued 713,511 shares from Treasury Stock to
affiliated physicians in satisfaction of the Company's obligation to issue
Common Stock in connection with affiliation transactions.

NOTE 6 - Credit Facility and Master Lease

Credit Facility

Effective June 15, 1999, in connection with the merger of Physician Reliance
Network, Inc. and a subsidiary of the Company (the Merger), the Company executed
a $275 million revolving credit facility (Credit Facility) with First Union
National Bank (First Union), individually and as Administrative Agent for eight
additional lenders ("Lenders").  The Credit Facility consisted of a $175 million
five-year revolving credit facility (Revolver) and a $100 million 364-day
revolving credit facility.  The Company allowed the $100 million 364-day
revolving credit facility to terminate at its maturity in June 2000, as the
Company did not anticipate requiring any borrowings under such facility for the
remainder of 2000.  Initial proceeds under the Revolver were used to refinance
existing debt and to pay certain transaction fees and expenses in connection
with the Credit Facility and the Merger.  Proceeds of loans under the Credit
Facility may be used to finance affiliation transactions, to provide working
capital and for other general corporate uses.  As of June 30, 2001, the Company
had an outstanding balance of $65.0 million under the $175 million Credit
Facility.  The Company has classified borrowings under the Credit Facility as
long-term indebtedness due to its ability and intent to maintain the borrowings
beyond the next twelve months.

Borrowings under the Credit Facility are secured by all capital stock of the
Company's subsidiaries, all of the Company's management services agreements and
all accounts receivable of the Company.  At the Company's option, funds may be
borrowed at the Base interest rate or the London Interbank Offered Rate (LIBOR)
plus an amount determined under a defined formula.  The Base rate is selected by
First Union and is defined as their prime rate or Federal Funds Rate plus 1/2%.
Interest on amounts outstanding under Base rate loans is due quarterly while
interest on LIBOR related loans is due at the end of each applicable interest
period or quarterly, if earlier.  As of June 30, 2001, the weighted average
interest rate on all outstanding draws under the Credit Facility was 5.51%.

The Company is subject to restrictive covenants under the Credit Facility,
including the maintenance of certain financial ratios.  The agreement limits
certain activities such as incurrence of additional indebtedness, sales of
assets, investments, capital expenditures, mergers and consolidations and the
payment of dividends.  Under certain circumstances, additional medical practice
transactions may require First Union's and the Lenders' consent.

Senior Secured Notes

In November 1999, the Company issued $100 million in senior secured notes to a
group of institutional investors.  The notes bear interest at 8.42%, mature in
installments from 2002 through 2006 and rank equal in right of payment with all
current and future senior indebtedness of the Company.  The senior secured notes
contain restrictive financial and operational covenants and are secured by the
same collateral as the Credit Facility.

                                      -8-
<PAGE>

                               US Oncology, Inc.
       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued
                                  (unaudited)


Master Lease

The Company is party to a $75 million master lease agreement relating to the
construction and leasing of integrated cancer centers.  Under the agreement, the
lessor purchases and has title to the properties, pays for the construction
costs and thereafter leases the facilities to the Company.  The construction
period during which new properties could be purchased and constructed under the
lease ended in June 2001.  The initial term of the lease is through June 2004
and can be renewed in one-year increments if approved by the lessor.  The lease
provides for substantial residual value guarantees and includes purchase options
at original cost on each option.  Advances under the master lease agreement as
of June 30, 2001 were $74.4 million.

NOTE 7 - Earnings per Share

The Company computes earnings per share in accordance with the provisions of
FASB Statement No. 128, "Earnings Per Share", which requires the Company to
disclose "basic" and "diluted" earnings per share (EPS).   The computation of
basic EPS is based on a weighted average number of outstanding shares of Common
Stock and Common Stock to be issued during the periods.  The Company includes
Common Stock to be issued in both basic and diluted EPS as there are no
foreseeable circumstances that would relieve the Company of its obligation to
issue these shares.  The computation of the diluted EPS is based on a weighted
average number of outstanding shares of Common Stock and Common Stock to be
issued during the periods as well as all dilutive potential Common Stock
calculated under the treasury stock method.

The table below summarizes the determination of shares used in per share
calculations (in thousands):

<TABLE>
<CAPTION>
                                                                        Three Months                  Six Months
                                                                       Ended June 30,               Ended June 30,
                                                                   ----------------------      ----------------------
                                                                     2001           2000         2001           2000
                                                                   -------        -------      -------        -------
<S>                                                                <C>            <C>          <C>            <C>
Outstanding at end of period:
     Common Stock...............................................    90,835         89,011       90,835         89,011
     Common Stock to be issued..................................     9,440         10,904        9,440         10,904
                                                                   -------        -------      -------        -------
                                                                   100,275         99,915      100,275         99,915
     Effect of weighting and Treasury Stock.....................      (253)         2,145         (471)         1,987
                                                                   -------        -------      -------        -------
Shares used in per share calculations-basic.....................   100,022        102,060       99,804        101,902

Effect of weighting and assumed share equivalents for grants
  of stock options at less than the weighted average price......       284             79          373            137
                                                                   -------        -------      -------        -------

Shares used in per share calculations-diluted...................   100,306        102,139      100,177        102,039
                                                                   =======        =======      =======        =======
Anti-dilutive stock options not included  above.................     4,648          7,140        4,648          7,140
                                                                   =======        =======      =======        =======
</TABLE>

NOTE 8 - Commitments and Contingencies


As disclosed in Part II, Item 1, under the heading "Legal Proceedings," the
Company is aware that it and certain of its subsidiaries and affiliated
practices are the subject of allegations that certain practices or arrangements
may violate the Federal False Claims Act.  These allegations are contained in
qui tam lawsuits filed under seal.  Because the complaints are under seal, and
because the Department of Justice and the Company are in the process of
investigating the claims, the Company is unable to fully assess at this time the
materiality of these lawsuits.  Because qui tam actions are filed under seal,
there is a possibility that the Company could be the subject of other qui tam
actions of which it is unaware.

                                      -9-
<PAGE>

                               US Oncology, Inc.
       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued
                                  (unaudited)

NOTE 9 - Recent Pronouncements

In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (FAS 133), and in June 2000, issued
Statement of Financial Accounting Standards No. 138 (FAS 138), an amendment of
FAS 133. These statements are effective for all fiscal quarters of fiscal years
beginning after June 15, 2000. The statements require the recognition of
derivative financial instruments on the balance sheet as assets or liabilities,
at fair value. Gains or losses resulting from changes in the value of
derivatives are accounted for depending on the intended use of the derivative
and whether it qualifies for hedge accounting. The Company has historically not
engaged in significant derivative instrument activity. Adoption of FAS 133 has
not had a material effect on the Company's financial position or operating
results.

In September 2000, FASB issued Statement of Financial Accounting Standards No.
140, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities" (FAS 140). FAS 140 is effective for fiscal years
ending after December 15, 2000. The statement replaces FASB Statement No. 125
and revises the standards for accounting and disclosure for securitizations and
other transfers of financial assets and collateral. FAS 140 carries over most of
FASB Statement No. 125's provisions without reconsideration and, as such, the
adoption of this standard has not had a material effect on its consolidated
financial position or results of operations.

On June 30, 2001, the FASB issued Statement of Financial Accounting Standards
No. 141, "Business Combinations" (FAS 141), which requires that all business
combinations be accounted for using the purchase method. In addition, FAS 141
requires that intangible assets be recognized as assets apart from goodwill if
certain criteria are met. As the provisions of this Statement apply to all
business combinations initiated after June 30, 2001, Management will consider
the impact of this statement for future combinations.

At June 30, 2001, the FASB issued Statement of Financial Accounting Standards
No. 142, "Goodwill and Other Intangible Assets" (FAS 142), which established
Standards for reporting acquired goodwill and other intangible assets. This
Statement accounts for goodwill based on the reporting units of the combined
entity into which an acquired entity is integrated. In accordance with the
statement, goodwill and indefinite lived intangible assets will not be
amortized, goodwill will be tested for impairment at least annually at the
reporting unit level, intangible assets deemed to have an indefinite life will
be tested for impairment at least annually, and the amortization period of
intangible assets with finite lives will not be limited to forty years. The
provisions of this Statement are required to be applied starting with fiscal
years beginning after December 15, 2001 with early application permitted for
entities with fiscal years beginning after March 15, 2001; the Company has
elected to adopt FAS 142 early on January 1, 2001. The Company has $12.1 million
of goodwill included in its balance sheet at June 30, 2001. Goodwill
amortization for the six months ended June 30, 2001 was approximately $300,000
and is currently expected to approximate $600,000 for the year ended December
31, 2001 before the provisions of FAS 142 are applied. Implementation of FAS 142
by the Company would result in elimination of amortization of goodwill from
acquisition under the purchase method of accounting.

                                      -10-
<PAGE>

                               US Oncology, Inc.
          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                          AND RESULTS OF OPERATIONS
                                  (unaudited)

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

Introduction

US Oncology, Inc. (together with its subsidiaries, "US Oncology" or the
"Company") provides comprehensive services, with the mission of expanding access
and quality of cancer care in local communities and advancing the delivery of
care. The Company offers the following services:

     .    Develop, construct and manage free standing cancer centers that
          provide treatment areas and equipment for medical oncology, radiation
          therapy and diagnostic radiology. The Company operates 75 integrated
          community-based cancer centers and manages over one million square
          feet of medical oncology space.

     .    Expand diagnostic capabilities of practices through installation and
          management of Positron Emission Tomography (PET) technology. The
          Company has installed and manages eight PET units.

     .    Coordinate and manage cancer drug research trials for pharmaceutical
          and biotechnology companies. The Company currently manages 98 clinical
          trials, with annual accruals of more than 4,000 patients, supported by
          its network of over 650 participating physicians in more than 370
          research locations.

     .    Purchase and manage the inventory of cancer related drugs for
          affiliated practices. Annually, the Company is responsible for
          purchasing, delivering and managing more than $700 million of
          pharmaceuticals through a network of more than 400 admixture sites,
          31 licensed pharmacies, 51 pharmacists and 180 pharmacy technicians.

The Company's network provides cancer care services to patients through oncology
practices comprising over 450 sites, with over 7,500 employees and over 840
physicians. The Company is not a provider of medical services, but it provides
comprehensive services to the practices, including management and capital
resources and data management, accounting, compliance and other administrative
services. The affiliated practices offer comprehensive and coordinated medical
services to cancer patients, integrating the specialties of medical and
gynecologic oncology, hematology, radiation oncology, diagnostic radiology and
blood and marrow stem cell transplantation.

The Company's revenue consists primarily of service fees paid by the practices.
The Company and its affiliated practices have entered into long-term agreements
under which the Company provides its comprehensive services to practices, and
the practices pay a fee and reimburse the Company for all practice costs. Under
some agreements, the fees are based on practice earnings before income taxes
(earnings model). In others, the fee consists of a fixed fee, a percentage fee
(in most states) of the practice's net revenues and, if certain performance
criteria are met, a performance fee (net revenue model). Where the Company's
service agreement follows the net revenue model, the practice is entitled to
retain a fixed portion of net revenue before any service fee (other than
practice operating costs) is paid to the Company.

In the fourth quarter of 2000, the Company implemented a strategy to develop and
manage integrated cancer centers and PET centers, leverage its existing clinical
research platform and align the interests of affiliated physician groups more
closely with the Company's interests. To obtain the benefits from these
opportunities, the Company developed the following objectives:

     .    Convert practices from the net revenue model to the earnings model

     .    Sever relationships with affiliated practices and businesses not
          consistent with the Company's strategy

     .    Eliminate non-core corporate expenses and capital projects

                                      -11-
<PAGE>

                               US Oncology, Inc.
          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                     AND RESULTS OF OPERATIONS - continued
                                  (unaudited)

The Company believes that the earnings model properly aligns practice priorities
with proper cost control, with the Company and the practice sharing
proportionately in practice profitability. The Company is currently in the
process of trying to reach agreement with those practices whose fees are
calculated on the net revenue model to convert to the earnings model. Since
December 31, 2000, eight practices accounting for 14.9% of the first six months
of 2001 net patient revenue have converted to the earnings model.

Consistent with the Company's strategy of severing non-strategic relationships,
two practices accounting for 2.7% of 2000 net patient revenue have separated
from the Company during the first six months of 2001.

Forward-looking Statements and Risk Factors

The following statements are or may constitute forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995: (i) certain
statements, including possible or assumed future results of operations of US
Oncology, contained in "Management's Discussion and Analysis of Financial
Condition and Results of Operations," and including any statements contained
herein regarding the prospects for any of the Company's services; (ii) any
statements preceded by, followed by or that include the words "believes",
"expects", "anticipates", "intends", "estimates", "plans" or similar
expressions; and (iii) other statements contained herein regarding matters that
are not historical facts.

US Oncology's business and results of operations are subject to risks and
uncertainties, many of which are beyond the Company's ability to control or
predict. Because of these risks and uncertainties, actual results may differ
materially from those expressed or implied by such forward-looking statements,
and US Oncology stockholders are cautioned not to place undue reliance on such
statements, which speak only as of the date thereof. Factors that could cause
actual results to differ materially include, but are not limited to, conversion
of net revenue model agreements to earnings model agreements, government
regulation and enforcement, reimbursement for healthcare services, particularly
including reimbursement for pharmaceuticals, changes in cancer therapy or the
manner in which cancer care is delivered, drug utilization, and the operations
of the Company's affiliated physician groups. Please refer to the Company's
Annual Report on Form 10-K for the year ended December 31, 2000, particularly
the section entitled "Risk Factors," for a more detailed discussion of certain
of these risks and uncertainties.

The cautionary statements contained or referred to herein should be considered
in connection with any written or oral forward-looking statements that may be
issued by US Oncology or persons acting on its behalf. US Oncology does not
undertake any obligation to release any revisions to or to update publicly any
forward-looking statements to reflect events or circumstances after date thereof
or to reflect the occurrence of unanticipated events.

Results of Operations

The Company is affiliated with the following number of physicians by specialty:

                                                     June 30,
                                                     --------
                                                2001          2000
                                                ----          ----
             Medical oncologists...............  682           667
             Radiation oncologists.............  122           112
             Other.............................   40            56

                                      -12-
<PAGE>

                               US Oncology, Inc.
          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                     AND RESULTS OF OPERATIONS - continued
                                  (unaudited)

The following table sets forth the sources for growth in the number of
physicians affiliated with the Company:

<TABLE>
<CAPTION>
                                                      Three Months              Six Months
                                                     Ended June 30,           Ended June 30,
                                                     --------------           --------------
                                                    2001         2000        2001         2000
                                                   ------       ------      ------       ------
<S>                                                <C>          <C>         <C>          <C>
Affiliated physicians, beginning of period.....      860          827         869          806

Physician practice affiliations................        -           11           6           12

Recruited physicians...........................       15           10          22           37

Physician practice separations.................      (18)           -         (18)           -

Retiring/Other.................................      (13)         (13)        (35)         (20)
                                                    ----         ----        ----         ----

Affiliated physicians, end of period...........      844          835         844          835
                                                    ====         ====        ====         ====
</TABLE>

The following table sets forth the key operating statistics as a measure of the
volume of services provided by the practices:

<TABLE>
<CAPTION>
                                                      Three Months              Six Months
                                                     Ended June 30,           Ended June 30,
                                                     --------------           --------------
                                                    2001         2000        2001         2000
                                                   ------       ------      ------       ------
<S>                                              <C>           <C>      <C>          <C>
Medical oncology visits........................  602,315       543,941  1,214,441    1,084,111

Radiation treatments...........................  163,175       148,467    327,025      289,834

PET scans......................................    1,191           420      2,244          862

Research accruals..............................      995         1,001      1,946        1,925
</TABLE>

The following table sets forth the number of cancer centers and Positron
Emission Tomography (PET) machines managed by the Company:

                                               June 30,
                                               --------
                                          2001           2000
                                          ----           ----
                   Cancer centers.......   74             66
                   PET machines.........    7              1

                                      -13-
<PAGE>

                               US Oncology, Inc.
          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                    AND RESULTS OF OPERATIONS -  continued
                                  (unaudited)


The following table sets forth the percentages of revenue represented by certain
items reflected in the Company's Statement of Operations and Comprehensive
Income.  The information that follows should be read in conjunction with the
Company's unaudited condensed consolidated financial statements and notes
thereto included elsewhere herein.

<TABLE>
<CAPTION>
                                                                         Three Months                 Six Months
                                                                        Ended June 30,               Ended June 30,
                                                                      -------------------         --------------------
<S>                                                                   <C>           <C>           <C>            <C>
                                                                       2001          2000          2001           2000
                                                                      -----         -----         -----          -----
Revenue                                                               100.0%        100.0%        100.0%         100.0%
Operating expenses:
     Pharmaceuticals and supplies...............................       51.7          50.0          51.5           49.3
     Field compensation and benefits............................       21.2          21.5          21.3           20.8
     Other field costs..........................................       12.4          11.2          12.3           11.7
     General and administrative.................................        3.1           3.6           3.2            4.0
     Restructuring and other charges............................          -           1.0           0.8            0.5
     Depreciation and amortization..............................        4.5           5.9           4.6            6.0
                                                                      -----         -----         -----          -----
     Income from operations                                             7.1           6.8           6.3            7.7
Net interest expense                                                   (1.7)         (1.8)         (1.8)          (2.1)
Other income                                                              -             -             -            4.4
                                                                      -----         -----         -----          -----
Income before income taxes                                              5.4           5.0           4.5           10.0
Income tax provision                                                   (2.1)         (1.9)         (1.7)          (3.8)
                                                                      -----         -----         -----          -----
Net income                                                              3.3%          3.1%          2.8%           6.2%
                                                                      =====         =====         =====          =====
</TABLE>

Overall, the Company experienced a decrease in operating margins from the first
six months of 2000 to the first six months of 2001, with earnings before taxes,
interest, depreciation, amortization ("EBITDA"), as a percentage of revenue,
declining from 14.2% to 11.7%, excluding restructuring and other charges and
other income.  A number of factors contributed to the decrease in operating
margins, including the continued increase in utilization of more expensive
single source drugs and affiliated practices under the net revenue model not
bearing their proportionate share of increased operating costs.

     Revenue.  Revenue increased from $631.0 million for the first six months of
2000 to $746.5 million for the first six months of 2001, an increase of $115.5
million, or 18.3%.  Revenue increased from $326.5 million in the second quarter
of 2000 to $380.8 million in the second quarter of 2001, an increase of $54.3
million, or 16.6%.  The growth in revenue is attributable to the growth in
affiliated practices' medical service revenue offset by amounts retained by the
practices.  The following presents the amounts included in determination of the
Company's revenue (in thousands):

<TABLE>
<CAPTION>
                                                               Three Months                       Six Months
                                                              Ended June 30,                    Ended June 30,
                                                              --------------                    --------------
                                                           2001             2000             2001             2000
                                                         --------         --------         --------         --------
<S>                                                      <C>              <C>              <C>              <C>
Net patient revenue..............................        $489,126         $425,018         $960,711         $825,265
Amounts retained by the practices................         108,298           98,512          214,232          194,257
                                                         --------         --------         --------         --------
Revenue..........................................        $380,828         $326,506         $746,479         $631,008
                                                         ========         ========         ========         ========
</TABLE>

                                      -14-
<PAGE>

                               US Oncology, Inc.
          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                    AND RESULTS OF OPERATIONS -  continued
                                  (unaudited)

Net patient revenue for services to patients by the practices are recorded when
services are rendered based on established or negotiated charges reduced by
contractual adjustments and allowances for doubtful accounts.  Differences
between estimated contractual adjustments and final settlements are reported in
the period when final settlements are determined.  Net patient revenue of the
practices is reduced by amounts retained by the practices under the Company
service agreements to arrive at the Company's revenue.

Net patient revenue growth is attributable to an increase in:  (i) medical
oncology services, (ii) anticancer pharmaceuticals and (iii) radiation and
diagnostic revenue.  The increase in medical oncology services is attributable
to an increase in medical oncology visits of existing practices, combined with
the addition of nine physicians since June 30, 2000.  The increase in anticancer
pharmaceuticals revenue is attributable to the growth in medical oncology
services, coupled with a continued increase in utilization of more expensive,
lower margin drugs, principally single-source drugs.  The increase in radiation
and diagnostic revenue is primarily attributable to the opening of eight
additional cancer centers and six PET Centers since June 30, 2000.

Amounts retained by practices increased from $194.3 million for the first six
months of 2000 to $214.2 million for the first six months of 2001, an increase
of $20.0 million, or 10.3%.  Such increase in amounts retained by practices is
directly attributable to the growth in net patient revenue combined with the
increase in profitability of affiliated practices.  The following is the net
patient revenue attributed to the Company's two principal management fee models-
-the earnings model and the net revenue model (in thousands):

<TABLE>
<CAPTION>
                                     Three Months Ended June 30,               Six Months Ended June 30,
                                     ---------------------------               -------------------------
                                     2001                   2000               2001                 2000
                                     ----                   ----               ----                 ----
                               Revenue      %        Revenue     %      Revenue      %       Revenue      %
                               --------    ---       -------    ---     -------     ---      -------     ---
<S>                            <C>        <C>       <C>        <C>     <C>         <C>      <C>        <C>
Net Revenue Model.........     $212,411   43.4%     $237,448   55.9%   $420,906    43.8%    $469,846   56.9%
Earnings Model............      262,521   53.7%      179,432   42.2%    517,428    53.9%     333,703   40.4%
Other.....................       14,194    2.9%        8,138    1.9%     22,377     2.3%      21,779    2.7%
                               --------  -----      --------  -----    --------   -----     --------  -----
                               $489,126  100.0%     $425,018  100.0%   $960,711   100.0%    $825,328  100.0%
                               ========  =====      ========  =====    ========   =====     ========  =====
</TABLE>

53.9% of net patient revenue for the first six months 2001 was derived from
earnings model service agreements, and 43.8% was derived from net revenue model
service agreements, as compared to 40.4% and 56.9%, respectively, in 2000.  The
Company announced in November 2000 its initiative to convert net revenue model
agreements to earnings model agreements.  The Company believes the earnings
model properly aligns practice priorities with proper cost control, with the
Company and the practice sharing proportionately in revenue, operating costs and
profitability. During the first six months of 2001, seven practices accounting
for 14.5% of the first six months of 2001 net patient revenue converted to the
earnings model.

Medicare and Medicaid are the practices' largest payors.  During the first six
months of 2001, approximately 38% of the practices' net patient revenue was
derived from Medicare and Medicaid payments and 35% was so derived in the
comparable period last year.  This percentage varies among practices.  No other
single payor accounted for more than 10% of the Company's revenues in the first
six months of 2001 and 2000.

                                      -15-
<PAGE>

                               US Oncology, Inc.
          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                    AND RESULTS OF OPERATIONS -  continued
                                  (unaudited)


     Pharmaceuticals and Supplies. Pharmaceuticals and supplies expense, which
includes drugs, medications and other supplies used by the practices, increased
from $310.9 million in the first six months of 2000 to $384.6 million in the
first six months of 2001, an increase of $73.7 million, or 23.7%.
Pharmaceuticals and supplies expense increased from $163.2 million in the second
quarter of 2000 to $196.8 million in the second quarter of 2001, an increase of
$33.5 million or 20.5%. As a percentage of revenue, pharmaceuticals and supplies
increased from 49.3% in the first six months of 2000 to 51.5% for the comparable
period of 2001 and from 50.0% in the second quarter of 2000 to 51.7% in the
second quarter of 2001. This increase was primarily due to: (i) a shift in the
revenue mix to a higher percentage of revenue from drugs, (ii) increases in
acquisition prices of drugs, (iii) a shift towards increased usage of single
source, lower margin drugs and (iv) with respect to practices operating under
the net revenue model, the Company's disproportionately bearing the impact of
increasing operating costs.

Management expects that third-party payors, particularly government payors, will
continue to negotiate or mandate the reimbursement rate for pharmaceuticals and
supplies, with the goal of lowering reimbursement rates, and that such lower
reimbursement rates as well as shifts in revenue mix may continue to adversely
impact the Company's margins with respect to such items.  In addition, the
Company believes that single source drugs, possibly including oral drugs, will
continue to be introduced at a rapid pace, thus further impacting margins.  In
response to this decline in margin relating to certain pharmaceutical agents,
the Company has adopted several strategies.  Most importantly, the successful
conversion of net revenue model practices to the earnings model will help reduce
the impact of the increasing cost of pharmaceuticals and supplies.  In addition,
the Company has numerous efforts underway to reduce the cost of pharmaceuticals
by negotiating discounts for volume purchases and by streamlining processes for
efficient ordering and inventory control and is assessing other strategies to
address this trend.  The Company also continues to expand its business into
areas that are less affected by lower pharmaceutical margins, such as radiation
oncology and diagnostic radiology.

     Field Compensation and Benefits.  Field compensation and benefits, which
includes salaries and wages of the operating units' employees, increased from
$131.5 million in  the first six months of 2000 to $159.0 million in  the first
six months of 2001, an increase of $27.5 million or 20.9%.  Field compensation
and benefits increased from $70.3 million in the second quarter of 2000 to $80.7
million in the second quarter of 2001, an increase of $10.3 million, or 14.7%.
As a percentage of revenue, field compensation and benefits increased from 20.8%
in the first six months of 2000 to 21.3% the comparable period of 2001 and
decreased from 21.5% in the second quarter of 2000 to 21.2% in the second
quarter of 2001.

     Other Field Costs. Other field costs, which consist of rent, utilities,
repairs and maintenance, insurance and other direct field costs, increased from
$73.8 million in the first six months of 2000 to $92.1 million in the first six
months of 2001, an increase of $18.3 million or 24.8%. Other field costs
increased from $36.7 million in the second quarter of 2000 to $47.1 million in
the second quarter of 2001, an increase of $10.4 million, or 28.4%. As a
percentage of revenue, other field costs increased from 11.7% in the first six
months of 2000 to 12.3% in the first six months of 2001 and from 11.2% in the
second quarter of 2000 to 12.4% in the second quarter of 2001. Such increases in
other field costs are due to increased facilities and activity levels.

     General and Administrative.  General and administrative expenses decreased
from $25.5 million in the first six months of 2000 to $23.8 million in the first
six months of 2001, a decrease of $1.7 million, or 6.7%.  General and
administrative expenses decreased from $11.9 million in the second quarter of
2000 to $11.8 million in the second quarter of 2001, a decrease of $83,000 or
0.7%.  As a percentage of revenue, general and administrative costs decreased
from 4.0% in the first six months of 2000 to 3.2% for the first six months of
2001 and from 3.6% in the second quarter of 2000 to 3.1% in the second quarter
of 2001. The Company restructured general and administrative departments in the
first quarter of 2001, including eliminating approximately 50 corporate
positions, closing offices and abandoning certain software applications

                                      -16-
<PAGE>

                               US Oncology, Inc.
          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                    AND RESULTS OF OPERATIONS -  continued
                                  (unaudited)

     Depreciation and Amortization Depreciation and amortization expense
decreased from $37.5 million in the first six months of 2000 to $34.6 million in
the first six months of 2001, a decrease of $3.0 million, or 7.9%. Depreciation
and amortization expense decreased from $19.2 million in the second quarter of
2000 to $17.4 million in the second quarter of 2001, a decrease of $1.8 million,
or 9.2%. As a percentage of revenue, depreciation and amortization expense
decreased from 5.9% in the first six months of 2000 to 4.6% in the comparable
period of 2001 and from 5.9% in the second quarter of 2000 to 4.6% in the second
quarter of 2001. Such decreases are attributable to the $170.1 million
impairment charge of certain service agreements and other assets recorded in the
fourth quarter of 2000.

     Restructuring and Other Charges. In the fourth quarter of 2000, the Company
comprehensively analyzed its operations and cost structure, with a view to
repositioning the Company to effectively execute its strategic and operational
initiatives. This analysis focused on non-core assets and activities of the
Company to determine whether they were still consistent with the Company's
strategic direction. As a result of this analysis, during the fourth quarter of
2000, the Company recorded the following charges (in thousands):

<TABLE>
<CAPTION>
                                  Restructuring    Payments to                                  Payments to
                                    Expenses         Settle        Asset        Accrual at        Settle      Accrual at
                                    in 2000       Obligations  Write-downs  December 31, 2000  Obligations  June 30, 2001
                                  -------------   -----------  -----------  -----------------  -----------  -------------
<S>                               <C>             <C>          <C>          <C>                <C>          <C>
Abandonment of IT Systems              $  6,557                 $  6,557
Impairment of home
    health business                       6,463                    6,463
Severance of employment
    agreement                               466      $   36                      $  430          $ 108          $  322
Site closures                             2,636         562          655          1,419            205           1,214
                                       --------      ------     --------         ------          -----          ------
Total                                  $ 16,122      $  598     $ 13,675         $1,849          $ 313          $1,536
                                       ========      ======     ========         ======          =====          ======
</TABLE>

During the first quarter of 2001, the Company announced plans to further reduce
overhead costs and recognized pre-tax restructuring charges of $5.9 million.
The charges are summarized in the following table and discussed in more detail
below (in thousands):

<TABLE>
<CAPTION>
                                                             Payments to                      Payments to
                                            Restructuring       Settle        Accrual at        Settle        Accrual at
                                              Expenses       Obligations    March 31, 2001    Obligations    June 30, 2001
                                              --------       -----------    --------------    -----------    -------------
<S>                                         <C>              <C>            <C>               <C>            <C>
Costs related to personnel reductions           $3,113            $1,868        $1,245                           $1,245
Closure of  facilities                           2,455                73         2,382            $181            2,201
Abandonment of software applications               300                             300             300
                                                ------            ------        ------            ----           ------
Total                                           $5,868            $1,941        $3,927            $481           $3,446
                                                ======            ======        ======            ====           ======
</TABLE>

As indicated above, during the first quarter of 2001, the Company announced
plans to reduce corporate overhead and eliminated approximately 50 positions.
As a result, the Company recorded a charge of $3.1 million during the first
quarter.  The Company also determined that it will close several sites,
abandoning leased facilities, and recognized a charge of $2.5 million for
remaining lease obligations and related improvements.  In addition, the Company
decided to abandon certain software applications and recorded a charge of
$300,000.

     Other Income. Other income of $27.6 million in the first three months of
2000 represents the recognition of the remaining gain on shares of common stock
of ILEX Oncology, Inc. owned by the Company. A previous gain of $14.4 million
was recognized during the fourth quarter of 1999 as a result of the Company's
reclassification of the ILEX stock as a trading security. The stock was sold by
the Company during the first quarter of 2000.

     Interest. Net interest expense increased from $13.1 million in the first
six months of 2000 to $13.4 million for the first six months of 2001, an
increase of $269,000 or 2.1%. Net interest expense increased from $6.0 million
in the second quarter of 2000 to $6.6 million in the second quarter of 2001, an
increase of $654,000, or 10.9%. As a percentage of revenue, net interest expense
was 2.1% and 1.8% for the first six months of 2000 and 2001, respectively, and
1.8% and 1.7% for the second quarter of 2000 and 2001, respectively.

                                      -17-
<PAGE>

                               US Oncology, Inc.
         MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                     AND RESULTS OF OPERATIONS - continued
                                  (unaudited)

     Income Taxes. For the first six months of 2001, the Company recognized a
tax expense of $12.6 million resulting in an effective tax rate of 38.0%, which
is consistent with the same prior year period.

     Net Income. Net income decreased from $39.1 million in the first six months
of 2000 to $20.6 million in the first six months of 2001, a decrease of $18.5
million or 47.3%. Net income increased from $10.0 million in the second quarter
of 2000 to $12.7 million in the second quarter of 2001, an increase of $2.7
million, or 27.5%. Net income as a percentage of revenue changed from 6.2% for
the first six months of 2000 to 2.8% for the first six months of 2001 and from
3.1% in the second quarter of 2000 to 3.3% in the second quarter of 2001.
Included in net income for the first six months of 2000 is a $17.1 million
after-tax gain on investment in common stock. Excluding this gain, net income
for the six months ended June 30, 2000 would have been $22.0 million, which
represents earnings per diluted share of $0.22. Included in net income for the
six months ended June 30, 2001 were pre-tax Restructuring charges of $5.9
million. Excluding the restructuring charges, net income for the first six
months of 2001 would have been $24.2 million, which represents earnings per
diluted share of $0.24.

Liquidity and Capital Resources

As of June 30, 2001, the Company had net working capital of $153.1 million,
including cash and cash equivalents of $12.1 million. The Company had current
liabilities of $262.9 million, including $24.9 million in current maturities of
long-term debt, and $226.7 million of long-term indebtedness. During the first
six months of 2001, the Company generated $107.7 million in net operating cash
flow, invested $31.1 million and used cash in financing activities in the amount
of $67.9 million.

Cash from Operating Activities

Cash from operating activities increased from $56.3 million in the first six
months of 2000 to $107.7 million in the first six months of 2001. The increase
is primarily attributable to the decrease in accounts receivable days
outstanding from 72 days as of June 30, 2000 to 58 days as of June 30, 2001 due
to improved collection efforts. In addition, the Company was not required to
make similar levels of estimated tax payments in the first six months of 2001 as
compared to 2000.

Cash from Investing Activities

During the first six months of 2001, the Company expended $30.5 million in
capital expenditures and financed an additional $16.9 million through various
leasing facilities. The Company expended $23.5 million on the development and
construction of cancer centers, of which $12.6 million was financed through the
Company's leasing facility during 2001. In addition, the Company expended $5.1
million on installation of PET centers, of which $4.3 million was financed
through an equipment operating lease facility. Maintenance capital expenditures
were $18.8 million and $13.2 million in the first six months of 2001 and 2000,
respectively. In addition, in connection with affiliating with certain
practices, the Company paid total consideration of $2.0 million in the first six
months of 2001 and $26.4 million in the first six months of 2000, which included
cash consideration and transaction costs of $565,000 in 2001 and $11.7 million
in 2000.

In March 2000, the Company sold its equity investment in ILEX Oncology, Inc. in
a private sale transaction and realized proceeds of $54.8 million, or $38.8
million net of tax. These proceeds were used to reduce outstanding borrowings
under the Credit Facility.

                                      -18-
<PAGE>

                               US Oncology, Inc.
         MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                     AND RESULTS OF OPERATIONS - continued
                                  (unaudited)

Cash from Financing Activities

During the first six months of 2001, the Company used cash for financing
activities of $67.9 million as compared to $65.8 million in the first six months
of the previous year, an increase of $2.1 million. Cash used to reduce long term
debt during the first six months of 2001 was derived from improved business
office operations. In the first quarter of 2000, the Company used the proceeds
from the sale of investment in common stock to reduce long-term debt.

The Company has satisfied its development and transaction needs through debt and
equity financings and borrowings under a $175 million syndicated revolving
credit facility ("Credit Facility") with First Union National Bank ("First
Union"), as a lender and as an agent for various other lenders, which matures in
2004. The Company also uses a $75 million leasing facility in connection with
developing its integrated cancer centers. Availability of new borrowings under
the leasing facility terminated in June 2001. The Company repaid $60.0 million,
net of borrowings, under the Credit Facility during the first six months of 2001
as a result of increased cash flow from operations. In addition, the Company
repaid $10.9 million of other indebtedness, primarily attributed to payments on
subordinated notes related to previous affiliation transactions.

In November 1999, the Company sold an aggregate of $100 million of Senior
Secured Notes to a group of institutional investors, the proceeds of which were
used to repay amounts outstanding under the Credit Facility. The Senior Secured
Notes rank equally in right of payment with the Credit Facility. The notes bear
interest at 8.42% per annum with a final maturity in 2006 and an average life of
five years.

The Company is currently in compliance with the Credit Facility, Leasing
Facility and Senior Secured Note covenants, with additional capacity under the
Credit Facility of $110.0 million. The Company has relied primarily on
profitability from its operations to fund working capital.

Borrowings under the Credit Facility bear interest at a rate equal to a rate
based on prime rate or the London Interbank Offered Rate, based on a defined
formula. The Credit Facility, Leasing Facility and Senior Secured Notes contain
affirmative and negative covenants, including the maintenance of certain
financial ratios, restrictions on sales, leases or other dispositions of
property, restrictions on other indebtedness and prohibitions on the payment of
dividends. The Company's service agreements, the capital stock of the Company's
subsidiaries and the Company's accounts receivable are pledged as security under
the Credit Facility, Leasing Facility and Senior Secured Notes.

The Company currently expects that its principal use of funds in the near future
will be in connection with the purchase of medical equipment, investment in
information systems and the acquisition or lease of real estate for the
development of integrated cancer centers and PET centers, with less emphasis
than in past years on transactions with medical oncology practices. It is likely
that the Company's capital needs in the next several years will exceed the cash
generated from operations. Thus, the Company may incur additional debt or issue
additional debt or equity securities from time to time. Capital available for
health care companies, whether raised through the issuance of debt or equity
securities, is quite limited. As a result, the Company may be unable to obtain
sufficient financing on terms satisfactory to management or at all.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

In the normal course of business, the financial position of the Company is
routinely subjected to a variety of risks. Among these risks is the market risk
associated with interest rate movements on outstanding debt. The Company
regularly assesses these risks and has established policies and business
practices to protect against the adverse effects of these and other potential
exposures.

                                      -19-
<PAGE>

                               US Oncology, Inc.
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS - continued
                                  (unaudited)

The Company's borrowings under the Credit Facility contain an element of market
risk from changes in interest rates. Historically, the Company has managed this
risk, in part, through the use of interest rate swaps; however, no such
agreements have been entered into in 2001. The Company does not enter into
interest rate swaps or hold other derivative financial instruments for
speculative purposes. The Company was not obligated under any interest rate swap
agreements during the first six months of 2001.

For purposes of specific risk analysis, the Company uses sensitivity analysis to
determine the impact that market risk exposures may have on the Company. The
financial instruments included in the sensitivity analysis consist of all of the
Company's cash and equivalents, long-term and short-term debt and all derivative
financial instruments.

To perform sensitivity analysis, the Company assesses the risk of loss in fair
values from the impact of hypothetical changes in interest rates on market
sensitive instruments. The market values for interest rate risk are computed
based on the present value of future cash flows as impacted by the changes in
the rates attributable to the market risk being measured. The discount rates
used for the present value computations were selected based on market interest
rates in effect at June 30, 2001. The market values that result from these
computations are compared with the market values of these financial instruments
at June 30, 2001. The differences in this comparison are the hypothetical gains
or losses associated with each type of risk. A one percent increase or decrease
in the levels of interest rates on variable rate debt with all other variables
held constant would not result in a material change to the Company's results of
operations or financial position or the fair value of its financial instruments.

                                      -20-
<PAGE>

                               US Oncology, Inc.

PART II.  OTHER INFORMATION

ITEM 1.   LEGAL PROCEEDINGS

The provision of medical services by the Company's affiliated practices entails
an inherent risk of professional liability claims. The Company does not control
the practice of medicine by the clinical staff or the compliance with regulatory
and other requirements directly applicable to practices. Because the practices
purchase and resell pharmaceutical products, they face the risk of product
liability claims. The Company maintains insurance coverage that it believes to
be adequate both as to risks and amounts. In addition, pursuant to the services
agreements with the affiliated practices, the practices and the Company are
required to maintain comprehensive liability insurance. Successful malpractice,
regulatory or product liability claims asserted against the Company or one of
the practices could, however, have a material adverse effect on the Company.

The Company has previously disclosed that it and a formerly affiliated practice
are the subject of allegations that the practice's billing practices may violate
the Federal False Claims Act. These allegations are contained in two qui tam
complaints, commonly referred to as "whistle-blower" lawsuits, filed under seal
prior to the AOR/PRN merger. The U.S. Department of Justice has determined that
it will not intervene in those qui tam suits. In these suits, the individual who
filed the complaint may choose to continue to pursue litigation in the absence
of government intervention, but has not yet indicated an intent to do so.

The Company has become aware that it and certain of its subsidiaries and
affiliated practices are the subject of additional qui tam lawsuits that remain
under seal, meaning that they were filed on a confidential basis with a United
States federal court and are not publicly available or disclosable. To date, the
United States has not intervened in any such suit against the Company. Because
the complaints are under seal, and because the Department of Justice and the
Company are in the process of investigating the claims, the Company is unable to
assess at this time the materiality of these lawsuits. Because qui tam actions
are filed under seal, there is a possibility that the Company could be the
subject of other qui tam actions of which it is unaware. The Company intends to
continue to investigate and vigorously defend itself against any and all such
claims, and the Company continues to believe that it conducts its operations in
compliance with law.

Qui tam suits are brought by private individuals, and there is no minimum
evidentiary or legal threshold for bringing such a suit. However, the Department
of Justice is legally required to investigate all such claims. The subject
matter of many such claims may relate both to alleged actions of the Company and
alleged actions of an affiliated practice. Because the affiliated practices are
separate legal entities not controlled by the Company, such claims necessarily
involve a more complicated, higher cost defense, and may adversely impact the
relationship between the Company and the practices. If the individuals who file
complaints and/or the United States were to prevail in these claims against the
Company, and the magnitude of the alleged wrongdoing were determined to be
significant, the resulting judgment could have a material adverse financial and
operational effect on the Company including potential limitations in future
participation in governmental reimbursement programs. In addition, addressing
complaints and government investigations requires the Company to devote
significant financial and other resources to the process, regardless of the
ultimate outcome of the claims.

The Company and its affiliated physicians are defendants in a number of lawsuits
involving employment and other disputes and breach of contract claims. Although
the Company believes the allegations are customary for the Company's size and
scope of operations, adverse judgments, individually or in the aggregate, could
have a material adverse effect on the Company.

                                      -21-
<PAGE>

                               US Oncology, Inc.

ITEM 2.  CHANGES IN SECURITIES

In connection with each affiliation transaction between the Company and a
physician group, the Company purchases the nonmedical assets of, and enters into
a long-term management services agreement with, that physician group. In
consideration for that arrangement, the Company typically pays cash, issues
subordinated promissory notes (in general, payable in equal installments on the
third through seventh anniversaries of the closing date at an annual interest
rate of seven percent) and unconditionally agrees to deliver shares of Common
Stock at future specified dates (in general, on each of the third through fifth
anniversaries of the closing date). The price per share is the lower of the
average of the closing price per share for the five days preceding the date of
the letter of intent or the closing date with respect to such affiliation
transaction.

During the first six months of 2001, the Company affiliated with three physician
groups consisting of six physicians. In conjunction with these transactions the
Company agreed to issue 376,049 shares of Common Stock and issued $935,000 of
subordinated promissory notes. Each sale was a private placement made in
connection with an affiliate transaction, as described in general in the
preceding paragraph. All of the physicians involved in such transactions during
the first six months of 2001 are accredited investors. No underwriter was
involved in any such sale, and no commission or similar fee was paid with
respect thereto. Each sale was not registered under the Securities Act of 1933
in reliance on Section 4(2) of such Act and Rule 506 enacted thereunder.
The Company did not consummate any such transactions during the second quarter
of 2001.

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

(a)  The Company held its Annual Meeting of Stockholders on May 10, 2001.
(b)  No disclosure required
(c)  The following matters were voted upon at the Annual Meeting:

(i)  Election of Class II Directors


Nominee                                 Votes For      Authority Withheld
-------                                 ---------      ------------------

Nancy G. Brinker                        76,382,286           650,342
Lloyd K. Everson, MD                    76,395,499           637,129
Stephen E. Jones MD                     76,370,555           662,073
Robert A. Ortenzio                      75,694,752         1,337,876

(ii) Other Matters

<TABLE>
<CAPTION>
Proposal                                            Votes For     Votes Against      Authority Withheld
--------                                            ---------     -------------      ------------------
<S>                                                <C>            <C>                <C>
Ratification of the appointment of
PricewaterhouseCoopers LLP as the Company's
independent accountants for the year
ending December 31, 2001                           76,911,496         83,563              37,569
</TABLE>

No broker non-votes were recorded.

(d)  No disclosure required.

                                      -22-
<PAGE>

                               US Oncology, Inc.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(a)  Exhibits
     Exhibit
     Number    Description
     ------    -----------

      3.1      Amended and Restated Certificate of Incorporation (filed as
               Exhibit 3.1 to the Company's Form 8-K/A filed June 17, 1999 and
               incorporated herein by reference)

      3.2      Amended and Restated By-Laws (filed as Exhibit 3.2 to the
               Company's Form 8-K/A filed June 17, 1999 and incorporated herein
               by reference)

      4.1      Rights Agreement between the Company and American Stock Transfer
               & Trust Company (incorporated by reference from Form 8-A filed
               June 2, 1997)

      4.2      Form of 8.42% Senior Secured Note due 2006 (filed as Exhibit 4.2
               to the Company's Annual Report on Form 10-K for the year ended
               December 31, 1999 and incorporated herein by reference)

(b)  Reports on Form 8-K

     NONE

                                      -23-
<PAGE>

                               US Oncology, Inc.



                                  SIGNATURES

Pursuant to the requirements 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.



Date: July 31, 2001             US ONCOLOGY, INC.



                              By:  /s/ R. Dale Ross
                                   ---------------------------------------------
                                   R. Dale Ross, Chief Executive Officer
                                   (duly authorized signatory)



                              By:   /s/ Bruce D. Broussard
                                   ---------------------------------------------
                                   Bruce D. Broussard, Chief Financial Officer
                                   (principal financial and accounting officer)

                                      -24-