<PAGE>   1
 
================================================================================
 
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON D.C. 20549
 
                                   FORM 10-Q
 
(MARK ONE)
 
<TABLE>
<C>         <S>                                                           <C>
   [X]      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
            SECURITIES EXCHANGE ACT OF 1934
 
            FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997

                                      OR
 
   [  ]     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
            SECURITIES EXCHANGE ACT OF 1934
 
                 FOR THE TRANSITION PERIOD FROM                 TO
                                                ---------------    -------------
                           Commission File Number 0-27570
</TABLE>                                          
 
                             PHARMACEUTICAL PRODUCT
                               DEVELOPMENT, INC.
             (Exact name of registrant as specified in its charter)
 

            NORTH CAROLINA                                  56-1640186
     (State or other jurisdiction of                     (I.R.S. Employer
     incorporation or organization)                  Identification Number)
 
                      3151 SEVENTEENTH STREET EXTENSION
                          WILMINGTON, NORTH CAROLINA
                   (Address of principal executive offices)
 
                                    28412
                                  (Zip Code)
      Registrant's telephone number, including area code (910) 251-0081
 
     Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 of 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes   X       No  _____
 
     Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date: 22,546,999 shares of common
stock, par value $0.10 per share, as of October 31, 1997.
 
================================================================================
<PAGE>   2
 
                                     INDEX
 
<TABLE>
<CAPTION>
                                                              PAGE
                                                              ----
<S>                                                           <C>
PART I.  FINANCIAL INFORMATION
 
Item 1. Financial Statements
 
  Consolidated Condensed Statements of Operations for the
     Three and Nine Months Ended September 30, 1997 and 1996
     (unaudited)............................................    3
 
  Consolidated Condensed Balance Sheets as of September 30,
     1997 (unaudited) and December 31, 1996.................    4
 
  Consolidated Condensed Statements of Cash Flows for the
     Nine Months Ended September 30, 1997 and 1996
     (unaudited)............................................    5
 
  Notes to Consolidated Condensed Financial Statements......    6
 
Item 2. Management's Discussion and Analysis of Financial
  Condition and Results of Operations.......................    9
 
PART II.  OTHER INFORMATION
 
Item 6. Exhibits and Reports on Form 8-K....................   14
 
SIGNATURES..................................................   15
</TABLE>
 
                                        2
<PAGE>   3
 
                                    PART I.
 
                             FINANCIAL INFORMATION
 
ITEM 1.  FINANCIAL STATEMENTS
 
           PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
                CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
                                  (UNAUDITED)
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
 
<TABLE>
<CAPTION>
                                                         THREE MONTHS ENDED    NINE MONTHS ENDED
                                                           SEPTEMBER 30,         SEPTEMBER 30,
                                                         ------------------   -------------------
                                                          1997       1996       1997       1996
                                                         -------   --------   --------   --------
<S>                                                      <C>       <C>        <C>        <C>
Life sciences revenues, net of subcontractor costs of
  $15,658, $8,373, $54,097 and $31,727, respectively...  $46,145   $ 38,470   $140,039   $111,605
Environmental sciences revenues, net of subcontractor
  costs of $1,398, $1,378, $4,473 and $3,313,
  respectively.........................................   12,030     11,033     35,862     34,444
Discovery sciences revenues............................       98         --        115         --
                                                         -------   --------   --------   --------
          Net revenue..................................   58,273     49,503    176,016    146,049
                                                         -------   --------   --------   --------
Direct costs -- Life sciences..........................   22,720     19,967     70,947     58,430
Direct costs -- Environmental sciences.................    8,422      7,588     25,054     23,875
Direct costs -- Discovery sciences.....................      583         --      1,063         --
Selling, general and administrative expenses...........   16,704     16,339     50,998     46,224
Depreciation and amortization..........................    3,179      2,636      8,986      7,620
Merger costs...........................................       --     16,960        512     16,960
Acquired in-process research and development...........       --         --      9,112         --
                                                         -------   --------   --------   --------
                                                          51,608     63,490    166,672    153,109
                                                         -------   --------   --------   --------
Operating income (loss)................................    6,665    (13,987)     9,344     (7,060)
Interest income, net...................................      154        389        770      1,111
Other income (expense), net............................      146        173        198        130
                                                         -------   --------   --------   --------
Income (loss) before income taxes......................    6,965    (13,425)    10,312     (5,819)
Provision (benefit) for income taxes...................    2,751     (1,468)     4,101      1,567
                                                         -------   --------   --------   --------
          Net income (loss)............................  $ 4,214   $(11,957)  $  6,211   $ (7,386)
                                                         =======   ========   ========   ========
Net income (loss) per common share.....................  $  0.19   $  (0.56)  $   0.28   $  (0.35)
                                                         =======   ========   ========   ========
Weighted average number of common shares...............   22,533     21,298     22,487     21,028
                                                         =======   ========   ========   ========
</TABLE>
 
  The accompanying notes are an integral part of these consolidated condensed
                             financial statements.
 
                                        3
<PAGE>   4
 
           PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
 
                     CONSOLIDATED CONDENSED BALANCE SHEETS
                                 (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                              SEPTEMBER 30,   DECEMBER 31,
                                                                  1997            1996
                                                              -------------   ------------
                                                               (UNAUDITED)
<S>                                                           <C>             <C>
                                          ASSETS
Current assets
  Cash and cash equivalents.................................    $ 12,776        $ 21,838
  Marketable securities.....................................       8,000          14,210
  Accounts receivable and unbilled services, net............      95,530          76,237
  Investigator advances.....................................       1,027           5,280
  Prepaid expenses and other current assets.................       6,146           5,752
  Deferred tax asset........................................       3,276           4,955
                                                                --------        --------
          Total current assets..............................     126,755         128,272
  Property, plant and equipment, net........................      34,870          31,479
  Goodwill, net.............................................      18,720          18,397
  Other assets, net.........................................       7,866           3,309
                                                                --------        --------
          Total assets......................................    $188,211        $181,457
                                                                ========        ========
                           LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
  Current maturities of long-term debt......................    $  4,797        $  4,221
  Accounts payable..........................................       6,963           7,051
  Payables to investigators.................................       4,074           5,429
  Other accrued expenses....................................      25,179          26,263
  Unearned income...........................................      19,757          18,705
                                                                --------        --------
          Total current liabilities.........................      60,770          61,669
  Long-term debt, less current maturities...................       1,218           1,428
  Deferred rent and other...................................       2,841           3,054
                                                                --------        --------
          Total liabilities.................................      64,829          66,151
                                                                --------        --------
Shareholders' equity
  Common stock..............................................       2,254           2,163
  Paid-in capital...........................................     115,367         112,606
  Unrealized gain (loss) on investments.....................        (227)            232
  Cumulative translation adjustment.........................        (734)            668
  Retained earnings (accumulated deficit)...................       6,722            (363)
                                                                --------        --------
          Total shareholders' equity........................     123,382         115,306
                                                                --------        --------
          Total liabilities and shareholders' equity........    $188,211        $181,457
                                                                ========        ========
</TABLE>
 
  The accompanying notes are an integral part of these consolidated condensed
                             financial statements.
 
                                        4
<PAGE>   5
 
           PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
 
                CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
                                  (UNAUDITED)
                                 (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                               NINE MONTHS ENDED
                                                                 SEPTEMBER 30,
                                                              -------------------
                                                                1997       1996
                                                              --------   --------
<S>                                                           <C>        <C>
Cash flows from operating activities:
  Net income (loss).........................................  $  6,211   $ (7,386)
  Adjustments to reconcile net income to net cash used in
     operating activities:
     Depreciation and amortization..........................     8,986      7,620
     Acquired in-process research and development...........     9,112         --
     Merger expenses........................................        --     13,376
     Other..................................................      (401)      (473)
     Change in accrued merger expense.......................    (8,143)        --
     Change in other operating assets and liabilities.......   (12,470)   (12,439)
                                                              --------   --------
          Net cash provided by operating activities.........     3,295        698
                                                              --------   --------
Cash flows from investing activities:
     Maturities (purchases) of investments, net.............     6,268    (16,963)
     Purchases of property and equipment....................   (10,635)    (8,091)
     Cash paid for acquisitions, net........................    (8,121)        --
     Other..................................................       174        448
                                                              --------   --------
          Net cash used in investing activities.............   (12,314)   (24,606)
                                                              --------   --------
Cash flows from financing activities:
     Repayment of long-term debt, net.......................      (530)      (853)
     Other long-term borrowings.............................       138         75
     Proceeds from issuance of common stock.................     2,152     41,957
     Dividends paid.........................................        --     (5,937)
     Distributions to shareholders..........................      (430)        --
                                                              --------   --------
          Net cash provided by financing activities.........     1,330     35,242
                                                              --------   --------
Effect of exchange rate changes on cash.....................    (1,373)       346
                                                              --------   --------
Net increase (decrease) in cash and cash equivalents .......    (9,062)    11,680
Cash and cash equivalents, beginning of the period..........    21,838      2,640
                                                              --------   --------
Cash and cash equivalents, end of the period................  $ 12,776   $ 14,320
                                                              ========   ========
</TABLE>
 
  The accompanying notes are an integral part of these consolidated condensed
                             financial statements.
 
                                        5
<PAGE>   6
 
           PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
 
              NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
                                  (UNAUDITED)
 
1.  ACCOUNTING POLICIES
 
     The significant accounting policies followed by Pharmaceutical Product
Development, Inc. (the "Company") for interim financial reporting are consistent
with the accounting policies followed for annual financial reporting. These
unaudited consolidated condensed financial statements have been prepared in
accordance with Rule 10-01 of Regulation S-X, and in management's opinion, all
adjustments of a normal recurring nature necessary for a fair presentation have
been included. The accompanying financial statements do not purport to contain
all the necessary financial disclosures that might otherwise be necessary in the
circumstances and should be read in conjunction with the audited consolidated
financial statements and notes thereto in the Company's Annual Report for the
year ended December 31, 1996. The results of operations for the three month and
nine month periods ended September 30, 1997 are not necessarily indicative of
the results to be expected for the full year or any other period.
 
  Use of Estimates in the Preparation of Financial Statements
 
     The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
 
2.  BASIS OF PRESENTATION
 
     The accompanying unaudited consolidated condensed financial statements
include the accounts of the Company and its subsidiaries, all of which are
wholly-owned. All significant intercompany items have been eliminated.
 
3.  MERGER AND ACQUISITIONS
 
     In September 1996, a wholly-owned subsidiary of the Company was merged with
and into Applied Bioscience International Inc. ("APBI") in a transaction
accounted for as a pooling-of-interests. As a result of the merger, APBI became
a wholly-owned subsidiary of the Company. Under the terms of the merger
agreement, APBI shareholders received 0.4054 of a share of the Company's common
stock for each APBI share. As a result of the merger, the Company issued
12,063,860 shares of its common stock in exchange for all of the outstanding
shares of common stock of APBI. Holders of options to acquire APBI stock had the
choice to receive either shares of Company stock for the value of the options,
or substituted options to acquire Company common stock. As a result of the APBI
option holders' choices, 202,967 additional shares of Company common stock were
issued, and options to purchase 600,513 shares of Company common stock were
issued. In accordance with the pooling-of-interests method of accounting, the
consolidated condensed financial statements have been restated to reflect the
combination using APBI's financial statements for the three month and nine month
period ended September 30, 1996.
 
     In a January 1997 transaction accounted for as a purchase, the Company
acquired Technical Assessment Systems, Inc. for $490,000 cash, a note for
approximately $300,000 and the potential to earn an additional amount depending
on their profitability for a certain period after the acquisition.
 
     In February 1997, the Company acquired Belmont Research, Inc. ("Belmont")
in a transaction accounted for as a pooling-of-interests. The consideration for
Belmont consisted of 502,384 shares of the Company's common stock plus options
to purchase approximately 115,000 shares of Company common stock. Financial data
for 1996 has not been restated to include Belmont, as its results of operations
prior to the date of acquisition are not material to the Company.
 
                                        6
<PAGE>   7
 
           PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
 
      NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
                                  (UNAUDITED)
 
     In June 1997, the Company acquired SARCO, Inc. ("SARCO") in a transaction
accounted for as a pooling-of-interests. The consideration for SARCO consisted
of 263,158 shares of the Company's common stock. Financial data for 1996 has not
been restated to include SARCO, as its results of operations prior to the date
of acquisition are not material to the Company. Also in June 1997, the Company
acquired the GSX System, a functional genomics platform technology. The GSX
System was purchased for approximately $8.7 million in cash.
 
4.  EARNINGS PER COMMON SHARE
 
     Earnings per share are calculated by dividing net income by the weighted
average number of shares outstanding during the period. All common share and per
share amounts have been adjusted to give effect to the pooling-of-interests
transaction with APBI.
 
5.  NEW ACCOUNTING PRONOUNCEMENTS
 
     The Company will adopt Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information" ("SFAS No.
131"), for the year ended December 31, 1998. SFAS No. 131 requires the Company
to report selected information about operating segments in interim financial
reports issued to shareholders. It also establishes standards for related
disclosures about products and services, geographic areas and major customers.
The Company has yet to determine the impact, if any, of adoption of this new
pronouncement.
 
     The Company will adopt Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" ("SFAS No. 130"), for the year ended December
31, 1998. SFAS No. 130 requires the Company to display an amount representing
total comprehensive income for the period in a financial statement which is
displayed with the same prominence as other financial statements. Upon adoption,
all prior period data presented will be restated to conform to the provisions of
SFAS No. 130. The Company has yet to determine the impact, if any, of adoption
of this new pronouncement.
 
     The Company will adopt Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" ("SFAS No. 128"), on December 31, 1997. SFAS No. 128
requires the Company to change its method of computing, presenting and
disclosing earnings per share information. Upon adoption, all prior period data
presented will be restated to conform to the provisions of SFAS No. 128.
 
                                        7
<PAGE>   8
 
           PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
 
      NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
                                  (UNAUDITED)
 
     If the Company had adopted SFAS No. 128 for the period ended September 30,
1997, the following computation would have been used to arrive at basic income
per common share and diluted income per common share that would have been
presented on the consolidated condensed statements of operations:
 
<TABLE>
<CAPTION>
                                                   THREE MONTHS ENDED   NINE MONTHS ENDED
                                                     SEPTEMBER 30,        SEPTEMBER 30,
                                                   ------------------   -----------------
                                                    1997       1996      1997      1996
                                                   -------   --------   -------   -------
<S>                                                <C>       <C>        <C>       <C>
Basic income (loss) per common share:
  Net income (loss)..............................  $ 4,214   $(11,957)  $ 6,211   $(7,386)
                                                   =======   ========   =======   =======
  Weighted average shares:
     Common shares outstanding...................   22,533     21,298    22,487    21,028
                                                   =======   ========   =======   =======
  Basic income (loss) per common share...........  $  0.19   $  (0.56)  $  0.28   $ (0.35)
                                                   =======   ========   =======   =======
Diluted income (loss) per common share:
  Net income (loss)..............................  $ 4,214   $(11,957)  $ 6,211   $(7,386)
                                                   =======   ========   =======   =======
  Weighted average shares:
     Common shares outstanding...................   22,533     21,298    22,487    21,028
     Dilutive effect of stock options............       88         --        93        --
                                                   -------   --------   -------   -------
          Total shares...........................   22,621     21,298    22,580    21,028
                                                   =======   ========   =======   =======
  Diluted income (loss) per common share.........  $  0.19   $  (0.56)  $  0.28   $ (0.35)
                                                   =======   ========   =======   =======
</TABLE>
 
                                        8
<PAGE>   9
 
           PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
 
ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
 
COMPANY OVERVIEW
 
     Pharmaceutical Product Development, Inc. ("PPDI" or "the Company") provides
a broad range of research and consulting services in the life, environmental and
discovery sciences. The Company's life sciences subsidiaries include PPD
Pharmaco, Inc. and Clinix International Inc. (the "Life Sciences Group"). PPD
Pharmaco is a leading contract research organization ("CRO") providing
integrated product development services on a global basis to complement the
research and development activities of companies in the pharmaceutical and
biotechnology industries. Through its environmental sciences subsidiary, APBI
Environmental Sciences Group, Inc. (the "Environmental Sciences Group"),
operating under the trade name ENVIRON, the Company provides assessment and
management of chemical and environmental health risk. The Company's discovery
research segment includes SARCO, Inc., a combinatorial chemistry company, and
the GSX System, a functional genomics platform technology.
 
     In September 1996, a wholly-owned subsidiary of the Company was merged with
and into Applied Bioscience International Inc. ("APBI") pursuant to which APBI
became a wholly-owned subsidiary of the Company. Under the terms of the merger
agreement, APBI stockholders received 0.4054 of a share of the Company's common
stock for each APBI share, which resulted in the Company issuing 12,063,860
shares of its common stock in exchange for all of the outstanding shares of
common stock of APBI. The Company's financial results have been restated to
reflect the transaction as if it had occurred at the beginning of the periods
presented. Subsequent to the merger, the Company believes it is the third
largest CRO in the world. The Company's CRO operations (formerly doing business
as Pharmaceutical Product Development, Inc., or PPD) and APBI's CRO business
(formerly doing business as Pharmaco International) have been integrated and now
operate under the trade name PPD Pharmaco. For more detailed information on the
Company's Life Sciences Group, see the Company's Annual Report on Form 10-K for
the year ended December 31, 1996.
 
     ENVIRON is a multidisciplinary environmental and health sciences consulting
firm that provides a broad range of services relating to the presence of
hazardous substances in the environment, in drugs and medical devices, in
consumer products and in the workplace. Services provided by ENVIRON are
concentrated in the assessment and management of chemical risk and are
characterized by engagements supporting private sector clients with complex,
potentially high-liability concerns. For more detailed information on the
Company's Environmental Sciences Group, see the Company's Annual Report on Form
10-K for the year ended December 31, 1996.
 
     Statements in this Management's Discussion and Analysis that are not
descriptions of historical facts are forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995 reflecting
management's current view with respect to certain future events and financial
performance that are subject to risks and uncertainties. Although the Company
has attempted to be accurate in making those forward-looking statements, it is
possible that the assumptions made by management may not materialize. In
addition, other important factors which could cause results to differ materially
include the following: economic conditions in the pharmaceutical and
biotechnology industries, outsourcing trends in the pharmaceutical and
biotechnology industries; risks associated with acquisitions; loss of large
contracts; competition within the CRO industry; continued success in sales
growth; the ability to attract and retain key personnel; and the other risk
factors set forth from time to time in the Company's other SEC filings, copies
of which are available upon request from PPDI's investor relations department.
Since a large percentage of the Company's operating costs are relatively fixed,
variations in the timing and progress of large contracts can materially affect
results.
 
RESULTS OF OPERATIONS
 
 General
 
     In January 1997, the Environmental Sciences Group acquired Technical
Assessment Systems, Inc. for $490,000 cash, a note for approximately $300,000
and the potential to earn an additional amount depending on their profitability
for a certain period after the acquisition. In February 1997, the Life Sciences
 
                                        9
<PAGE>   10
 
Group acquired Belmont Research, Inc. ("Belmont") in a transaction accounted for
as a pooling-of-interests. The consideration for Belmont consisted of 502,384
shares of the Company's common stock plus options to purchase approximately
115,000 shares of Company common stock. In June 1997, the Company completed the
acquisitions of SARCO, Inc. and the GSX System. These acquisitions form the
basis of PPD Discovery, Inc., a new wholly-owned subsidiary focused on the
discovery segment of the research and development outsourcing market. The
acquisition of SARCO, Inc. was accounted for as a pooling-of-interest. The
consideration for SARCO, Inc. consisted of 263,158 shares of the Company's
common stock. The GSX System was purchased with approximately $8.7 million in
cash by the Company. The excess purchase price over fair value of net assets
acquired was $9.1 million, and was allocated to acquired in-process research and
development, which was charged to operations upon acquisition. Financial data
for 1996 has not been restated to include Belmont or SARCO, Inc., as their
results of operations prior to the date of acquisition are not material to the
Company.
 
     During the third quarter of 1997, net income increased 98.7% to $4.2
million, or $0.19 per share, from $2.1 million, or $0.10 per share, for the same
period in 1996, excluding 1996 merger costs. Operating income increased by
124.2% to $6.7 million from $3.0 million a year earlier, excluding 1996 merger
costs.
 
 Three Months Ended September 30, 1997 Versus Three Months Ended September 30,
1996
 
     Net revenue increased $8.8 million, or 17.7%, to $58.3 million in 1997 from
$49.5 million for the same period last year. The Life Sciences Group operations
accounted for 79.2% of the Company's net revenue for 1997. The Life Sciences
Group generated net revenue of $46.2 million, up $7.7 million, or 20.0%, from
last year. The growth in the Life Sciences Group's operations was due in part to
an increase in the size, scope and number of contracts in the clinical
development and biostatistics business. The acquisitions since September 30,
1996 contributed net revenue of $3.3 million for the three months ended
September 30, 1997. The Company's Environmental Sciences Group generated 20.6%
of the Company's net revenue for the third quarter 1997, or $12.0 million,
compared with $11.0 million in 1996.
 
     Total direct costs increased 15.1% to $31.7 million from $27.6 million last
year and declined as a percentage of net revenue to 54.4% from 55.7% last year.
The Life Sciences Group's direct costs as a percentage of related net revenue of
49.2% compares favorably to 51.9% last year. This decrease is due primarily to
higher labor utilization and a focused effort to control costs across all
business segments. The Environmental Sciences Group's direct costs as a
percentage of related net revenue increased to 70.0% from 68.8% last year. This
increase in direct costs as a percentage of net revenues is primarily
attributable to lower consultant utilization.
 
     Selling, general and administrative ("SG&A") expenses increased 2.2% to
$16.7 million from $16.3 million in 1996. As a percentage of net revenue, SG&A
expenses decreased to 28.7% from 33.0% last year. SG&A decreased as a percentage
of net revenue primarily due to the leveraging of administrative functions over
a larger revenue base.
 
     Total depreciation and amortization expense of $3.2 million was $0.5
million, or 20.6%, higher than last year. The increase was related to the
Company's growth as well as the ongoing capital investment in the Company's base
business.
 
     Operating income increased $20.7 million to $6.7 million for the three
months ended September 30, 1997, as compared to an operating loss of $14.0
million for the three months ended September 30, 1996. Excluding 1996 merger
costs, operating income increased $3.7 million, or 124.2%, to $6.7 million in
the third quarter of 1997 compared to $3.0 million for the same period last
year. As a percentage of net revenue, excluding the 1996 merger costs, the
quarterly operating income of 11.4% represents an improvement from the operating
income of 6.0% of net revenue for the same period last year.
 
     The net income of $4.2 million represents a increase of $16.2 million over
the same quarter a year ago. The net income per share of $0.19 compares to a net
loss per share of $(0.56) for the same period last year. Excluding the impact of
the 1996 merger costs, the Company's net income of $4.2 million is 98.7% higher
 
                                       10
<PAGE>   11
 
than last year's net income of $2.1 million. On an equivalent earnings-per-share
basis the net income per share of $0.19 compares to $0.10 for the same period
last year computed on 1.2 million less shares outstanding.
 
  Nine Months Ended September 30, 1997 Versus Nine Months Ended September 30,
1996
 
     Total net revenues increased $30.0 million, or 20.5%, to $176.0 million in
1997 from $146.0 million last year. The Company's Life Sciences Group generated
79.6% of the Company's net revenues in the first nine months, equating to net
revenues of $140.0 million, up $28.4 million or 25.5% from the same period last
year. The growth in the Company's ongoing Life Sciences Group was due in part to
an increase in the size, scope and number of contracts in the North America
clinical development and biostatistics business. The acquisitions completed
since September 30, 1996 contributed net revenues of $9.4 million during the
first nine months of 1997. Net revenues from the Environmental Sciences Group,
representing 20.4% of the Company's net revenues in the first nine months, were
$35.8 million, compared with $34.4 million in 1996, a increase of 4.1% or $1.4
million.
 
     Total direct costs increased 17.9% to $97.1 million last year and declined
as a percentage of net revenues to 55.2% from 56.4%. In the Life Sciences Group,
direct costs decreased as a percentage of related net revenues to 50.7% from
52.4%. The decrease in direct costs as a percentage of revenues is principally
due to higher labor utilization, the mix of business within the group, and a
focused effort to reduce costs throughout the entire Company. In the
Environmental Sciences Group, direct costs as a percentage of related net
revenues remained basically unchanged at 69.9% from a year ago level of 69.3%.
 
     SG&A expenses increased 10.3% to $51.0 million from $46.2 million in 1996.
As a percentage of net revenues, SG&A expenses decreased to 29.0% from 31.7%
last year. Incremental SG&A expenses from acquisitions completed since September
30, 1996 comprise $3.6 million of the increase. The remaining increase of $1.2
million is primarily attributable to increases in business development expenses
in Austin and Wilmington, administrative staffing at the executive and
middle-management levels, and the number of employees in finance, human
resources and other administrative areas, reflecting the continued growth of the
Company.
 
     Total depreciation and amortization expense of $9.0 million was $1.4
million, or 17.9%, higher than last year. The increase was related to the
Company's growth as well as the ongoing capital investment in the Company's base
business.
 
     Operating income increased $16.4 million, or 232.4%, to $9.3 million in the
first nine months of 1997 as compared to a operating loss of $7.1 million for
the same period last year. Excluding one-time costs (merger costs and acquired
in-process research and development costs), operating income increased $9.1
million, or 91.6%, to $19.0 million in the first nine months of 1997 compared to
$9.9 million for the same period last year. As a percentage of net revenues,
excluding one-time costs, the year-to-date operating income increased to 10.8%
in 1997 compared to 6.8% in 1996.
 
     The net income of $6.2 million increased $13.6 million as compared to last
year's net loss of $7.4 million. The net income per share of $0.28 compares to a
net loss per share of $0.35 last year. Excluding the impact of the one-time
costs on the nine month results, the Company's net income of $12.0 million is
78.5% higher than last year's net income of $6.7 million. On an
earnings-per-share basis, excluding one-time costs, the net income per share of
$0.53 compares to $0.32 for the same period last year computed on 1.5 million
less shares outstanding.
 
LIQUIDITY AND CAPITAL RESOURCES
 
     As of September 30, 1997, the Company had $12.8 million of cash and cash
equivalents on hand and $8.0 million invested in marketable securities. The
Company has historically funded its operations and growth, including
acquisitions, with cash flow from operations and borrowings. In January 1996,
PPDI completed an initial public offering of its common stock. Proceeds of the
offering, after expenses, were approximately $37.2 million and a portion thereof
was used to repay a $5.5 million loan.
 
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<PAGE>   12
 
     For the nine months ended September 30, 1997, the Company experienced a net
increase in cash from operating activities of $3.3 million. For the period, net
income of $6.2 million, depreciation and amortization of $9.0 million and the
acquired in-process research and development of $9.1 million were offset
primarily by the net decrease of $12.5 million in other assets and liabilities
(which includes an $18.3 million increase in billed and unbilled receivables),
as well as, cash disbursements of $8.1 million related to previously accrued
merger expense.
 
     For the nine months ended September 30, 1997, the Company used net cash of
$12.3 million in investing activities, as capital expenditures $10.6 million and
the $8.1 million net cash paid for acquisitions were only partially offset by
$6.3 million in cash provided by net maturities of investments.
 
     For the nine months ended September 30, 1997, the Company's financing
activities provided $1.3 million in cash, as net proceeds from stock option
exercises of $2.2 million was partially offset by $0.5 million in net repayment
of long-term debt and $0.4 million in cash used to pay premerger distributions
to stockholders of Belmont.
 
     In June 1997, the Company obtained a $50.0 million revolving credit
facility with First Union National Bank which accrues interest on amounts
borrowed at a floating rate currently equal to the LIBOR Rate plus 0.75% per
year. Indebtedness under the line is unsecured and subject to certain covenants
relating to financial ratios and tangible net worth. The unused portion of the
loan is available to provide working capital and for general corporate purposes.
As of September 30, 1997, the Company had no amounts outstanding under this
facility.
 
     In August 1997, the Company renegotiated a new credit facility for $50.0
million with Wachovia Bank, N.A. which accrues interest on amounts borrowed at a
floating rate currently equal to the LIBOR Rate plus 0.70% per year.
Indebtedness under the line is unsecured and subject to certain covenants
relating to financial ratios and tangible net worth. The unused portion of the
loan is available to provide working capital and for general corporate purposes.
As of September 30, 1997, the Company had $3.3 million outstanding under this
facility.
 
     The Company currently participates in only a small number of transactions
involving multiple currencies. In most of those situations, contractual
provisions either limit or reduce the translation risk. Financial statement
translation has not, to date, been material to the Company's balance sheet. The
reasons for this are that the majority of international operations are located
in the United Kingdom, which traditionally has had a relatively stable currency,
and that international operations have not accounted for a significant portion
of total operations (less than 15%). It is anticipated that those conditions
will persist for at least the following year.
 
     The Company expects to continue expanding its operations through internal
growth and strategic acquisitions. The Company expects such activities will be
funded from existing cash and marketable securities, cash flow from operations
and borrowings under its credit facilities. The Company believes that such
sources of cash will be sufficient to fund the Company's current operations for
at least the next 12 months. The Company is currently evaluating a number of
acquisitions and other growth opportunities which may require additional
external financing, and the Company may from time to time seek to obtain funds
from public and private issuances of equity or debt securities.
 
INFLATION
 
     The Company believes the effects of inflation have not had a material
adverse effect on its results of operations or financial condition.
 
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<PAGE>   13
 
POTENTIAL VOLATILITY OF QUARTERLY OPERATING RESULTS AND STOCK PRICE
 
     The Company's quarterly operating results are subject to volatility due to
such factors as the commencement, completion or cancellation of large contracts,
progress of ongoing contracts, acquisitions, the timing of start-up expenses for
new offices, management of growth and changes in the mix of services. Since a
large percentage of the Company's operating costs are relatively fixed,
variations in the timing and progress of large contracts can materially affect
quarterly results. To the extent the Company's international business increases,
exchange rate fluctuations may also influence these results. The Company
believes that comparisons of its quarterly financial results are not necessarily
meaningful and should not be relied upon as an indication of future performance.
However, fluctuations in quarterly results or other factors beyond the Company's
control, such as changes in earnings estimates by analysts, market conditions in
the CRO, environmental, pharmaceutical and biotechnology industries and general
economic conditions could affect the market price of the Common Stock in a
manner unrelated to the longer-term operating performance of the Company.
 
                                       13
<PAGE>   14
 
                                    PART II.
 
                               OTHER INFORMATION
 
ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K
 
<TABLE>
<S>     <C>            <C>
(a)     Exhibit 10.90  Employment Agreement, effective July 1, 1997, between the
                       Registrant and Fredric N. Eshelman.
        Exhibit 10.91  Note and Loan Agreement, dated August 7, 1997, between the
                       Registrant and Wachovia Bank, N.A.
        Exhibit 10.92  First Amendment to Loan Agreement dated August 11, 1997,
                       between the Registrant and First Union National Bank.
        Exhibit 10.93  Lease Agreement dated July 9, 1997, between Weeks Realty,
                       Inc. and PPD Pharmaco, Inc.
        Exhibit 27     Financial Data Schedule (for SEC use only)
(b)     Reports on Form 8-K
        No reports on Form 8-K were filed during the quarter ended September 30,
        1997.
</TABLE>
 
                                       14
<PAGE>   15
 
                                   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.
 
                                    PHARMACEUTICAL PRODUCT DEVELOPMENT, INC.
 
                                ------------------------------------------------
                                                  (Registrant)
 
                                By:            /s/ RUDY C. HOWARD
                                   ---------------------------------------------
                                                  Rudy C. Howard
                                    Chief Financial Officer and Vice President,
                                               Finance and Treasurer
                                           (Principal Financial Officer)
 
Date: November 13, 1997
 
                                       15