===============================================================================

                       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 September 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: 23,345,177 shares of common
stock, par value $0.10 per share, as of October 29, 1998.


===============================================================================


<PAGE>


                                      INDEX
<TABLE>
<CAPTION>
<S>                                                                                                    <C>
                                                                                                       PAGE

PART I.  FINANCIAL INFORMATION
Item 1. Financial Statements
     Consolidated Condensed Statements of Operations for the Three and Nine Months Ended
       September 30, 1998 and 1997..................................................................     3
     Consolidated Condensed Balance Sheets as of September 30, 1998
       and December 31, 1997........................................................................     4
     Consolidated Condensed Statements of Cash Flows for the Nine Months Ended
       September 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 6. Exhibits and Reports on Form 8-K............................................................    14
Signatures..........................................................................................    15
Index to Exhibits...................................................................................    16
</TABLE>


                                       2
<PAGE>
<TABLE>
<CAPTION>


            PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
                 CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)


                                                               Three Months Ended                Nine Months Ended
                                                                   September 30,                     September 30,
                                                                 1998            1997               1998         1997
                                                              -----------    ---------            ---------------------
<S>                                                             <C>          <C>                 <C>          <C>

Life sciences revenues, net of subcontractor costs of $27,666,
   $15,658, $71,262 and $54,097, respectively                   $  61,357    $  46,145           $ 170,786    $ 140,039
Environmental sciences revenues, net of subcontractor costs of
   $2,471, $1,398, $6,917 and $4,473, respectively                 12,650       12,030              38,139       35,862
Discovery sciences revenues, net of subcontractor costs of
   $10, $26, $43 and $26, respectively                                 96           98                 286          115
                                                                ---------    ---------           ---------    ---------
Net revenue                                                        74,103       58,273             209,211      176,016
                                                                ---------    ---------           ---------    ---------


Direct costs - Life sciences                                       30,773       22,720              85,840       70,947
Direct costs - Environmental sciences                               9,184        8,422              27,144       25,054
Direct costs - Discovery sciences                                     935          583               2,639        1,063
Selling, general and administrative expenses                       21,143       16,704              61,456       50,998
Depreciation and amortization                                       3,493        3,179              10,418        8,986
Merger costs                                                            -            -                   -          512
Acquired in-process research and development costs                      -            -               3,163        9,112
                                                                ---------    ---------           ---------    ---------
                                                                   65,528       51,608             190,660      166,672
                                                                ---------    ---------           ---------    ---------
Operating income                                                    8,575        6,665              18,551        9,344
Interest income, net                                                  330          154                 832          770
Other income (expense), net                                           394          146               2,100          198
                                                                ---------    ---------           ---------    ---------
Income before income taxes                                          9,299        6,965              21,483       10,312
Provision for income taxes                                          3,673        2,751               8,446        4,101
                                                                ---------    ---------           ---------    ---------
Net income                                                      $   5,626        4,214           $  13,037    $   6,211
                                                                =========    =========           =========    =========

Net income per share:
Basic                                                           $     0.24   $     0.19          $    0.56    $     0.28
                                                                ==========   ==========          =========    ==========
Diluted                                                         $     0.24   $     0.19          $    0.56    $     0.28
                                                                ==========   ==========          =========    ==========

Weighted average number of common shares outstanding:
     Basic                                                         23,267       22,533              23,124       22,487
     Dilutive effect of stock options                                 178           88                 152           93
                                                                ---------    ---------           ---------    ---------
     Diluted                                                       23,445       22,621              23,276       22,580
                                                                =========    =========           =========    =========
</TABLE>




The accompanying notes are an integral part of these consolidated condensed
financial statements.
                                       3
<PAGE>
<TABLE>
<CAPTION>


            PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
                      CONSOLIDATED CONDENSED BALANCE SHEETS
                                 (IN THOUSANDS)


                                     ASSETS

                                                                         September 30,             December 31,
                                                                             1998                      1997
                                                                         --------------            -------------
                                                                           (unaudited)

<S>                                                                        <C>                      <C>
Current assets
   Cash and cash equivalents                                               $    26,178              $    15,879
   Marketable securities                                                             -                    7,994
   Accounts receivable and unbilled services, net                              128,723                  101,554
   Investigator advances                                                         1,226                    1,870
   Prepaid expenses and other current assets                                     8,199                    7,227
   Deferred tax asset                                                            1,280                    1,973
                                                                           -----------              -----------
     Total current assets                                                      165,606                  136,497

Property, plant and equipment, net                                              40,154                   34,902
Goodwill, net                                                                   14,880                   18,026
Other assets, net                                                                8,204                    7,622
                                                                           -----------              -----------
     Total assets                                                          $   228,844              $   197,047
                                                                           ===========              ===========

                      LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
   Current maturities of long-term debt                                    $     3,933              $     4,906
   Accounts payable                                                              6,904                    6,249
   Payables to investigators                                                     6,661                    4,138
   Other accrued expenses                                                       30,226                   23,532
   Unearned income                                                              32,087                   27,722
                                                                           -----------              -----------
     Total current liabilities                                                  79,811                   66,547

Long-term debt, less current maturities                                            292                      340
Deferred rent and other                                                          2,167                    2,555
                                                                           -----------              -----------
     Total liabilities                                                          82,270                   69,442
                                                                           -----------              -----------

Shareholders' equity
   Common stock                                                                  2,330                    2,295
   Paid-in capital                                                             120,887                  115,680
   Unrealized gain on investments and marketable securities, net                     -                      168
   Cumulative translation adjustment                                               160                     (650)
   Retained earnings                                                            23,197                   10,112
                                                                           -----------              -----------
     Total shareholders' equity                                                146,574                  127,605
                                                                           -----------              -----------

     Total liabilities and shareholders' equity                            $   228,844              $   197,047
                                                                           ===========              ===========
</TABLE>

The accompanying notes are an integral part of these consolidated condensed
financial statements.
                                       4
<PAGE>
<TABLE>
<CAPTION>


            PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
                 CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)
                                 (IN THOUSANDS)


                                                                                   Nine Months Ended
                                                                                       September 30,
                                                                             ------------------------------
                                                                             1998                      1997
                                                                             ------                    ------
<S>                                                                        <C>                      <C>
Cash flows from operating activities:
   Net income                                                              $    13,037              $     6,211
   Adjustments to reconcile net income to net cash
   provided by (used in) operating activities:
      Depreciation and amortization                                             10,418                    8,986
      Acquired in-process research and development costs                         3,163                    9,112
      Gain on sale of business                                                  (1,071)                       -
      Other                                                                        925                     (401)
      Change in operating assets and liabilities                               (14,804)                 (20,613)
                                                                           -----------              -----------
         Net cash provided by operating activities                              11,668                    3,295
                                                                           -----------              -----------

Cash flows from investing activities:
      Purchases of investments                                                       -                  (10,972)
      Sale of investments                                                        8,000                   17,240
      Purchases of property and equipment                                      (15,568)                 (10,635)
      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                                  (6,452)                 (12,314)
                                                                           -----------              -----------

Cash flows from financing activities:
      Repayment of long-term debt                                                 (998)                    (530)
      Other long-term borrowings                                                     -                      138
      Proceeds from issuance of common stock                                     5,222                    2,152
      Distributions to shareholders                                                  -                     (430)
      Other                                                                         49                        -
                                                                           -----------              -----------
         Net cash provided by financing activities                               4,273                    1,330
                                                                           -----------              -----------
Effect of exchange rate changes on cash                                            810                   (1,373)
                                                                           -----------              -----------
Net increase (decrease) in cash and cash equivalents                            10,299                   (9,062)
Cash and cash equivalents, beginning of the period                              15,879                   21,838
                                                                           -----------              -----------
Cash and cash equivalents, end of the period                               $    26,178              $    12,776
                                                                           ===========              ===========


</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 on Form 10-K for the year ended December 31, 1997. The results of
operations for the three month and nine month periods ended September 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 companies' 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 results of operations of
the acquired company and technology 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
companies' 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

         In February 1998, the Company, through its subsidiary Clinix
International Inc., sold substantially all of the 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 for an agreed upon amount through the first quarter of 1999.

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 its 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 its 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 for the three month periods
ended September 30, 1998 and 1997 was $6,706,000 and $3,738,000, respectively,
and for the nine month periods ended September 30, 1998 and 1997 was $13,847,000
and $4,350,000, respectively. Information concerning the components of the
Company's other comprehensive income (loss) for the three and nine month periods
ended September 30, 1998 and 1997 is as follows (in thousands):
<TABLE>
<CAPTION>


                                  Three Months Ended September 30,   Nine Months Ended September 30,
                                    1998               1997          1998               1997
                                   ------------------------------   --------------------------------

<S>                                <C>                <C>             <C>           <C>
Cumulative translation adjustment  1,080              (95)            810           (1,402)

Unrealized gain on investments        -              (381)              -             (459)

</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, Asian, 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
subsidiaries, 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 also 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 GenuPro, 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 GenuPro,
Inc., a subsidiary of PPD which holds licenses to a number of compounds in the
genitourinary field which were purchased the second quarter of 1998. As a result
of the purchase of these compounds, the Company recorded one-time acquired
in-process research and development of $3.2 million in the second quarter of
1998.


         During the third quarter of 1998, net income increased 33.5% to $5.6
million, from $4.2 million for the same period in 1997. Operating income
increased by 28.7% to $8.6 million from $6.7 million a year earlier.


THREE MONTHS ENDED SEPTEMBER 30, 1998 VERSUS THREE MONTHS ENDED SEPTEMBER 30,
1997


         Net revenue increased $15.8 million, or 27.2%, to $74.1 million in the
third quarter of 1998 from $58.3 million in the same period last year. The Life
Sciences Group's operations accounted for 82.8% of the Company's net revenue for
the 1998 period as compared to 79.2% for the 1997 period. The Life Sciences
Group generated net revenue of $61.4 million, up $15.2 million, or 33.0%, from
the 1997 third quarter. 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 17.1% of the Company's net
revenue for the third quarter 1998, was $12.6 million, compared with $12.0
million in 1997.


         Total direct costs increased 28.9% to $40.9 million from $31.7 million
in the same period last year and increased slightly as a percentage of net
revenue at 55.2% for 1998 and 54.4% for 1997. The Life Science Group's direct
costs as a percentage of related net revenue increased to 50.2% from 49.2% last
year. This increase in direct costs relative to net revenue was due principally
to a different mix of contracts performed during the current quarter. ENVIRON's
direct costs as a percentage of related net revenue increased to 72.6% from
70.0% last year. This increase is attributable to lower consultant utilization.
                                       9
<PAGE>


         Selling, general and administrative ("SG&A") expenses increased 26.6%
to $21.1 million from $16.7 million in 1997. As a percentage of net revenue,
SG&A expenses remained relatively constant at 28.5%, compared to 28.7% in the
same period last year.


         Total depreciation and amortization expense of $3.5 million was $0.3
million, or 9.9%, 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.


         Net interest and other income (expense), net, improved by $0.4 million,
rising to $0.7 million in net other income for the quarter ended September 30,
1998 from $0.3 million in net other income for the quarter ended September 30,
1997. The improvement was primarily the result of the covenant not to compete
income of $0.2 million, resulting from the sale of CCCR in the first quarter of
1998.


         Operating income increased $1.9 million to an operating income of $8.6
million for the three months ended September 30, 1998, as compared to operating
income of $6.7 million for the three months ended September 30, 1997. As a
percentage of net revenue, the quarterly operating income of 11.6% represents an
increase from the operating income of 11.4% of net revenue for the same period
last year.


         Provision for income taxes increased $0.9 million to $3.7 million for
the three months ended September 30, 1998, as compared to $2.8 million for the
three months ended September 30, 1997. As a percentage of income before income
taxes, provision for income taxes has remained constant at 39.5%.


         Net income of $5.6 million represents an improvement of $1.4 million
over the same quarter a year ago. On an equivalent earnings-per-share basis, net
income per diluted share of $0.24 compares to net income per diluted share of
$0.19 for the same period last year computed on 0.8 million less shares
outstanding.


NINE MONTHS ENDED SEPTEMBER 30, 1998 VERSUS NINE MONTHS ENDED SEPTEMBER 30, 1997


         Net revenue increased $33.2 million, or 18.9%, to $209.2 million in
1998 from $176.0 million last year. The Life Sciences Group's operations
accounted for 81.6% of the Company's net revenue for the 1998 period as compared
to 79.6% for the 1997 period. The Life Sciences Group generated net revenue of
$170.8 million, up $30.7 million, or 22.0%, 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 revenues in the first nine months was
$38.1 million, compared with $35.8 million in 1997, an increase of 6.3% or $2.3
million.


         Total direct costs increased 19.1% to $115.6 million from $97.1 million
last year and remained relatively constant as a percentage of net revenue at
55.3% for 1998 and 55.2% for 1997. The Life Science Group's direct costs as a
percentage of related net revenue declined to 50.3% from 50.7% 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 71.2% from 69.9% last
year. This increase is attributable to lower consultant utilization.


         Selling, general and administrative ("SG&A") expenses increased 20.5%
to $61.5 million from $51.0 million in 1997. As a percentage of net revenue,
SG&A expenses increased to 29.4% from 29.0% last year. The SG&A increase as a
percentage of net revenue is primarily attributable to the 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 June
1997.


         Total depreciation and amortization expense of $10.4 million was $1.4
million, or 15.9%, 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.


         Net interest and other income (expense), net, improved by $1.9 million,
rising to $2.9 million in net other income for the nine months ended September
30, 1998 from $1.0 million in net other income for the nine months ended
September 30, 1997. Excluding the gain related to the sale of CCCR, net other
income of $1.9 million was

                                       10
<PAGE>


$0.9 million higher than last year's net other income of $1.0 million. The
improvement was primarily the result of the covenant net to compete income of
$0.5 million, resulting from the sale of CCCR in the first quarter of 1998.


         Operating income increased $9.2 million to $18.6 million for the nine
months ended September 30, 1998, as compared to $9.3 million for the nine months
ended September 30, 1997. As a percentage of net revenue, excluding nonrecurring
costs (acquired in-process research and development costs, the gain relating to
the sale of CCCR and merger costs), the operating income of 10.4% represents a
decline from the operating income of 10.8% of net revenue for the same period
last year.


         Provision for income taxes increased $4.3 million to $8.4 million for
the nine month ended September 30, 1998, as compared to $4.1 million for the
nine months ended September 30, 1998. As a percentage of income before income
taxes, provision for income taxes has remained relatively constant at 39.3% and
39.8% for the nine months ended September 30, 1998 and 1997, respectively.


         Net income of $13.0 million represents an improvement of $6.8 million
over the same period a year ago. Net income per basic and diluted share of $0.56
compares to net income per basic and diluted share of $0.28 for the same period
last year. Excluding the nonrecurring costs, the Company's net income of $14.3
million was 19.4% higher than last year's net income of $12.0 million. On an
equivalent earnings-per-share basis, the net income per diluted share, excluding
nonrecurring costs, of $0.61 compares to $0.53 for the same period last year
computed on 0.7 million less shares outstanding.



LIQUIDITY AND CAPITAL RESOURCES


         As of September 30, 1998, the Company had $26.2 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 nine months ended September 30, 1998, the Company experienced a
net increase in cash from operating activities of $11.7 million. For the period,
net income of $13.0 million and depreciation and amortization of $10.4 million
were partially offset by the net change of $14.8 million in operating assets and
liabilities (which includes a $30.1 million increase in billed and unbilled
receivables).


         For the nine months ended September 30, 1998, the Company's investing
activities used $6.5 million in cash. Capital expenditures of $15.6 million,
cash paid for the purchase of technology of $3.2 million and the $1.0 million
net cash paid for acquisitions were partially offset by $8.0 million from the
sale of investments and $5.3 million of net cash received in sale of business.


         For the nine months ended September 30, 1998, the Company's financing
activities provided $4.3 million in cash, as net proceeds from stock option
exercises of $5.2 million were partially offset by $1.0 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
September 30, 1998, the Company had $15.0 million reserved under this facility
in the form of a letter of credit.


         In August 1998, the Company renegotiated 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 September 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, cash flow from operations, borrowings under
its credit facilities and through the use of the Company's stock. The Company
believes that such

                                       11
<PAGE>


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 or private issuances of equity or debt securities.


YEAR 2000 COMPLIANCE


         The Year 2000 issue is the result of computer programs having been
written using two digits, rather than four, to define the applicable year. As a
result, in less than two years, computer systems and/or software used by many
companies in a very wide variety of applications will experience operating
difficulties unless they are modified or upgraded to adequately process
information involving, related to or dependent upon the four digit field.
Significant uncertainty exists concerning the scope and magnitude of problems
associated with the Year 2000.


         The Company recognizes the need to ensure its operations will not be
adversely impacted by Year 2000 failures and has established an ongoing internal
review team to address the Year 2000 issue that encompasses operating and
administrative areas of the Company. During the first quarter of 1997, a team of
experienced information technology staff were assigned to work with Company
personnel to identify and resolve significant Year 2000 issues in a timely
manner. In addition, executive management regularly monitors the status of the
Company's Year 2000 remediation plans. The process includes an assessment of
issues and development of remediation plans, where necessary, as they relate to
internally used software, computer hardware and use of computer applications in
the Company's operations and administrative areas. In addition, the Company is
engaged in assessing the Year 2000 issue with significant suppliers and clients.

         The assessment process is 85% to 90% complete for computer software and
hardware information technology systems used internally by the Company. The
Company has also determined that it is unlikely that it will have any material
exposure to contingencies related to the Year 2000 issue in connection with
products sold by the Company. The Company is still assessing phone systems and
related products. This assessment should be completed in the fall of 1998. The
Company is currently testing, fixing and replacing hardware and software. The
majority of the work is associated with applying vendor upgrades and testing.
Replacement is required for approximately 5% of the Company's end user
equipment. The Company has completed approximately half of the testing and
replacement process and currently expects to complete the process by April 1999.
Before the end of 1998 the Company will initiate formal communications with its
significant suppliers in North America and Europe to determine the extent to
which the Company is vulnerable to third party failure to remediate Year 2000
compliance problems. The Company is in regular communication with key suppliers
and clients and has responded to all requests for information regarding Year
2000 compliance. Based on current information available, management believes
that it will be able to perform all services and provide all products it
currently offers without any material adverse effects arising from failure to
remediate deficiencies arising from Year 2000.

         External and internal costs specifically associated with applying
vendor upgrades, testing, and modifying internal use software for Year 2000
compliance are expensed as incurred. The Company pays for Year 2000 expenses
with cash from operating activities. The percentage of the Company's information
technology budget expected to be used for remediation is approximately 11% in
1998 and 5% in 1999. To date, the Company has spent $1.2 million on Year 2000
compliance, and expects to spend $0.4 million to complete the compliance
process. Of the total amount which the Company expects to spend, $1.2 million is
attributable to internal labor costs for assessment and testing. Although
internal resources have been dedicated to Year 2000 efforts, work has been
spread across all areas and there has been no material delay in any major
projects. Management does not expect costs relating to Year 2000 remediation to
have a material effect on results of operations or financial condition.

         The failure to correct a material Year 2000 problem could result in an
interruption in, or a failure of, certain normal business activities or
operations. Such failures could materially and adversely affect the Company's
results of operations, liquidity and financial condition. The Company has
represented to some clients that it intends to be Year 2000 compliant by April
1999. If unexpected issues arise causing delays in the studies, the Company will
have a specified period of time to correct those issues. If not corrected, the
client can modify or terminate the study contract. The Company believes that
modification or termination of one or more client contracts represents the most
reasonably likely adverse event which might arise from material Year 2000
compliance failures. Due to the general uncertainty inherent in the Year 2000
problem, resulting in part from the uncertainty of the Year 2000 readiness of
third-party suppliers and clients, the Company is unable to determine at this
time whether the

                                       12
<PAGE>

consequences of Year 2000 failures will have a material impact on its results of
operations, liquidity or financial condition.

The Company expects to significantly reduce the level of uncertainty about Year
2000 problems and, in particular, about Year 2000 compliance and readiness of
its material suppliers and clients as it nears completion of the inquiry,
testing and replacement phase. The Company also believes that its experienced
information technology staff, which has been instrumental in the Company's Year
2000 compliance efforts, may be able to mitigate many Year 2000 problems.
However, the Company will continue to assess its contingency plans for a
possible Year 2000 failure as it completes its assessment of Year 2000 issues.

         The cost of the Year 2000 compliance project and the time by which the
Company expects to complete its Year 2000 assessment and remediation are
estimates, based on numerous assumptions, including the continued availability
of funding resources and third party modification plans. However, there can be
no guarantee that these estimates are accurate and will be achieved, and actual
results could differ significantly from management's expectations. In addition,
there is no guarantee that the Company's evaluation of the most likely effects
of a material Year 2000 compliance failure is correct, or that its plan to
address such failure will be adequate. In either instance, the effect upon the
Company's financial condition could be material.

INFLATION

         The Company believes the effects of inflation have not had 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.


         In the countries in which the Company's subsidiaries conduct
operations, there are no material exchange controls currently in effect 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.


                                       13

<PAGE>






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.


PART II.  OTHER INFORMATION


ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(A)      EXHIBITS

         Exhibit 10.115    First Amendment to Loan Agreement dated August
                           6, 1998, between Pharmaceutical Product Development,
                           Inc. and Wachovia Bank, N.A.

         Exhibit 10.116    First Amendment to Lease Agreement dated
                           September 28, 1998, between PPD Pharmaco, Inc. and
                           Weeks Realty, Inc.

         Exhibit 10.117    Lease Agreement dated September 15, 1998
                           between PPD Pharmaco, Inc. and BBC Family Limited
                           Partnership

         Exhibit 27        Financial Data Schedule (for SEC use only)

(B)      REPORTS ON FORM 8-K

         No reports on Form 8-K were filed during the quarter ended September
30, 1998.

                                       14
<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:  November 13, 1998


                                       15
<PAGE>
                                INDEX TO EXHIBITS
                                -----------------

       EXHIBIT NUMBER            DESCRIPTION
       --------------            -----------

       Exhibit 10.115       First Amendment to Loan Agreement dated August
                            6, 1998, between Pharmaceutical Product Development,
                            Inc. and Wachovia Bank, N.A.
                          
       Exhibit 10.116       First Amendment to Lease Agreement dated
                            September 28, 1998, between PPD Pharmaco, Inc. and
                            Weeks Realty, Inc.
                          
       Exhibit 10.117       Lease Agreement dated September 15, 1998
                            between PPD Pharmaco, Inc. and BBC Family Limited
                            Partnership
                          
       Exhibit 27           Financial Data Schedule (for SEC use only)
                       

                                       16