<PAGE>   1
 
================================================================================
 
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON D.C. 20549
 
                             ---------------------
 
                                   FORM 10-Q
 
<TABLE>
<S>              <S>
   (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, 1997.
                                              OR
      [  ]       TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                 THE SECURITIES EXCHANGE ACT OF 1934
                 FOR THE TRANSITION PERIOD FROM ____________ TO ____________.
</TABLE>
 
                         COMMISSION FILE NUMBER 0-27570
 
                             PHARMACEUTICAL PRODUCT
                               DEVELOPMENT, INC.
             (Exact name of registrant as specified in its charter)
 
<TABLE>
<C>                                                <C>
               NORTH CAROLINA                                       56-1640186
      (State or other jurisdiction of                            (I.R.S. Employer
       incorporation or organization)                         Identification Number)
     3151 SEVENTEENTH STREET EXTENSION                                28412
         WILMINGTON, NORTH CAROLINA                                 (Zip Code)
  (Address of principal executive offices)
</TABLE>
 
       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 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.  Yes [X]  No [ ]
 
     Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date: 22,528,090 shares of common
stock, par value $0.10 per share, as of July 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 Six Months Ended June 30, 1997 and 1996
     (unaudited)............................................      3
  Consolidated Condensed Balance Sheets as of June 30, 1997
     (unaudited) and December 31, 1996......................      4
  Consolidated Condensed Statements of Cash Flows for the
     Six Months Ended June 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 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY
  HOLDERS...................................................     13
 
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)
 
<TABLE>
<CAPTION>
                                                          THREE MONTHS ENDED     SIX MONTHS ENDED
                                                               JUNE 30,              JUNE 30,
                                                          -------------------   -------------------
                                                            1997       1996       1997       1996
                                                          --------   --------   --------   --------
                                                          (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                                                       <C>        <C>        <C>        <C>
Life sciences revenues, net of subcontractor costs of
  $16,037, $10,274, $34,784 and $23,354, respectively...   $47,929    $37,894   $ 93,894   $ 73,135
Environmental sciences revenues, net of subcontractor
  costs of $1,549, $1,053, $3,075 and $1,935,
  respectively..........................................    12,123     11,577     23,832     23,411
Discovery sciences revenues.............................        13         --         17         --
                                                           -------    -------   --------   --------
          Net revenue...................................    60,065     49,471    117,743     96,546
                                                           -------    -------   --------   --------
Direct costs -- Life sciences...........................    24,113     19,875     48,227     38,463
Direct costs -- Environmental sciences..................     8,294      7,833     16,632     16,287
Direct costs -- Discovery sciences......................       323         --        480         --
Selling, general and administrative expenses............    17,677     15,515     34,294     29,885
Depreciation and amortization...........................     3,065      2,535      5,807      4,984
Merger costs............................................        69         --        512         --
Acquired in-process research and development............     9,112         --      9,112         --
                                                           -------    -------   --------   --------
                                                            62,653     45,758    115,064     89,619
                                                           -------    -------   --------   --------
          Operating income (loss).......................    (2,588)     3,713      2,679      6,927
Interest income, net....................................       271        358        616        722
Other income (expense), net.............................        93         (3)        52        (43)
                                                           -------    -------   --------   --------
Income (loss) before income taxes.......................    (2,224)     4,068      3,347      7,606
Provision (benefit) for income taxes....................      (878)     1,644      1,350      3,035
                                                           -------    -------   --------   --------
          Net income (loss).............................   $(1,346)   $ 2,424   $  1,997   $  4,571
                                                           =======    =======   ========   ========
Net income (loss) per common share......................   $ (0.06)   $  0.11   $   0.09   $   0.22
                                                           =======    =======   ========   ========
Weighted average number of common shares................    22,490     21,462     22,464     21,087
                                                           =======    =======   ========   ========
</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
 
<TABLE>
<CAPTION>
                                                               JUNE 30,     DECEMBER 31,
                                                                 1997           1996
                                                              -----------   ------------
                                                              (UNAUDITED)
                                                                    (IN THOUSANDS)
<S>                                                           <C>           <C>
                                         ASSETS
Current assets
  Cash and cash equivalents.................................   $ 13,243       $ 21,838
  Marketable securities.....................................      8,000         14,210
  Accounts receivable and unbilled services, net............     94,413         76,237
  Investigator advances.....................................      1,375          5,280
  Prepaid expenses and other current assets.................      6,122          5,752
  Deferred tax asset........................................      3,289          4,955
                                                               --------       --------
          Total current assets..............................    126,442        128,272
  Property, plant and equipment, net........................     33,629         31,479
  Goodwill, net.............................................     18,859         18,397
  Other assets, net.........................................      6,745          3,309
                                                               --------       --------
          Total assets......................................   $185,675       $181,457
                                                               ========       ========
                          LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
  Current maturities of long-term debt......................   $  4,504       $  4,221
  Accounts payable..........................................      6,445          7,051
  Payables to investigators.................................      4,931          5,429
  Other accrued expenses....................................     24,719         26,263
  Unearned income...........................................     21,383         18,705
                                                               --------       --------
          Total current liabilities.........................     61,982         61,669
  Long-term debt, less current maturities...................      1,758          1,428
  Deferred rent and other...................................      2,816          3,054
                                                               --------       --------
          Total liabilities.................................     66,556         66,151
                                                               --------       --------
Shareholders' equity
  Common stock..............................................      2,251          2,163
  Paid-in capital...........................................    114,852        112,606
  Unrealized gain on investments............................        154            232
  Cumulative translation adjustment.........................       (639)           668
  Retained earnings (accumulated deficit)...................      2,501           (363)
                                                               --------       --------
          Total shareholders' equity........................    119,119        115,306
                                                               --------       --------
          Total liabilities and shareholders' equity........   $185,675       $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)
 
<TABLE>
<CAPTION>
                                                                SIX MONTHS ENDED
                                                                    JUNE 30,
                                                              ---------------------
                                                                1997         1996
                                                              --------     --------
                                                                 (IN THOUSANDS)
<S>                                                           <C>          <C>
Cash flows from operating activities:
  Net income................................................  $  1,997     $  4,571
  Adjustments to reconcile net income to net cash used in
     operating activities:
     Depreciation and amortization..........................     5,807        4,984
     Acquired in-process research and development...........     9,112           --
     Other..................................................       (20)       1,153
     Change in accrued merger expense.......................    (6,253)          --
     Change in other operating assets and liabilities.......   (10,868)     (19,879)
                                                              --------     --------
          Net cash used in operating activities.............      (225)      (9,171)
                                                              --------     --------
Cash flows from investing activities:
  Maturities (purchases) of investments, net................     6,268      (22,385)
  Purchases of property and equipment.......................    (6,351)      (5,614)
  Sale of investments.......................................        --          244
  Cash paid for acquisitions, net...........................    (8,121)          --
  Other.....................................................       174         (132)
                                                              --------     --------
          Net cash used in investing activities.............    (8,030)     (27,887)
                                                              --------     --------
Cash flows from financing activities:
  Repayment of long-term debt, net..........................      (201)        (669)
  Proceeds from issuance of common stock....................     1,634       39,952
  Distributions to shareholders.............................      (430)      (5,937)
                                                              --------     --------
          Net cash provided by financing activities.........     1,003       33,346
                                                              --------     --------
Effect of exchange rate changes on cash.....................    (1,343)         104
                                                              --------     --------
Net decrease in cash and cash equivalents...................    (8,595)      (3,608)
Cash and cash equivalents, beginning of the period..........    21,838       13,565
                                                              --------     --------
Cash and cash equivalents, end of the period................  $ 13,243     $  9,957
                                                              ========     ========
</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
six month periods ended June 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.
 
  Reclassifications
 
     Certain 1996 financial statement amounts have been reclassified to conform
with the 1997 presentation.
 
2.  BASIS OF PRESENTATION
 
     The accompanying unaudited consolidated condensed financial statements
include the accounts of Pharmaceutical Product Development, Inc. 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 six month
period ended June 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.
 
                                        6
<PAGE>   7
 
           PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
 
      NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
 
     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.
 
     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"), on December 31, 1997. 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"), on December 31, 1997. 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)
 
     If the Company had adopted SFAS No. 128 for the period ended June 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    SIX MONTHS ENDED
                                                         JUNE 30,             JUNE 30,
                                                    -------------------   -----------------
                                                      1997       1996      1997      1996
                                                    --------   --------   -------   -------
<S>                                                 <C>        <C>        <C>       <C>
Basic income (loss) per common share:
  Net income (loss)...............................   $(1,346)   $ 2,424   $ 1,997   $ 4,571
                                                     =======    =======   =======   =======
  Weighted average shares:
     Common shares outstanding....................    22,490     21,462    22,464    21,087
                                                     =======    =======   =======   =======
  Basic income (loss) per common share............   $ (0.06)   $  0.11   $  0.09   $  0.22
                                                     =======    =======   =======   =======
Diluted income (loss) per common share:
  Net income (loss)...............................   $(1,346)   $ 2,424   $ 1,997   $ 4,571
                                                     =======    =======   =======   =======
  Weighted average shares:
     Common shares outstanding....................    22,490     21,462    22,464    21,087
     Dilutive effect of stock options.............        74        630        74       630
                                                     -------    -------   -------   -------
          Total shares............................    22,564     22,092    22,538    21,717
                                                     =======    =======   =======   =======
Diluted income (loss) per common share............   $ (0.06)   $  0.11   $  0.09   $  0.21
                                                     =======    =======   =======   =======
</TABLE>
 
                                        8
<PAGE>   9
 
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. 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.,
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 1996 Annual Report and December
31, 1996 Form 10-K.
 
     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 1996 Annual Report and
December 31, 1996 Form 10-K.
 
     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
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
 
                                        9
<PAGE>   10
 
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 second quarter of 1997, net income, excluding $9.2 million in
costs relating to the acquisition of SARCO, Inc. and the GSX System, increased
75.0% to $4.2 million, or $0.19 per share, from $2.4 million, or $0.11 per
share, for the same period in 1996. Operating income increased by 78.4% to $6.6
million from $3.7 million a year earlier. If the acquisition costs are included,
the Company had a net loss of $1.4 million or $(0.06) per share.
 
  Three Months Ended June 30, 1997 Versus Three Months Ended June 30, 1996
 
     Net revenue increased $10.6 million, or 21.4%, to $60.1 million in 1997
from $49.5 million for the same period last year. The Life Sciences Group
operations accounted for 79.8% of the Company's net revenue for 1997. PPD
Pharmaco generated net revenue of $47.9 million, up $10.0 million, or 26.5%,
from last year. The growth in PPD Pharmaco 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 June 30, 1996 contributed net
revenue of $4.3 million for the three months ended June 30, 1997. The Company's
Environmental Sciences Group generated 20.2% of the Company's net revenue for
the second quarter 1997, or $12.1 million, compared with $11.6 million in 1996.
 
     Total direct costs increased 18.1% to $32.7 million from $27.7 million last
year but declined as a percentage of net revenue to 54.4% from 56.0% last year.
The Life Sciences Group's direct costs as a percentage of related net revenue of
50.3% compares favorably to 52.4% last year. This decrease is due 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 68.4% from 67.7% last year. This increase in
direct costs as a percentage of net revenues is attributable to lower consultant
utilization.
 
     Selling, general and administrative ("SG&A") expenses increased 13.9% to
$17.7 million from $15.5 million in 1996. As a percentage of net revenue, SG&A
expenses decreased to 29.4% from 31.4% last year. SG&A expenses from
acquisitions since June 30, 1996 comprise $1.6 million of the increase. 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 $3.1 million was $0.6
million, or 20.9%, 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.
 
     The Company recorded one-time merger costs of 69,000 in the second quarter
of 1997. These costs are primarily current cash expenses, such as legal and
accounting fees, relating to the SARCO pooling transaction.
 
     The Company also recorded acquired in-process research and development
costs of $9.1 million in the second quarter. These costs were charged to
operations upon the acquisition of the GSX System. A valuation was performed by
an independent consultant to determine the fair value of the acquired in-process
research and development. The immediate expensing of the acquired in-process
research and development was due to the fact that the technology has no
alternative future use and the technology has not yet reached technological
feasibility.
 
     Operating income decreased $6.3 million to an operating loss of $2.6
million for the three months ended June 30, 1997, as compared to an operating
income of $3.7 million for the three months ended June 30, 1996.
 
                                       10
<PAGE>   11
 
Excluding one-time costs (merger costs and acquired in-process research and
development costs), operating income increased $2.9 million, or 78.4%, to $6.6
million in the second quarter of 1997 compared to $3.7 million for the same
period last year. As a percentage of net revenue, excluding the one-time costs,
the quarterly operating income of 11.0% represents an improvement from the
operating income of 7.5% of net revenue for the same period last year.
 
     The net loss of $1.4 million represents a decrease of $3.8 million over the
same quarter a year ago. The net loss per share of $(0.06) compares to net
income per share of $0.11 for the same period last year. Excluding the impact of
the one-time costs on both periods, the Company's net income of $4.2 million is
75.0% higher than last year's net income of $2.4 million. On an equivalent
earnings-per-share basis the net income per share of $0.19 compares to $0.11 for
the same period last year computed on 1.0 million less shares outstanding.
 
  Six Months Ended June 30, 1997 Versus Six Months Ended June 30, 1996
 
     Total net revenues increased $21.2 million, or 22.0%, to $117.7 million in
1997 from $96.6 million last year. The Company's Life Sciences Group generated
79.7% of the Company's net revenues in the first six months, equating to net
revenues of $93.9 million, up $20.8 million or 28.4% 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 June 30, 1996 contributed net revenues of $8.5 million during the first
six months of 1997. Net revenues from the Environmental Sciences Group,
representing 20.2% of the Company's net revenues in the first six months were
$23.8 million, compared with $23.4 million in 1996, a increase of 1.8% or $0.4
million.
 
     Total direct costs increased 19.3% to $65.3 million last year and declined
as a percentage of net revenues to 55.5% from 56.7%. In the Life Sciences Group,
direct costs decreased as a percentage of related net revenues to 51.4% from
52.6%. 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 69.8% from a year ago level of 69.6%.
 
     SG&A expenses increased 14.7% to $34.3 million from $29.9 million in 1996.
As a percentage of net revenues, SG&A expenses decreased to 29.1% from 31.0%
last year. Incremental SG&A expenses from acquisitions completed since June 30,
1996 comprise $2.6 million of the increase. The remaining increase of $1.8
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 $5.8 million was $0.8
million, or 16.5%, 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 decreased $4.2 million, or 61.3%, to $2.7 million in the
first six months of 1997 as compared to $6.9 million for the same period last
year. Excluding one-time costs, operating income increased $5.4 million, or
78.3%, to $12.3 million in the first six months of 1997 compared to $6.9 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 10.4% in 1997
compared to 7.2% in 1996.
 
     The net income of $2.0 million declined $2.6 million as compared to last
year's net income of $4.6. The net income per share of $0.09 compares to a net
income per share of $0.22 last year. Excluding the impact of the one-time costs
on the six month results, the Company's net income of $7.8 million is 69.6%
higher than last year's net income of $4.6 million. On an earnings-per-share
basis, excluding one-time costs, the net income per share of $0.35 compares to
$0.22 for the same period last year computed on 1.4 million less shares
outstanding.
 
                                       11
<PAGE>   12
 
  Liquidity and Capital Resources
 
     As of June 30, 1997, the Company had $13.2 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.
 
     For the six months ended June 30, 1997, the Company experienced a net
decrease in cash from operating activities of $0.2 million. For the period, net
income of $2.0 million, depreciation and amortization of $5.8 million and the
acquired in-process research and development of $9.1 million were offset
primarily by the increase in billed and unbilled receivables of $17.1 million
and the cash disbursements related to previously accrued merger expense of $6.3
million and a net change in other assets and liabilities of $6.2 million. For
the six months ended June 30, 1997, the Company used net cash of $8.0 million in
investing activities, as capital expenditures of $6.4 million and the $8.1
million cash paid for acquisitions, net, were only partially offset by $6.3
million in cash provided by maturities of investments, net.
 
     For the six months ended June 30, 1997, the Company's financing activities
provided $1.0 million in cash, as net proceeds from stock options exercises of
$1.6 million was partially offset by $0.4 million in cash used to pay premerger
distributions to shareholders of Belmont.
 
     In June 1997, the Company obtained a $50.0 million revolving credit
facility with First Union National Bank of North Carolina which accrues interest
on amounts borrowed at a floating rate currently equal to the LIBOR Rate plus
 .75% per year. Indebtedness is 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
June 30, 1997, the Company has no amounts outstanding under this facility.
 
     In August 1997, the Company renegotiated a new credit facility for $50.0
million with Wachovia Bank of North Carolina, N.A 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 June 30, 1997, the
Company had $3.3 million outstanding under this facility.
 
     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.
 
  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.
 
                                       12
<PAGE>   13
 
                                    PART II
 
                               OTHER INFORMATION
 
ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
     The 1997 Annual Meeting of Shareholders of the Company was held on May 15,
1997.
 
     At the Annual Meeting, the following proposals were voted upon:
 
     A proposal to amend the Company's 1995 Equity Compensation Plan to increase
the number of shares of the Company's Common Stock reserved for issuance
thereunder from 1,500,000 shares to 2,500,000 shares was approved by the
following vote:
 
<TABLE>
<CAPTION>
         FOR                     AGAINST               BROKER NON-VOTES
----------------------    ----------------------    ----------------------
<C>                       <C>                       <C>
      12,073,208                1,706,009                 2,210,811
</TABLE>
 
     A proposal to amend the Company's 1995 Stock Option Plan for Non-Employee
Directors providing for the grant of an option to purchase 4,000 shares of
Common Stock of the Company to each non-employee director on each date on which
the director is elected or reelected to the Board of Directors was approved by
the following vote:
 
<TABLE>
<CAPTION>
         FOR                     AGAINST               BROKER NON-VOTES
----------------------    ----------------------    ----------------------
<C>                       <C>                       <C>
      15,484,835                 365,955                  2,210,811
</TABLE>
 
     A proposal to adopt the Pharmaceutical Product Development, Inc. Employee
Stock Purchase Plan, including the reservation of 500,000 shares of the
Company's Common Stock for issuance thereunder was approved by the following
vote:
 
<TABLE>
<CAPTION>
         FOR                     AGAINST               BROKER NON-VOTES
----------------------    ----------------------    ----------------------
<C>                       <C>                       <C>
      12,224,784                1,554,433                 2,210,811
</TABLE>
 
     The following directors were elected to office for the ensuing year and
were approved by the following votes:
 
<TABLE>
<CAPTION>
                                                    FOR           AGAINST
                                                 ----------      ---------
<S>                                              <C>             <C>
Ernest Mario...................................  15,789,784        200,244
Fredric N. Eshelman............................  15,789,934        200,094
John A. McNeill, Jr............................  15,790,054        199,974
Stuart Bondurant...............................  15,789,842        200,186
Frederick Frank................................  15,789,792        200,236
Frank E. Loy...................................  15,789,433        200,595
Kirby L. Cramer................................  15,790,054        199,974
Thomas D'Alonzo................................  15,790,054        199,974
</TABLE>
 
                                       13
<PAGE>   14
 
ITEM 6.  EXHIBITS AND REPORTS ON FORM 8K
 
<TABLE>
<S>  <C>            <C>
(a)  Exhibit 10.84  Employment Agreement, dated June 4, 1997, by and between the
                    Registrant and Mark E. Furth.
     Exhibit 10.85  Note and Loan Agreement, dated June 25, 1997, made by the
                    Registrant for the benefit of First Union National Bank of
                    North Carolina.
     Exhibit 10.86  Pharmaceutical Product Development, Inc. Employee Stock
                    Purchase Plan, dated May 15, 1997.
     Exhibit 10.87  Amendment to Employee Stock Purchase Plan, dated June 21,
                    1997.
     Exhibit 10.88  Amendment to Stock Option Plan for Non-Employee Directors,
                    dated May 15, 1997.
     Exhibit 10.89  Amendment to Equity Compensation Plan, dated May 15, 1997.
     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 June 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
                                    --------------------------------------------
                                            Chief Financial Officer and
                                       Vice President, Finance and Treasurer
                                           (Principal Financial Officer)
 
Date: August 14, 1997
 
                                       15