--------------------------------------------------------------------------------

                       SECURITIES AND EXCHANGE COMMISSION
                              Washington D.C. 20549


                                    FORM 10-Q

(Mark One)

[X]  QUARTERLY  REPORT  PURSUANT  TO SECTION 13 OR 15(d) OF THE  SECURITIES  AND
     EXCHANGE ACT OF 1934
     For the quarterly period ended June 30, 1998.

                                       OR

[ ]  TRANSITION  REPORT  PURSUANT  TO SECTION 13 OR 15 (D) OF THE  SECURITIES
     EXCHANGE ACT OF 1934.  For the  transition  period from  ______________  to
     ______________.

                         Commission File Number 0-27570


                             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:  23,253,920 shares of common
stock, par value $0.10 per share, as of August 3, 1998.

================================================================================
--------------------------------------------------------------------------------


<PAGE>


                                      INDEX
                                                                            Page
                                                                            ----

Part I.  FINANCIAL INFORMATION

Item 1.  Financial Statements

    Consolidated Condensed Statements of Operations for the Three and 
      Six Months Ended June 30, 1998 and 1997 .............................    3

    Consolidated Condensed Balance Sheets as of June 30, 1998
      and December 31, 1997 ...............................................    4

    Consolidated Condensed Statements of Cash Flows for the Six Months Ended
      June 30, 1998 and 1997 ..............................................    5

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

Item 2.  Management's Discussion and Analysis of Financial Condition 
         and Results of Operations ........................................    8

Part II.  OTHER INFORMATION

Item 4.  Submission of Matters to a Vote of Security Holders ..............   13

Item 5.  Other Information .................................................  13

Item 6.  Exhibits and Reports on Form 8-K .................................   13

Signatures ................................................................   14

                                       2

<PAGE>


            PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
                 CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
                                   (unaudited)
                    (in thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                                                Three Months Ended             Six Months Ended
                                                                                      June 30,                      June 30,
                                                                                1998           1997           1998            1997  
                                                                             ---------       --------       ---------      ---------
<S>                                                                          <C>            <C>             <C>            <C>   
Life sciences revenues, net of subcontractor costs of $24,468,
   $16,037, $43,594 and $34,784, respectively                                $  57,387      $  47,929       $ 109,428      $  93,894
Environmental sciences revenues, net of subcontractor costs of
   $1,955, $1,549, $4,447 and $3,075, respectively                              12,793         12,123          25,489         23,832
Discovery sciences revenues, net of subcontractor costs of
   $13, $0, $35 and $0, respectively                                                79             13             191             17

     Net revenue                                                                    --             --              --             --
                                                                                70,259         60,065         135,108        117,743
                                                                             ---------      ---------       ---------      ---------

Direct costs - Life sciences                                                    28,397         24,113          55,068         48,227
Direct costs - Environmental sciences                                            8,997          8,294          17,960         16,632
Direct costs - Discovery sciences                                                  852            323           1,703            480
Selling, general and administrative expenses                                    21,227         17,677          40,313         34,294
Depreciation and amortization                                                    3,447          3,065           6,925          5,807
Merger costs                                                                        --             69              --            512
Acquired in-process research and development costs                               3,163          9,112           3,163          9,112
                                                                             ---------      ---------       ---------      ---------
                                                                                66,083         62,653         125,132        115,064
                                                                             ---------      ---------       ---------      ---------
     Operating income (loss)                                                     4,176         (2,588)          9,976          2,679
Interest income, net                                                               263            271             502            616
Other income (expense), net                                                        312             93           1,706             52
                                                                             ---------      ---------       ---------      ---------
Income (loss) before income taxes                                                4,751         (2,224)         12,184          3,347
Provision (benefit) for income taxes                                             1,876           (878)          4,773          1,350
                                                                             ---------      ---------       ---------      ---------
Net income (loss)                                                            $   2,875      $  (1,346)      $   7,411      $   1,997
                                                                             =========      =========       =========      =========

Net income (loss) per share:
Basic                                                                        $    0.12      $   (0.06)      $    0.32      $    0.09
                                                                             =========      =========       =========      =========
Diluted                                                                      $    0.12      $   (0.06)      $    0.32      $    0.09
                                                                             =========      =========       =========      =========

Weighted average number of common shares outstanding:
     Basic                                                                      23,079         22,490          23,052         22,464
     Dilutive effect of stock options                                              167             74             139             74
                                                                             ---------      ---------       ---------      ---------
     Diluted                                                                    23,246         22,564          23,191         22,538
                                                                             =========      =========       =========      =========

</TABLE>



     The accompanying notes are an integral part of these consolidated condensed
financial statements.

                                       3
<PAGE>


            PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
                      CONSOLIDATED CONDENSED BALANCE SHEETS
                                 (in thousands)


                                     Assets
<TABLE>
<CAPTION>
                                                               June 30,         December 31,
                                                                1998               1997   
                                                              ---------         ------------
                                                            (unaudited)
<S>                                                           <C>               <C>      
Current assets
  Cash and cash equivalents                                   $  19,772         $  15,879
  Marketable securities                                               -             7,994
  Accounts receivable and unbilled services, net                119,357           101,554
  Investigator advances                                           1,473             1,870
  Prepaid expenses and other current assets                       7,107             7,227
  Deferred tax asset                                              1,278             1,973
                                                              ---------         ---------
    Total current assets                                        148,987           136,497

Property, plant and equipment, net                               38,007            34,902
Goodwill, net                                                    14,940            18,026
Other assets, net                                                 8,434             7,622
                                                              ---------         ---------
    Total assets                                              $ 210,368         $ 197,047
                                                              =========         =========

                      Liabilities and Shareholders' Equity
Current liabilities
  Current maturities of long-term debt                        $   4,128         $   4,906
  Accounts payable                                                6,929             6,249
  Payables to investigators                                       5,844             4,138
  Other accrued expenses                                         24,368            23,532
  Unearned income                                                29,539            27,722
                                                              ---------         ---------
    Total current liabilities                                    70,808            66,547

Long-term debt, less current maturities                             355               340
Deferred rent and other                                           2,286             2,555
                                                              ---------         ---------
    Total liabilities                                            73,449            69,442
                                                              ---------         ---------

Shareholders' equity
  Common stock                                                    2,310             2,295
  Paid-in capital                                               117,958           115,680
  Unrealized gain on investments and marketable securities,
  net                                                                --               168
  Cumulative translation adjustment                                (920)             (650)
  Retained earnings                                              17,571            10,112
                                                              ---------         ---------
    Total shareholders' equity                                  136,919           127,605
                                                              ---------         ---------

    Total liabilities and shareholders' equity                $ 210,368         $ 197,047
                                                              =========         =========
</TABLE>

     The accompanying notes are an integral part of these consolidated condensed
financial statements.

                                       4
<PAGE>


            PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
                 CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
                                   (unaudited)
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                      Six Months Ended
                                                                           June 30,      
                                                                    ---------------------
                                                                       1998       1997   
                                                                    --------    --------
<S>                                                                 <C>         <C>    
Cash flows from operating activities:
  Net income                                                        $  7,411    $  1,997 
  Adjustments to reconcile net income to net cash                   
  provided by (used in) operating activities:                       
     Depreciation and amortization                                     6,925       5,807
     Acquired in-process research and development costs                3,163       9,112
     Gain on sale of business                                         (1,071)         --
     Other                                                             1,093      (4,230)
     Merger expenses                                                      --      (6,253)
     Change in operating assets and liabilities                      (13,802)     (6,658)
                                                                    --------    --------
        Net cash provided by (used in) operating activites             3,719        (225)
                                                                    --------    --------
                                                                    
Cash flows from investing activities:                               
     Purchases of investments                                             --     (10,972)
     Sale of investments                                               8,000      17,240
     Purchases of property and equipment                             (10,254)     (6,351)
     Net cash paid for acquisitions                                   (1,006)     (8,121)
     Net cash paid for acquisition of in-process research           
        and development costs                                         (3,163)         --
     Net cash received in sale of business                             5,285          --
     Other                                                                --         174
                                                                    --------    --------
        Net cash used in investing activities                         (1,138)     (8,030)
                                                                    --------    --------
                                                                    
Cash flows from financing activities:                               
     Repayment of long-term debt                                        (739)       (201)
     Proceeds from issuance of common stock                            2,273       1,634
     Distributions to shareholders                                        --        (430)
     Other                                                                48          --
                                                                    --------    --------
        Net cash used in financing activities                          1,582       1,003
                                                                    --------    --------
Effect of exchange rate changes on cash                                 (270)     (1,343)
                                                                    --------    --------
Net increase (decrease) in cash and cash equivalents                   3,893      (8,595)
Cash and cash equivalents, beginning of the period                    15,879      21,838
                                                                    --------    --------
Cash and cash equivalents, end of the period                        $ 19,772    $ 13,243
                                                                    ========    ========
</TABLE>

     The accompanying notes are an integral part of these consolidated condensed
financial statements.

                                       5
<PAGE>


            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  consolidated condensed 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  consolidated  financial  statements and notes thereto in the Company's
Annual  Report for the year ended  December 31, 1997.  The results of operations
for the  three  month  and  six  month  periods  ended  June  30,  1998  are not
necessarily  indicative  of the results to be expected  for the full year or any
other  period.  The  amounts on the  December  31, 1997  consolidated  condensed
balance sheet have been derived from the audited financial  statements  included
in the  Company's  Annual  Report on Form 10-K for the year ended  December  31,
1997.

     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 1997 financial  statement amounts have been reclassified to conform
with the 1998 presentation.

2.   PRINCIPLES OF CONSOLIDATION

     The accompanying  unaudited  consolidated  condensed  financial  statements
include  the  accounts  and  operations  of the  Company  and  its  wholly-owned
subsidiaries.  All significant  intercompany balances and transactions have been
eliminated in consolidation.

3.   ACQUISITIONS

     Purchases 

     In  January  1998,  the  Company  acquired  two  environmental   consulting
businesses  for a total of  $1,000,000  in cash and the potential for the former
owners  to earn an  additional  amount  depending  on the  profitability  of the
businesses for a certain period after the acquisition.  In connection with these
acquisitions, the Company recorded approximately $900,000 in goodwill. Pro forma
information  is not  presented as the acquired  company's  results of operations
prior  to the  dates  of the  acquisitions  were not  material  individually  or
collectively to the Company.

     In January 1997, 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  connection  with the  acquisition,  the Company  recorded
$1,070,000 in goodwill.  In June 1997,  the Company  acquired the GSX System,  a
functional  genomics  platform  technology.  The GSX  System was  purchased  for
approximately  $8,700,000 in cash.  Liabilities assumed in this transaction were
$832,000.  Pro forma  information  is not  presented as the  acquired  company's
results of operations prior to the dates of the  acquisitions  were not material
individually or collectively to the Company.

     Pooling

     In March 1997, the Company acquired Belmont Research, Inc. ("Belmont"). 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  acquired  SARCO,  Inc.   ("SARCO").   The
consideration  for SARCO  consisted of 263,158  shares of the  Company's  common
stock. In November 1997, the Company  acquired Intek Labs, Inc.  ("Intek").  The
consideration  for Intek  consisted of 399,999  shares of the  Company's  common
stock.  All  three  of these  acquisitions  were  accounted  for as  pooling  of
interests  transactions.  Pro forma information is not presented as the acquired
company's  results of operations prior to the year of the acquisitions  were not
material  individually or collectively  to the Company. 


                                       6

<PAGE>

           PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
                                   (unaudited)


4.   PER SHARE INFORMATION

     The  computation  of basic  income  per share  information  is based on the
weighted  average  number of common shares  outstanding  during the period.  The
computation  of diluted  income per share  information  is based on the weighted
average number of common shares  outstanding  during the period plus the effects
of any dilutive common stock equivalents at period end.

5.   SALE OF BUSINESS

     On  February  27,  1998,  the  Company,   through  its  subsidiary   Clinix
International  Inc.,  sold the  business  and assets of the  Chicago  Center for
Clinical Research  ("CCCR").  The selling price was approximately  $7,785,000 in
the form of cash  and a  promissory  note  payable  over  five  years.  The sale
resulted in a gain of  approximately  $1,071,000  which was  recognized as other
income  during the first quarter of 1998.  As part of the sales  agreement,  the
Company will continue to provide CCCR with certain  clinical and  administrative
services over the next several quarters.

6.   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 ending December 31, 1998. SFAS No. 131 requires the Company
to report  certain  information  about  operating  segments in complete  sets of
financial  statements  and in condensed  financial  statements of interim period
issued to shareholders.  It also establishes  standards for related  disclosures
about products and services,  geographic areas and major customers.  The Company
does not  expect  this new  pronouncement  to have a  significant  impact on the
financial statements.

     The Company will adopt Statement of Financial Accounting Standards No. 132,
"Employers' Disclosures about Pensions and Other Postretirement Benefits" ("SFAS
No. 132"),  for the year ending December 31, 1998. SFAS No. 132 standardizes the
disclosure  requirements for pensions and other  postretirement  benefits to the
extent practicable,  requires additional  information and changes in the benefit
obligations  and fair  values  of plan  assets  that will  facilitate  financial
analysis,  and eliminates  certain  disclosures  that are no longer useful.  The
Company does not expect this new  pronouncement to have a significant  impact on
the financial statements.

7.   COMPREHENSIVE INCOME

     On January 1, 1998, the Company adopted  Statement of Financial  Accounting
Standards  No.  130,  "Reporting  Comprehensive  Income"  ("SFAS No.  130").  As
required by SFAS No. 130,  prior year  information  has been modified to conform
with the new presentation.

     The Company's total comprehensive income (loss) for the three month periods
ended June 30, 1998 and 1997 was $2,559,000 and $(2,212,000),  respectively, and
for the six  month  periods  ended  June 30,  1998 and 1997 was  $7,141,000  and
$612,000,  respectively.  Information concerning the components of the Company's
other comprehensive income (loss) for the three and six month periods ended June
30, 1998 and 1997 is as follows (in thousands):

<TABLE>
<CAPTION>
                                        Three Months Ended June 30,                Six Months Ended June 30, 
                                           1998           1997                     1998           1997
                                        ---------------------------                -------------------------
<S>                                       <C>            <C>                           <C>          <C> 
Cumulative translation adjustment         $(316)         $(865)                        $(270)       $(1,307)

Unrealized gain on investments               --             (1)                           --            (78)
</TABLE>

                                      7
<PAGE>


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 Group provides services through
(i) PPD Pharmaco,  Inc. and its  wholly-owned  European,  South American,  South
African,  Australian and Canadian  subsidiaries  (collectively  "PPD Pharmaco"),
(ii) Belmont Research,  Inc. ("Belmont"),  and (iii) Intek Labs, Inc. ("Intek").
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 also provides  assessment and  management of chemical and  environmental
health risk. PPD Discovery,  Inc., the Company's discovery sciences  subsidiary,
focuses on the  discovery  segment of the research and  development  outsourcing
market.

     Life Sciences Group

     PPD Pharmaco offers its clients high quality, value-added services designed
to reduce drug development time.  Reduced  development time allows the client to
get its products  into the market faster and to maximize the period of marketing
exclusivity  and the  economic  return  for  such  products.  In  addition,  PPD
Pharmaco's  integrated services offer its clients a variable cost alternative to
the fixed costs  associated  with  internal  drug  development.  PPD  Pharmaco's
professional CRO services include Phase I clinical testing, laboratory services,
patient  recruitment,  Phase II-IV  clinical  trial  management,  clinical  data
management  and  biostatistical  analysis,  treatment  Investigational  New Drug
Applications,  medical writing and regulatory services, and healthcare economics
and outcomes research. The Company believes that it is one of only a few CROs in
the world  capable  of  providing  such a broad  range of  clinical  development
services.

     Belmont  was  acquired  by the  Company  in March  1997.  Belmont  provides
software  development  and system  integration  services  to the  pharmaceutical
industry.  Belmont's clients include  international and domestic  pharmaceutical
and biotechnology companies, scientific software vendors and government agencies
including  the FDA.  Belmont  also  develops  specialized  software  products to
support different aspects of the pharmaceutical research process, including drug
discovery,  clinical  trials and regulatory  review.  Current  Belmont  software
products  include Resolve TM, which manages data queries to investigator  sites,
and CrossGraphs  (R), which is used for exploration and presentation of research
data.

     Intek was acquired in November 1997. Intek provides  molecular  genotyping,
phenotyping  and  large-scale  genomic  DNA  purification  services  through its
current Good Laboratory Practice ("cGLP") compliant reference laboratory.  Intek
furnishes  pharmacogenetic services for clinical trials. Intek routinely reports
pharmacogenetic  profiles within 48 hours enabling genotyping to be performed on
clinical  trial  candidates at  enrollment.  Intek also provides  genotyping and
phenotyping for difficult cellular and tissue samples such as liver, hepatocytes
and S9  liver  fractions.  Additional  services  include  in  vitro  studies  to
correlate therapeutic response with polymorphisms early in drug development, and
large-scale  genomic DNA purification and archiving services to prepare clinical
trial samples for DNA banking and pharmacogenomic research.

     The Life Sciences Group also includes Clinix International,  Inc., which in
August 1995 acquired the business and substantially all of the assets of Chicago
Center for Clinical  Research  ("CCCR"),  a nationally  recognized  organization
which  conducts  clinical  trials  in the  pharmaceutical,  food  and  nutrition
industries. The Company sold substantially all of the assets of CCCR in February
1998. 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, 1997.

     Environmental Sciences Group

     ENVIRON  provides a broad  range of  scientific,  technical  and  strategic
management  consulting services that address a wide variety of public health and
environmental  issues  related to the  presence of  chemicals  in foods,  drugs,
medical devices, consumer products, the workplace, and the environment. 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, 1997.

                                       8

<PAGE>

     Discovery Sciences Group

     PPD Discovery,  Inc.  ("PPD  Discovery")  was  established in June 1997, at
which time the Company acquired SARCO, Inc. ("SARCO"), a combinational chemistry
company,  and the GSX System, a functional genomics platform  technology.  These
acquisitions form the basis of a group of wholly-owned  subsidiaries  focused on
the  discovery  research  segment of the  research and  development  outsourcing
market. In May 1998, the Company created Subsidiary No. 5, Inc., a subsidiary of
PPD which holds  licenses to a number of compounds in the  genitourinary  field.
For more detailed information on the Company's Discovery Sciences Group, see the
Company's Annual Report on Form 10-K for the year ended December 31, 1997.

FORWARD-LOOKING STATEMENTS

     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 and  reflect
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 PPD'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.  See  "Potential  Volatility of Quarterly  Operating  Results and Stock
Price".

RESULTS OF OPERATIONS

General

        In January  1998,  the Company  acquired  two  environmental  consulting
businesses  for  $1,000,000.  These  acquisitions  were  accounted for using the
purchase   method  of   accounting   and  resulted  in  the  Company   recording
approximately $900,000 in goodwill. In May 1998, the Company created Subsidiary
No. 5, Inc., a subsidiary  of PPD which holds  licenses to a number of compounds
in the  genitourinary  field.  As a  result  of this  transaction,  the  Company
recorded one-time acquired  in-process  research and development of $3.2 million
in the second quarter of 1998.

        During the second  quarter of 1998, net income,  excluding  nonrecurring
costs (acquired  in-process research and development costs, the gain relating to
the sale of CCCR and merger costs),  increased 13.8% to $4.8 million,  from $4.2
million for the same period in 1997. On that basis, operating income increased
by 11.3% to $7.3 million from $6.6 million a year earlier.  If the  nonrecurring
costs are included, net income rose $4.2 million to $0.12 per share.

Three Months Ended June 30, 1998 Versus Three Months Ended June 30, 1997

     Net revenue  increased  $10.2 million,  or 17.0%,  to $70.3 million in 1998
from $60.1 million last year. The Life Sciences Group's operations accounted for
81.7% of the  Company's net revenue for the 1998 period as compared to 79.8% for
the 1997 period. The Life Sciences Group generated net revenue of $57.4 million,
up $9.5 million, or 19.7%, from last year. The growth in the Life Sciences Group
operations  was due  primarily  to an increase in the size,  scope and number of
contracts in the clinical  development and biostatistics  business.  Net revenue
from ENVIRON, the Company's Environmental Sciences Group,  representing 18.2% of
the  Company's  net  revenue for the second  quarter  1998,  was $12.8  million,
compared with $12.1 million in 1997.

     Total direct costs increased 16.9% to $38.3 million from $32.7 million last
year and remained  relatively  constant as a percentage  of net revenue at 54.4%
for 1998  and  54.5%  for  1997.  The Life  Science  Group's  direct  costs as a
percentage of related net revenue  declined to 49.5% from 50.3% last year.  This
decrease is principally due to higher labor  utilization and a focused effort to
control  costs  across  all  business  segments.  ENVIRON's  direct  costs  as a
percentage of related net revenue increased to 70.3% from 68.4% last year.

     Selling,  general and  administrative  ("SG&A") expenses increased 20.1% to
$21.2 million from $17.7  million in 1997. As a percentage of net revenue,  SG&A
expenses  increased  to 30.2%  from  29.4% last  year.  The SG&A  increase  as a
percentage of net revenue is primarily  attributable to the recent investment in
the Company's  business  development and


                                       9

<PAGE>

marketing  department,  as well as, the  addition  of the SG&A of the  Discovery
Sciences Group, which began operations in July 1997.

     Total  depreciation  and  amortization  expense  of $3.5  million  was $0.4
million,  or 12.5%,  higher  than last year.  The  increase  was  related to the
Company's growth, as well as the depreciation of the ongoing capital  investment
in the Company's base business.

     The Company recorded one-time acquired  in-process research and development
of $3.2  million in the  second  quarter of 1998.  These  costs were  charged to
operations  upon the creation of  Subsidiary  No. 5, Inc. and  subsequent to the
purchase of six licenses to  genitourinary  compounds.  The Company  immediately
expensed  the acquired  in-process  research and  development  costs  because it
believes that the compounds have no alternative  future use and have not reached
technological feasibility.

     Operating  income  increased  $6.8 million to an  operating  income of $4.2
million for the three months  ended June 30,  1998,  as compared to an operating
loss of $2.6 million for the three  months ended June 30, 1997.  As a percentage
of net revenue,  excluding nonrecurring costs, the quarterly operating income of
10.5% represents a decline from the operating income of 11.0% of net revenue for
the same period last year.  This  decline was  primarily  due to the increase in
SG&A mentioned above.

     Net income of $2.9 million  represents an  improvement of $4.2 million over
the same  quarter a year ago.  Net income per basic and  diluted  share of $0.12
compares  to net loss per basic and  diluted  share of $0.06 for the same period
last  year.  Excluding  nonrecurring  costs,  the  Company's  net income of $4.8
million  was 13.8%  higher than last  year's net income of $4.2  million.  On an
equivalent earnings-per-share basis, the net income per diluted share, excluding
nonrecurring  costs,  of $0.21  compares  to $0.19 for the same period last year
computed on 0.7 million less shares outstanding.

Six Months Ended June 30, 1998 Versus Six Months Ended June 30, 1997

     Net revenue  increased  $17.4 million,  or 14.8%, to $135.1 million in 1998
from $117.7 million last year. The Life Sciences  Group's  operations  accounted
for 81.0% of the  Company's net revenue for the 1998 period as compared to 79.7%
for the 1997 period.  The Life  Sciences  Group  generated net revenue of $109.4
million,  up $15.5  million,  or 16.5%,  from last year.  The growth in the Life
Sciences Group  operations  was due primarily to an increase in the size,  scope
and number of contracts in the clinical development and biostatistics  business.
Net  revenue  from  ENVIRON,   the  Company's   Environmental   Sciences  Group,
representing  18.9% of the  Company's  net  revenues in the first six months was
$25.5 million, compared with $23.8 million in 1997.

     Total direct costs increased 14.4% to $74.7 million from $65.3 million last
year and remained  relatively  constant as a percentage  of net revenue at 55.3%
for 1998  and  55.5%  for  1997.  The Life  Science  Group's  direct  costs as a
percentage of related net revenue  declined to 50.3% from 51.4% last year.  This
decrease is principally due to higher labor  utilization and a focused effort to
control  costs  across  all  business  segments.  ENVIRON's  direct  costs  as a
percentage  of related net revenue  increased  slightly to 70.5% from 69.8% last
year.

     Selling,  general and  administrative  ("SG&A") expenses increased 17.6% to
$40.3 million from $34.3  million in 1997. As a percentage of net revenue,  SG&A
expenses  increased  to 29.8%  from  29.1% last  year.  The SG&A  increase  as a
percentage of net revenue is primarily  attributable to the recent investment in
the Company's  business  development and marketing  department,  as well as, the
addition of the SG&A of the Discovery  Sciences Group, which began operations in
July 1997.

     Total  depreciation  and  amortization  expense  of $6.9  million  was $1.1
million,  or 19.3%,  higher  than last year.  The  increase  was  related to the
Company's growth, as well as the depreciation of the ongoing capital  investment
in the Company's base business.

     Operating income increased $7.3 million to $10.0 million for the six months
ended June 30,  1998,  as compared to $2.7 million for the six months ended June
30, 1997.  As a percentage of net revenue,  excluding  nonrecurring  costs,  the
operating income of 9.7% represents a decline from the operating income of 10.5%
of net revenue for the same period last year.  This decline was due primarily to
the increase in SG&A mentioned above.


                                       10

<PAGE>


     Net income of $7.4 million  represents an  improvement of $5.4 million over
the same  period a year ago.  Net  income per basic and  diluted  share of $0.32
compares to net income per basic and diluted  share of $0.09 for the same period
last year.  Excluding the  nonrecurring  costs, the Company's net income of $8.6
million  was 10.5%  higher than last  year's net income of $7.8  million.  On an
equivalent earnings-per-share basis, the net income per diluted share, excluding
nonrecurring  costs,  of $0.37  compares  to $0.35 for the same period last year
computed on 0.7 million less shares outstanding.

Liquidity and Capital Resources

     As of June  30,  1998,  the  Company  had  $19.8  million  of cash and cash
equivalents  on hand.  The Company has  historically  funded its  operations and
growth, including acquisitions, with cash flow from operations and borrowings.

     For the six months  ended June 30,  1998,  the  Company  experienced  a net
increase in cash from operating  activities of $3.7 million. For the period, net
income of $7.4 million,  and  depreciation and amortization of $6.9 million were
partially  offset by the gain on sale of  business  of $1.1  million and the net
change of $13.8 million in operating  assets and  liabilities  (which includes a
$20.8 million increase in billed and unbilled receivables).

     For the six months ended June 30, 1998, the Company's investing  activities
used $1.1  million  in cash.  Net cash  received  in sale of  business  was $5.3
million and the sale of  investments  provided $8.0 million.  This was more than
offset by capital  expenditures of $10.3 million,  cash paid for the purchase of
technology of $3.2 and the $1.0 million net cash paid for acquisitions.

     For the six months ended June 30, 1998, the Company's financing  activities
provided $1.6 million in cash,  as net proceeds  from stock option  exercises of
$2.3 million were partially offset by $0.7 million in net repayment of long-term
debt.

     In June 1998,  the Company  entered into a $50.0 million  revolving  credit
facility with First Union National Bank. Interest accrues on amounts borrowed at
a floating  rate  currently  equal to LIBOR plus  0.625% 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
June 30, 1998, the Company had $15.0 million reserved under this facility in the
form of a letter of credit.

     In August  1997,  the  Company  entered  into a credit  facility  for $50.0
million with  Wachovia  Bank,  N.A.  Interest  accrues on amounts  borrowed at a
floating rate currently equal to LIBOR 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 June 30, 1998,
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
acquisition and other growth opportunities which may require additional external
financing,  and the  Company  may from time to time seek to  obtain  funds  from
public or private issuances of equity or debt securities.

Year 2000 Compliance

     Computers,  software and other equipment utilizing microprocessors that use
only two  digits to  identify  a year in a date  field may be unable to  process
accurately  certain  date-based  information at or after the year 2000.  This is
commonly  referred to as the "Year 2000  issue,"  and the Company is  addressing
this issue on primarily two fronts.  First,  the Company has requested Year 2000
compliance  certification from each of its major vendors and suppliers for their
hardware or software products or documentation on what aspects of their products
are not Year 2000 compliant and what steps they are taking to ensure  compliance
by  Year  2000.  Secondly,  the  Company  has  established  a  separate  team to
coordinate  solutions to the Year 2000 issue for our small number of  internally
developed  systems,  with a goal of having all of its internal systems Year 2000
compliant  by the end of first  quarter of 1999.  In  addition,  our  purchasing
policy for all new products requires Year 2000 compliance. The Company currently
does  not  expect  that the cost of its Year  2000  compliance  program  will be
material  to its  financial  condition  or  results  of  operations  or that its
business  will be  adversely  affected  by the Year 2000  issue in any  material
respect.  Nevertheless,  achieving  Year 2000  compliance  is  dependent on many
factors,  some of which are not completely within the Company's control.  Should
either the  Company's  internal  systems or the internal  systems of one or more
significant  vendors or  suppliers  fail to achieve  Year 2000  compliance,  the
Company's business and its results of operations could be adversely affected.


                                       11


<PAGE>


Inflation

     The Company believes the effects of inflation do not have a material
adverse effect on its results of operations or financial condition.

Exchange Rate Fluctuations and Exchange Controls

     The vast  majority  of the  Company's  contracts  are  entered  into by the
Company's United States or United Kingdom  subsidiaries.  The contracts  entered
into by the United States  subsidiaries are almost always  denominated in United
States dollars.

     Contracts  between the  Company's  United  Kingdom  subsidiaries  and their
clients are generally  denominated in pounds sterling.  Substantially all of the
United Kingdom subsidiaries' expenses, such as salaries, services, materials and
supplies,  are paid in pounds  sterling.  However,  the  Company's  consolidated
financial statements are denominated in dollars and, accordingly, changes in the
exchange  rate  between  the pound  sterling  and the  dollar  will  affect  the
translation of such subsidiaries' financial results into dollars for purposes of
reporting  the Company's  consolidated  financial  results,  and also affect the
dollar amounts actually received by the Company from such subsidiaries.

     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%). The Company  currently  believes that those
conditions will persist for at least the following year.

     There are no material exchange controls  currently in effect in any country
in which  the  Company's  subsidiaries  conduct  operations  on the  payment  of
dividends or otherwise  restricting the transfer of funds outside such countries
by a company resident in such countries.  Although the Company performs services
for clients located in a number of foreign  jurisdictions,  to date, the Company
has not  experienced  any  difficulties in receiving funds remitted from foreign
countries.  However, if any such jurisdictions were to impose or modify existing
exchange  control  restrictions on the remittance of funds to the Company,  such
restrictions could have an adverse effect on the Company's business.

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>


Part II.  Other Information

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

     The 1998 Annual Meeting of  Shareholders of the Company was held on May 13,
1998.

     At the Annual Meeting,  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                            17,873,920                  7,674
        Fredric N. Eshelman                     17,873,920                  8,074
        John A. McNeill, Jr.                    17,873,210                  8,384
        Stuart Bondurant                        17,872,960                  8,634
        Frederick Frank                         17,866,175                 15,419
        Frank E. Loy                            17,872,860                  8,734
        Thomas D'Alonzo                         17,874,020                  7,574
</TABLE>

Item 5. Other Information

     Pursuant to recently  amended Rule 14a-4  promulgated  under the Securities
Exchange  Act of 1934,  as  amended,  a  shareholder  seeking to have a proposal
considered at the Company's 1999 Annual Meeting of Shareholders  must notify the
Company by February 15, 1999 (based on tentatively  scheduled Annual Meeting) or
the persons  appointed  as proxies.  Proxies may  exercise  their  discretionary
voting authority on the proposal  notwithstanding that the shareholders have not
been advised of the proposal in the proxy statement.  Any proposals submitted by
shareholders  must comply in all respects with the rules and  regulations of the
Securities and Exchange Commission and the Company's Bylaws.

Item 6. Exhibits and Reports on Form 8-K

(a)  Exhibits

     Exhibit 10.111 Employment  Agreement dated May 22, 1998 between  Subsidiary
                    No. 5, Inc. and Karl B. Thor.

     Exhibit 10.112 Severance  Agreement  dated May 22, 1998 between  Subsidiary
                    No. 5, Inc. and Karl B. Thor.

     Exhibit 10.113 Note  and  Loan  Agreement,  dated  June  24,  1998  between
                    Pharmaceutical  Product  Development,  Inc.  and First Union
                    National Bank.

     Exhibit 10.114 Lease  Agreement  dated June 26, 1998 between,  Weeks Realty
                    Limited  Partnership  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 June 30, 1998


                                       13

<PAGE>


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, Vice President
                                       of Finance and Treasurer
                                       (Principal Financial Officer)



Date:  August 13, 1998

                                       14