<PAGE>

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

                       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, 2001.


                                       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 South Seventeenth Street
                           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 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes  X   No ____
                                              ---

    Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 51,919,377 shares of common
stock, par value $0.10 per share, as of October 31, 2001.

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

<PAGE>

                                      INDEX

<TABLE>
<CAPTION>
                                                                                                       Page
                                                                                                       ----
<S>                                                                                                    <C>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements

     Consolidated Condensed Statements of Operations for the Three and Nine Months Ended
       September 30, 2000 and 2001 ...................................................................   3
     Consolidated Balance Sheets as of December 31, 2000 and September 30, 2001 ......................   4
     Consolidated Condensed Statements of Cash Flows for the Nine Months Ended
       September 30, 2000 and 2001 ...................................................................   5
     Notes to Consolidated Condensed Financial Statements ............................................   6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ........   9
Item 3. Quantitative and Qualitative Disclosures about Market Risk ...................................  16

Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K .............................................................  17
Signature ............................................................................................  18
</TABLE>

                                       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                  Nine Months Ended
                                                                        September 30,                     September 30,
                                                               ---------------------------       ----------------------------
                                                                   2000             2001              2000            2001
                                                               -----------       ---------       ------------    ------------
<S>                                                            <C>               <C>             <C>             <C>
Development revenues, net of subcontractor costs of
    $34,007, $33,509, $86,693 and $118,862, respectively       $    83,741       $  103,995      $    243,926    $    295,813
Discovery sciences revenues, net of subcontractor costs of
    $57, $130, $112 and $296, respectively                           5,529            4,315            11,154          21,488
                                                               -----------       ----------      ------------    ------------
                  Net revenue                                       89,270          108,310           255,080         317,301
                                                               -----------       ----------      ------------    ------------

Direct costs - Development                                          42,583           50,280           124,604         143,810
Direct costs - Discovery sciences                                    1,797            2,105             4,207           9,388
Research and development                                               634            1,372             2,294           3,191
Selling, general and administrative expenses                        27,761           32,800            80,689          93,355
Depreciation and amortization                                        4,444            5,141            12,668          14,829
                                                               -----------       ----------      ------------    ------------
                                                                    77,219           91,698           224,462         264,573
                                                               -----------       ----------      ------------    ------------
                  Operating income                                  12,051           16,612            30,618          52,728

Interest income, net                                                 1,378            1,193             3,581           4,093
Other income, net                                                      613              316             1,438             944
                                                               -----------       ----------      ------------    ------------

Income before provision for income taxes                            14,042           18,121            35,637          57,765
                  Provision for income taxes                         5,266            6,614            13,294          21,258
                                                               -----------       ----------      ------------    ------------

                  Net income                                   $     8,776       $   11,507      $     22,343    $     36,507
                                                               ===========       ==========      ============    ============

Net income per share:
    Basic                                                      $      0.18       $     0.22      $       0.45    $       0.71
                                                               ===========       ==========      ============    ============
    Diluted                                                    $      0.17       $     0.22      $       0.45    $       0.70
                                                               ===========       ==========      ============    ============

Weighted average number of common shares outstanding:
    Basic                                                           50,090           51,891            49,776          51,556
    Dilutive effect of stock options                                   412              817               338             827
                                                               -----------       ----------      ------------    ------------
    Diluted                                                         50,502           52,708            50,114          52,383
                                                               ===========       ==========      ============    ============
</TABLE>

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

                                       3

<PAGE>

           PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS
                                 (in thousands)

<TABLE>
<CAPTION>
                                     Assets
                                                                                   December 31,         September 30,
                                                                                       2000                 2001
                                                                                   ------------         -------------
                                                                                                         (unaudited)
<S>                                                                                <C>                  <C>
Current assets:
   Cash and cash equivalents                                                         $   76,411          $   106,457
   Accounts receivable and unbilled services, net                                       118,400              165,015
   Investigator advances                                                                  4,104                4,025
   Prepaid expenses and other current assets                                             12,185               10,174
   Current maturities of notes receivable                                                   500                  500
   Deferred tax assets                                                                    2,133                4,839
                                                                                     ----------          -----------
     Total current assets                                                               213,733              291,010

Property and equipment, net                                                              60,240               80,145
Goodwill, net                                                                             9,034                8,198
Notes receivable, long-term portion                                                      19,000               18,500
Investments                                                                              38,755               38,755
Other assets, net                                                                         4,153                2,029
                                                                                     ----------          -----------
     Total assets                                                                    $  344,915          $   438,637
                                                                                     ==========          ===========

                           Liabilities and Shareholders' Equity

Current liabilities:
   Accounts payable                                                                  $    8,772          $     5,719
   Payables to investigators                                                              5,538                6,198
   Other accrued expenses                                                                38,248               45,820
   Unearned income                                                                       53,385               75,096
   Accrued income taxes                                                                     273               11,378
   Current maturities of long-term debt and capital lease obligations                       614                  972
                                                                                     ----------          -----------
     Total current liabilities                                                          106,830              145,183

Long-term debt and capital lease obligations, less current maturities                     1,353                1,540
Deferred rent and other                                                                   2,789                3,036
                                                                                     ----------          -----------
     Total liabilities                                                                  110,972              149,759
                                                                                     ----------          -----------
Shareholders' equity:
   Common stock                                                                           5,066                5,192
   Paid-in capital                                                                      142,975              163,141
   Retained earnings                                                                     91,007              127,514
   Deferred compensation                                                                      -               (1,087)
   Accumulated other comprehensive loss                                                  (5,105)              (5,882)
                                                                                     ----------          -----------
     Total shareholders' equity                                                         233,943              288,878
                                                                                     ----------          -----------

     Total liabilities and shareholders' equity                                      $  344,915          $   438,637
                                                                                     ==========          ===========
</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>
                                                                                    Nine Months Ended
                                                                                      September 30,
                                                                        ---------------------------------------
                                                                               2000                   2001
                                                                        ----------------       ----------------
<S>                                                                     <C>                    <C>
Cash flows from operating activities:
   Net income                                                               $   22,343              $  36,507
   Adjustments to reconcile net income to net cash
    provided by operating activities:
      Depreciation and amortization                                             12,668                 14,828
      Stock compensation amortization                                                -                    362
      (Gain) loss on disposition of property and equipment, net                     (1)                    66
      Provision for doubtful accounts                                              130                    266
      Deferred income taxes                                                     (1,285)                  (729)
      Change in operating assets and liabilities                                     -                 (1,284)
                                                                            ----------              ---------
         Net cash provided by operating activities                              33,855                 50,016
                                                                            ----------              ---------
Cash flows from investing activities:

      Cash received from repayment of note receivable                              500                    500
      Purchase of investment                                                    (5,000)                     -
      Purchases of property and equipment                                      (16,305)               (32,224)
      Proceeds from sale of property and equipment                                 225                    177
      Net cash paid for acquisition                                             (1,500)                     -
                                                                            ----------              ---------
         Net cash used in investing activities                                 (22,080)               (31,547)
                                                                            ----------              ---------

Cash flows from financing activities:
      Principal repayments on long-term debt                                       (94)                   (27)
      Repayment of capital lease obligations                                      (446)                (1,123)
      Proceeds from exercise of stock options
        and employee stock purchase plan                                         4,095                 13,503
                                                                            ----------              ---------
         Net cash provided by financing activities                               3,555                 12,353
                                                                            ----------              ---------
Effect of exchange rate changes on cash and cash equivalents                    (2,984)                  (776)
                                                                            ----------              ---------
Net increase in cash and cash equivalents                                       12,346                 30,046
Cash and cash equivalents, beginning of the period                              61,251                 76,411
                                                                            ----------              ---------
Cash and cash equivalents, end of the period                                $   73,597              $ 106,457
                                                                            ==========              =========
</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. and its subsidiaries (collectively the "Company") for interim
financial reporting are consistent with the accounting policies followed for
annual financial reporting. We prepared these unaudited consolidated condensed
financial statements in accordance with Rule 10-01 of Regulation S-X and, in
management's opinion, we have included all adjustments of a normal recurring
nature necessary for a fair presentation. The accompanying consolidated
condensed financial statements might not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements 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, 2000. The results of operations for the
three-month and nine-month periods ended September 30, 2001 are not necessarily
indicative of the results to be expected for the full year or any other period.
We derived the amounts on the December 31, 2000 consolidated condensed balance
sheet from the audited consolidated financial statements included in the
Company's Annual Report on Form 10-K for the year ended December 31, 2000.

          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

          We have reclassified certain 2000 financial statement amounts to
conform to the 2001 presentation.

          Recent Accounting Pronouncements

          In June 1998, the FASB issued Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Investments and Hedging
Activities," or SFAS No. 133. SFAS No. 133 establishes accounting and reporting
standards for derivatives and hedging activities and supercedes several existing
standards. SFAS No. 133, as amended by SFAS No. 137 and SFAS No. 138, is
effective for all fiscal quarters of fiscal years beginning after June 15, 2000.
Our adoption of SFAS No. 133 as of January 1, 2001 did not have a material
impact on our consolidated financial statements.

          In July 2001, the FASB issued Statement of Financial Accounting
Standards No. 141, "Business Combinations", or SFAS No. 141, and Statement of
Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets",
or SFAS No. 142. We have adopted SFAS No. 141 as of July 1, 2001, which requires
purchase accounting to be applied to business combinations initiated after June
30, 2001 by a for-profit organization. We intend to adopt SFAS No. 142 as of
January 1, 2002, as required, and for goodwill and intangible assets acquired
after June 30, 2001 (for the nonamortization and amortization provisions of the
Statement), we will apply the required provisions as of the related acquisition
date(s). We will no longer record amortization of goodwill in our financial
statements as of January 1, 2002 as required by SFAS No. 142. Our estimated
amortization expense for 2001 is approximately $900,000.

          In August 2001, the FASB issued Statement of Financial Accounting
Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets", or SFAS No. 144, which supersedes SFAS No. 121 and portions of APB
Opinion No. 30. SFAS No. 144 provides guidance on the recognition and impairment
of long-lived assets to be held and used and for long-lived assets to be
disposed. We intend to adopt SFAS No. 144 as of January 1, 2002, as required,
and do not believe the adoption will have a material impact on our consolidated
financial statements.

                                       6

<PAGE>

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

                                  (unaudited)

2.        PRINCIPLES OF CONSOLIDATION

          The accompanying unaudited consolidated condensed financial statements
include the accounts and operations of Pharmaceutical Product Development, Inc.
and its subsidiaries. We have eliminated all significant intercompany balances
and transactions in consolidation.

3.        EARNINGS PER SHARE

          We compute basic net income per share information using the weighted
average number of shares of common stock outstanding during the period. We
compute diluted net income per common share using the weighted average number of
shares of common and dilutive potential common shares outstanding during the
period.

4.        STOCK DIVIDEND

          On April 16, 2001, the Board of Directors declared a one-for-one stock
dividend. The record date for the dividend was April 27, 2001, and the
distribution date was May 11, 2001. All share and per share amounts for all
periods presented in the accompanying consolidated condensed financial
statements have been restated to reflect the effect of this stock dividend,
which was accounted for as a stock split.

5.        COMPREHENSIVE INCOME

          The Company's total comprehensive income for the three-month periods
ended September 30, 2000 and 2001 was $8,096,000 and $11,888,000, respectively,
and for the nine-month periods ended September 30, 2000 and 2001 was $20,688,000
and $35,730,000, respectively. The Company's other comprehensive (loss) gain
consisted of a change in the cumulative foreign currency translation adjustment
for the three-month periods ended September 30, 2000 and 2001 of ($1,101,000)
and $381,000, respectively, and an unrealized gain on investment of $421,000 for
the 2000 period. The Company's other comprehensive loss consisted of a decrease
in the cumulative translation adjustment for the nine-month periods ended
September 30, 2000 and 2001 of $2,984,000 and $777,000, respectively, and an
unrealized gain on investment of $1,329,000 for the 2000 period.

6.        ACCOUNTS RECEIVABLE AND UNBILLED SERVICES:

          Accounts receivable and unbilled services, net, consisted of the
          following:

<TABLE>
<CAPTION>
                                                        December 31,       September 30,
          (in thousands)                                    2000               2001
                                                       --------------      -------------
                                                                            (unaudited)
          <S>                                           <C>                 <C>
            Billed                                     $     81,584        $     106,757
            Unbilled                                         38,770               60,479
            Reserve for doubtful accounts                    (1,954)              (2,221)
                                                       ------------        -------------
                                                       $    118,400        $     165,015
                                                       ============        =============
</TABLE>

                                       7

<PAGE>

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

                                  (unaudited)

7.       SUBSEQUENT EVENTS:

         In October 2001, PPD entered into a strategic investment with JPMorgan
Partners (BHCA), L.P., the Chairman of PPD's Board of Directors, and the Chief
Executive Officer of PPD (collectively, the "Investors"). The Investors formed a
new entity, Apothogen, Inc., to engage in the business of acquiring, developing
and commercializing pharmaceutical products. The Investors have committed to
provide financing to Apothogen through the purchase of Apothogen's Series A
convertible preferred stock. PPD's maximum total capital commitment to Apothgen
is $18 million.

         PPD will account for its investment in Apothogen under the equity basis
method of accounting due to its ability to exercise significant influence.
Accordingly, based on its ownership of 14.75% of Apothogen's Series A
convertible preferred stock, PPD will currently recognize 14.75% of the net
earnings or losses of Apothogen. To date, PPD has contributed approximately
$295,000 to Apothogen.

         PPD is the exclusive provider of drug development and clinical research
program management services to Apothogen pursuant to a master service agreement
between the parties. PPD also granted Apothogen a first right to negotiate an
exclusive license with respect to compounds acquired or licensed by PPD after
October 5, 2001. For more detailed information on this transaction, see our
Current Report on Form 8-K filed with the Securities and Exchange Commission on
October 16, 2001.

                                       8

<PAGE>

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

         The following discussion and analysis is provided to increase
understanding of, and should be read in conjunction with, the consolidated
condensed financial statements and accompanying notes. In this discussion, the
words "PPD", "Company", "we", "our" and "us" refer to Pharmaceutical Product
Development, Inc., together with its subsidiaries where appropriate.

FORWARD-LOOKING STATEMENTS

         This Form 10-Q contains forward-looking statements within the meaning
of the federal securities laws. These statements relate to future events or our
future financial performance. Forward-looking statements include statements
concerning plans, objectives, goals, strategies, future events or performances,
expectations, predictions, assumptions and other statements that are not
statements of historical facts. In some cases, you can identify forward-looking
statements by terminology such as "might", "will", "should", "expect", "plan",
"anticipate", "believe", "estimate", "predict", "intend", "potential" or
"continue", or the negative of these terms, or other comparable terminology.
These statements are only predictions. These statements rely on a number of
assumptions and estimates which could be inaccurate and which are subject to
risks and uncertainties. Actual events or results might differ materially due to
a number of factors, including those listed in "Potential Volatility of
Quarterly Operating Results and Stock Price". Although we believe that the
expectations reflected in the forward-looking statements are reasonable, we
cannot guarantee future results, levels of activity, performance or
achievements. We generally undertake no obligation to update publicly any
forward-looking statements for any reason, even if new information becomes
available or other events occur in the future.

COMPANY OVERVIEW

         We are a leading global provider of drug discovery and development
services to pharmaceutical and biotechnology companies. Our corporate mission is
to help clients maximize the return on their research and development
investments. We offer therapeutic expertise, advanced technologies and
comprehensive resources for both drug discovery and drug development.

         We have been in the drug development business for more than 15 years.
Our development services include preclinical programs through Phase 1 to Phase 4
clinical development. In addition, we offer post-market support services for
drugs that have received approval for market use, such as product launch
services, patient compliance programs, and medical communications programs for
consumer and healthcare providers on product use and adverse events. We have
extensive clinical trial experience across a multitude of therapeutic areas and
encompassing various geographical areas, including regional, national and global
studies.

         With more than 4,300 professionals in 20 countries around the world, we
have provided services to 38 of the top 50 pharmaceutical companies in the world
as ranked by 2000 healthcare research and development spending, in addition to
our work with leading biotechnology companies. We believe that we are the
world's third largest provider of drug development services to pharmaceutical
and biotechnology companies.

         Building on our outsourcing relationship with pharmaceutical and
biotechnology clients, we established our discovery services group in 1997. This
group focuses on functional genomics, which is the study of gene functions to
identify drug targets within the body, as well as biological chemistry research
and preclinical biology services.

         In addition, we developed an innovative risk-sharing research and
development partnership model to help pharmaceutical and biotechnology clients
develop compounds. Through these partnerships, we help our clients research and
evaluate the development potential for early stage compounds, when their
investment is significantly less than the amount at risk at later development
phases.

         We believe that our integrated drug discovery and development services
offer our clients a way to identify and develop successful drugs more quickly
and cost effectively. We also use our proprietary informatics technology to
support our drug discovery and development services. In addition, because we are
positioned globally, we are able to accommodate the multinational drug discovery
and development needs of our customers. As a result of having these core areas
of expertise in discovery and development, we can provide integrated services
across the

                                       9

<PAGE>

entire drug development spectrum, from discovery to market and beyond. For more
detailed information on our company, see our Annual Report on Form 10-K for the
year ended December 31, 2000.

RESULTS OF OPERATIONS

         We recognize revenues from fixed-price contracts on a
percentage-of-completion basis in our Development Group. We recognize revenues
from time-and-materials contracts as hours are accumulated, multiplied by the
billable rates for each contract in both our Development Group and Discovery
Sciences Group. We record revenues net of reimbursement received from clients
for pass-through expenses, which generally include subcontractor costs that
consist of investigator fees, travel and other contract costs.

         Discovery Sciences Group revenues also include nonrefundable technology
license fees and milestone payments. Nonrefundable license fees received at the
initiation of license agreements for which we have an ongoing research and
development commitment are deferred and recognized ratably over the period of
the related research and development. Nonrefundable license fees received under
license agreements for which we are not obligated to perform future research and
development services are recognized upon delivery of the technology. These fees
are generally up-front payments for the initial license of and access to our
technology. In addition to license fees, our Discovery Sciences Group also
generates revenue from time to time in the form of milestone payments. Although
these payments are typically lower than up-front license fees, these payments
can be significant from a scientific standpoint due to achieving the specified
milestone.

         We record our recurring operating expenses among four categories:

         .  direct costs;
         .  research and development;
         .  selling, general and administrative; and
         .  depreciation and amortization.

         Direct costs consist of appropriate amounts necessary to complete the
revenue and earnings process, and include direct labor and related benefit
charges, other costs directly related to contracts, and an allocation of
facility and information technology costs. Direct costs, as a percentage of net
revenues, tend and are expected to fluctuate from one period to another, as a
result of changes in labor utilization and the mix of service offerings
involving the hundreds of studies conducted during any period of time.

         Research and development, or R&D, expenses consist primarily of labor
and related benefit charges associated with personnel performing internal
research and development work, supplies associated with this work and an
allocation of facility and information technology costs.

         Selling, general and administrative expenses, or SG&A, consist
primarily of administrative payroll and related benefit charges, advertising and
promotional expenses, recruiting and relocation expenses, administrative travel,
and an allocation of facility and information technology costs. Included in
administrative payroll are costs associated with operational employees managing
direct staff, underutilization of direct staff, and administrative support
functions.

         Depreciation and amortization expenses consist of depreciation costs
recorded on a straight-line method on property and equipment with an estimated
useful life greater than one year. In addition, the excess of the purchase price
of a business acquired over the fair value of net tangible assets and
identifiable intangibles and acquired in-process research and development costs
at the date of the acquisitions has been assigned to goodwill. Goodwill is being
amortized over periods of 10 to 25 years.

Subsequent Events

         In October 2001, PPD entered into a strategic investment with JPMorgan
Partners (BHCA), L.P., the Chairman of PPD's Board of Directors, and the Chief
Executive Officer of PPD (collectively, the "Investors"). The Investors formed a
new entity, Apothogen, Inc., to engage in the business of acquiring, developing
and commercializing pharmaceutical products. The Investors have committed
to provide financing to Apothogen

                                       10

<PAGE>

through the purchase of Apothogen's Series A convertible preferred stock. PPD's
maximum total capital commitment to Apothgen is $18 million.

     PPD will account for its investment in Apothogen under the equity basis
method of accounting due to its ability to exercise significant influence.
Accordingly, based on its ownership of 14.75% of Apothogen's Series A
convertible preferred stock, PPD will currently recognize 14.75% of the net
earnings or losses of Apothogen. To date, PPD has contributed approximately
$295,000 to Apothogen.

     PPD is the exclusive provider of drug development and clinical research
program management services to Apothogen pursuant to a master service agreement
between the parties. PPD also granted Apothogen a first right to negotiate an
exclusive license with respect to compounds acquired or licensed by PPD after
October 5, 2001. For more detailed information on this transaction, see our
Current Report on Form 8-K filed with the Securities and Exchange Commission on
October 16, 2001.

Three Months Ended September 30, 2001 Versus Three Months Ended September 30,
2000

     Net revenue increased $19.0 million, or 21.3%, to $108.3 million in the
third quarter of 2001 from $89.3 million in the third quarter of 2000. The
Development Group accounted for 96.0% of net revenue for the third quarter of
2001. The Development Group generated net revenue of $104.0 million, an increase
of $20.3 million, or 24.2%, from the 2000 third quarter. The growth in the
Development Group operations was primarily attributable to an increase in the
size, scope and number of contracts in the global contract research
organization, or CRO, Phase 2 through 4 division, as well as an increase in the
number of contracts in the laboratory services divisions.

     The Discovery Sciences Group generated net revenue of $4.3 million in the
third quarter of 2001, a decrease of $1.2 million, or 22.0%, from the third
quarter of 2000. The decrease in revenue for the Discovery Sciences operations
was primarily attributable to revenue in the third quarter of 2000 from an
up-front payment for initial license and technology access fees at the beginning
of a project. The Discovery Sciences Group did have a milestone in Q3 2001,
which was not material financially, but was a significant scientific milestone.
The Discovery Sciences Group service revenue, known as full-time equivalent
revenue, or FTE revenue, for the third quarter of 2001 increased 22.5% from the
third quarter of 2000 for the functional genomics division.

     Total direct costs increased 18.0% to $52.4 million in the third quarter of
2001 from $44.4 million in the third quarter of 2000. As a percentage of net
revenue, total direct costs decreased to 48.4% for the third quarter of 2001 as
compared to 49.7% in the same period of 2000. Development Group direct costs
increased to $50.3 million in the third quarter of 2001 as compared to $42.6
million in the third quarter of 2000. The increased direct cost dollars resulted
primarily from higher personnel costs due to the increase in the size and number
of contracts in the global CRO Phase 2 through 4 division. Development Group
direct costs decreased as a percentage of related net revenue to 48.3% in the
third quarter of 2001 from 50.9% in the third quarter of 2000. This decrease is
principally due to the mix of levels of personnel involved in the contracts
performed, variations in the utilization of personnel and the mix of contracts
being performed during each quarter. Discovery Sciences direct costs increased
to $2.1 million in the third quarter of 2001 as compared to $1.8 million in the
third quarter of 2000. This increase was primarily due to the increase in the
functional genomics division's direct costs associated with its increased FTE
revenue.

     R&D expenses were $1.4 million for the third quarter of 2001 and $0.6
million for the third quarter of 2000. This 116.4% increase was primarily due to
the increase in spending on R&D in the Discovery Sciences segment. The Discovery
Sciences segment has doubled the number of employees currently working on R&D as
compared to the third quarter of 2000.

     SG&A expenses increased 18.2% to $32.8 million in the third quarter of 2001
from $27.8 million in the third quarter of 2000. The increase was primarily
attributable to additional administrative personnel costs and an increase in
recruiting costs associated with new hires to support our expanding operations.
As a percentage of net revenue, SG&A expenses decreased to 30.3% in the third
quarter of 2001 from 31.1% in the same period for 2000. This decrease was
primarily attributable to the increase in revenue, and to a smaller extent, to
increased efficiencies as our operations expand.

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<PAGE>

     Total depreciation and amortization expense increased $0.7 million, or
15.7%, to $5.1 million in the third quarter of 2001 from $4.4 million in the
third quarter of 2000. The increase was related to the depreciation of our
increased investment in property and equipment due primarily to our growth.
Capital expenditures were $18.8 million for the third quarter of 2001. The
acquisition of a new airplane to replace our previous one, which was more than
27 years old, as well as additional facility costs related to our laboratories
to increase capacity, accounted for the majority of this capital investment.

     Operating income increased $4.6 million, or 37.9%, to $16.6 million in the
third quarter of 2001 from $12.0 million in the third quarter of 2000. As a
percentage of net revenue, operating income of 15.3% in the third quarter of
2001 represents an improvement from 13.5% of net revenue in the same period in
2000. This increase was primarily due to our revenue growth and our focus on
controlling the increase in both direct and administrative costs.

     Net interest and other income decreased $0.5 million, or 24.2%, to $1.5
million for the third quarter of 2001 from $2.0 million in the third quarter of
2000. The decrease was the result of a decrease in miscellaneous revenue and a
decrease in interest income due to the lower interest rates in the third quarter
of 2001.

     Our provision for income taxes increased $1.3 million, or 25.6%, to $6.6
million in the third quarter of 2001, as compared to $5.3 million in the third
quarter of 2000. This increase resulted from increased income. Our effective
income tax rate decreased to 36.5% in the third quarter of 2001 from 37.5% in
the third quarter of 2000, primarily due to the geographic distribution of our
pretax earnings among locations with varying tax rates.

     Net income of $11.5 million in the third quarter of 2001 represents an
increase of $2.7 million over $8.8 million in the third quarter of 2000. Net
income per diluted share of $0.22 for the third quarter of 2001 compares to
$0.17 in the third quarter of 2000, as adjusted to reflect the one-for-one stock
dividend distributed on May 11, 2001, which was accounted for as a stock split.

Nine Months Ended September 30, 2001 Versus Nine Months Ended September 30, 2000

     Net revenue increased $62.2 million, or 24.4%, to $317.3 million in the
nine months ended September 30, 2001 from $255.1 million for the corresponding
2000 period. The Development Group accounted for 93.2% of net revenue for the
first nine months of 2001. The Development Group generated net revenue of $295.8
million, an increase of $51.9 million, or 21.3%, from the same period in 2000.
The growth in the Development Group operations was primarily attributable to an
increase in the size, scope and number of contracts in the global CRO Phase 2
through 4 division, as well as an increase in the number of contracts in the
laboratory services divisions.

     The Discovery Sciences Group generated net revenue of $21.5 million in the
first nine months of 2001, an increase of $10.3 million, or 92.6%, from the
first nine months of 2000. The growth in the Discovery Sciences operations was
primarily attributable to revenue generated by our sublicensing of the compound
dapoxetine to Alza Corporation in the first quarter of 2001 and to an 86%
increase in FTE revenue generated by the functional genomics division. This
increase in revenue was partially offset by an up-front payment for initial
license and technology access fees at the beginning of a project that was signed
in the third quarter of 2000.

     Total direct costs increased 18.9% to $153.2 million for the nine months
ended September 30, 2001 from $128.8 million for the corresponding 2000 period.
As a percentage of net revenue, total direct costs decreased to 48.3% for the
first nine months of 2001 as compared to 50.5% for the same period of 2000.
Development Group direct costs increased to $143.8 million for the nine months
ended September 30, 2001 as compared to $124.6 million for the nine months ended
September 30, 2000. The increased direct cost dollars resulted primarily from
higher personnel costs due to the increase in the size and number of contracts
in the global CRO Phase 2 through 4 division. Development Group direct costs
decreased as a percentage of related net revenue to 48.6% for the nine-month
period ended September 30, 2001 from 51.1% for the same period in 2000. This
decrease is principally due to the mix of levels of personnel involved in the
contracts performed, variations in the utilization of personnel and the mix of
contracts being performed during each period. Discovery Sciences direct costs
increased to $9.4 million in the first nine months of 2001 as compared to $4.2
million in the corresponding 2000 period. This increase was primarily due to the
costs associated with sublicensing dapoxetine to Alza and the increase in the
functional genomics division's direct costs associated with its increased FTE
revenues.

                                       12

<PAGE>

     R&D expenses were $3.2 million for the nine months ended September 30, 2001
and $2.3 million for the nine months ended September 30, 2000. This 39.1%
increase was primarily due to the increase in spending on R&D in the Discovery
Sciences segment. The Discovery Sciences segment has doubled the number of
employees currently working on R&D as compared to September 30, 2000.

     SG&A expenses increased 15.7% to $93.4 million in the first nine months of
2001 from $80.7 million in the first nine months of 2000. The increase was
primarily attributable to additional administrative personnel costs and an
increase in recruiting costs associated with new hires to support our expanding
operations. As a percentage of net revenue, SG&A expenses decreased to 29.4% in
the first nine months of 2001 from 31.6% in the same period last year. This
decrease is primarily attributable to the increase in revenue and, to a smaller
extent, to increased efficiencies as our operations expand.

     Total depreciation and amortization expense increased $2.1 million, or
17.1%, to $14.8 million in the nine months ended September 30, 2001 from $12.7
million in the nine months ended September 30, 2000. The increase was related to
the depreciation of our increased investment in property and equipment due
primarily to our growth. Capital expenditures were $32.2 million in the first
nine months of 2001. The acquisition of a new airplane to replace our previous
one, which was more than 27 years old, as well as additional facility costs
related to our laboratories to increase capacity, additional software licenses
related to our headcount increase and additional scientific equipment in our
laboratories, accounted for the majority of this capital investment.

     Operating income increased $22.1 million, or 72.2%, to $52.7 million in the
nine months ended September 30, 2001 from $30.6 million for the same period last
year. As a percentage of net revenue, operating income of 16.6% in the first
nine months of 2001 represents an improvement from 12.0% of net revenue in the
same period in 2000. This increase was primarily due to the increase in revenue
and our focus on controlling the increase in both direct and administrative
costs as revenues increased.

     Net interest and other income remained consistent at $5.0 million for first
nine months of 2001 and 2000, as the effect of lower interest rates during 2001
were offset by increased cash balances.

     Our provision for income taxes increased $8.0 million, or 59.9%, to $21.3
million in the first nine months of 2001, as compared to $13.3 million in the
corresponding 2000 period. This increase resulted from increased income. Our
effective income tax rate decreased to 36.8% for the nine months ended September
30, 2001 from 37.3% for the nine months ended September 30, 2000, primarily due
to the geographic distribution of our pretax earnings among locations with
varying tax rates.

     Net income of $36.5 million for the first nine months of 2001 represented
an improvement of $14.2 million over the same period a year ago. Net income per
diluted share of $0.70 for the first nine months of 2001 compares to net income
per diluted share of $0.45 for the same period last year, as adjusted to reflect
the one-for-one stock dividend distributed on May 11, 2001, which was accounted
for as a stock split.

LIQUIDITY AND CAPITAL RESOURCES

     As of September 30, 2001, we had $106.5 million of cash and cash
equivalents on hand. We have historically funded our operations and growth,
including acquisitions, with cash flow from operations, borrowings and sales of
our stock.

     For the nine months ended September 30, 2001, our operating activities
provided $50.0 million in cash as compared to $33.9 million for the same period
last year. The increase in cash flow from operations is primarily due to an
increase in our net income. For the 2001 period, net income of $36.5 million,
depreciation and amortization of $14.8 million and the net decrease of $1.7
million in operating assets and liabilities resulted in this increase in cash
flow from operating activities.

     For the nine months ended September 30, 2001, our investing activities used
$31.5 million in cash. Purchases of property and equipment of $32.2 million were
partially offset by $0.5 million received from the repayment of a note
receivable.

                                       13

<PAGE>

     For the nine months ended September 30, 2001, our financing activities
provided $12.4 million in cash, as net proceeds from the exercise of stock
options and employee stock purchase plan of $13.5 million were partially offset
by $1.1 million in repayments of capital lease obligations.

     Working capital as of September 30, 2001 was $145.8 million, compared to
$106.9 million at December 31, 2000. The increase in working capital was due
primarily to the increase in cash and cash equivalents of $30.0 million in 2001.
The number of days revenue outstanding in accounts receivable and unbilled
services, net of unearned income, also known as DSO, were 51.1 and 65.1 days for
the quarter ended September 30, 2001 and September 30, 2000, respectively. This
decrease is a result of a focused effort by management on improving the accounts
receivable collection process. We expect that DSO in future periods will be
approximately 50 days.

     In June 2001, we amended our revolving credit facility for $50.0 million
from First Union National Bank. The primary purpose of the amendment was to
extend the expiration date and to relax covenants governing financial ratios and
investments. Indebtedness under the facility is unsecured and subject to
traditional covenants relating to financial ratios. Borrowings under this credit
facility are available to provide working capital and for general corporate
purposes. As of September 30, 2001, there was no amount outstanding under this
credit facility. This credit facility is currently scheduled to expire in June
2002, at which time any outstanding balance is due.

     In July 2001, we amended our revolving credit facility for $50.0 million
from Wachovia Bank, N.A. The primary purpose of the amendment was to extend the
expiration date and to relax covenants governing financial ratios and
investments. Indebtedness under the line is unsecured and subject to traditional
covenants relating to financial ratios. As of September 30, 2001, there was no
amount outstanding under this credit facility. This credit facility is currently
scheduled to expire in July 2002, at which time any outstanding balance is due.

     We expect to continue expanding our operations through internal growth and
strategic acquisitions. We expect these activities will be funded from existing
cash, cash flow from operations and borrowings under our credit facilities. We
believe that these sources of liquidity will be sufficient to fund our
operations for the foreseeable future. From time to time, we evaluate potential
acquisitions and other growth opportunities, which might require additional
external financing, and we might seek funds from public or private issuances of
equity or debt securities.

Recently Issued Accounting Standards

     In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Investments and Hedging Activities," or SFAS
No. 133. SFAS No. 133 establishes accounting and reporting standards for
derivatives and hedging activities and supercedes several existing standards.
SFAS No. 133, as amended by SFAS No. 137 and SFAS No. 138, is effective for all
fiscal quarters of fiscal years beginning after June 15, 2000. Our adoption of
SFAS No. 133 as of January 1, 2001 did not have a material impact on our
consolidated financial statements.

     In July 2001, the FASB issued Statement of Financial Accounting Standards
No. 141, "Business Combinations", or SFAS No. 141, and Statement of Financial
Accounting Standards No. 142, "Goodwill and Other Intangible Assets", or SFAS
No. 142. We have adopted SFAS No. 141 as of July 1, 2001, which requires
purchase accounting to be applied to business combinations initiated after June
30, 2001 by a for-profit organization. We intend to adopt SFAS No. 142 as of
January 1, 2002, as required, and for goodwill and intangible assets acquired
after June 30, 2001 (for the nonamortization and amortization provisions of the
Statement), we will apply the required provisions as of the related acquisition
date(s). We will no longer record amortization of goodwill in our financial
statements as of January 1, 2002 as required by SFAS No. 142. Our estimated
amortization expense for 2001 is approximately $900,000.

     In August 2001, the FASB issued Statement of Financial Accounting Standards
No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", or
SFAS No. 144, which supersedes SFAS No. 121 and portions of APB Opinion No. 30.
SFAS No. 144 provides guidance on the recognition and impairment of long-lived
assets to be held and used and for long-lived assets to be disposed. We intend
to adopt SFAS No. 144 as of January 1, 2002, as required, and do not believe the
adoption will have a material impact on our consolidated financial statements.

                                       14

<PAGE>

Income Taxes

     Because we conduct operations on a global basis, our effective tax rate has
and will continue to depend upon the geographic distribution of our pretax
earnings among locations with varying tax rates. Our profits are further
impacted by changes in the tax rates of the various taxing jurisdictions. In
particular, as the geographic mix of our pre-tax earnings among various tax
jurisdictions changes, our effective tax rate might vary from period to period.

Inflation

     While most of our net revenues are earned under contract, the long-term
contracts, those in excess of one year, generally include an inflation or cost
of living adjustment for the portion of the services to be performed beyond one
year from the contract date. As a result, we believe that the effects of
inflation generally do not have a material adverse effect on our operations or
financial condition.

POTENTIAL VOLATILITY OF QUARTERLY OPERATING RESULTS AND STOCK PRICE

     Our quarterly and annual operating results have fluctuated, and we expect
that they will continue to fluctuate in the future. Factors that could cause
these fluctuations include:

     .    our dependence on a small number of industries and clients;
     .    the timing of the initiation, progress or cancellation of significant
          projects;
     .    the mix of products and services sold in a particular period;
     .    our need to recruit and retain experienced personnel;
     .    rapid technological change and the timing and amount of start-up costs
          incurred in connection with the introduction of new products and
          services;
     .    intellectual property risks;
     .    the timing of our Discovery Sciences Group milestone payments or other
          revenue;
     .    the timing of the opening of new offices;
     .    the timing of other internal expansion costs;
     .    the timing and amount of costs associated with integrating
          acquisitions; and
     .    exchange rate fluctuations between periods.

     Delays and terminations of trials are often the result of actions taken by
our customers or regulatory authorities and are not typically controllable by
us. Because a large percentage of our operating costs are relatively fixed while
revenue is subject to fluctuation, variations in the timing and progress of
large contracts can materially affect our quarterly operating results. We
believe that comparisons of our quarterly financial results are not necessarily
meaningful and should not be relied upon as an indication of future performance.

     Fluctuations in quarterly results or other factors beyond our control could
affect the market price of our common stock. Such factors include changes in
earnings estimates by analysts, market conditions in our industry, changes in
the pharmaceutical or biotechnology industries, and general economic conditions.
Any effect on our common stock could be unrelated to our longer-term operating
performance.

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<PAGE>

Item 3. Quantitative and Qualitative Disclosures about Market Risk

     We are exposed to changes in interest rates on our cash equivalents,
short-term investments and amounts outstanding under notes payable and lines of
credit. We invest our cash and cash equivalents and short-term investments in
financial instruments with interest rates based on financial market conditions.

     We are exposed to foreign currency risk by virtue of our international
operations. We conduct business in several foreign countries. Approximately
10.7% and 15.5% of our net revenues for the three-month periods ended September
30, 2000 and 2001, respectively, were derived from operations outside the United
States. Funds generated by each subsidiary are generally reinvested in the
country where they are earned. The operations in the United Kingdom generated
more than 59% of our net revenue from foreign operations during the third
quarter of 2001. Accordingly, we have some exposure to adverse movements in the
pound sterling and other foreign currencies. The United Kingdom has
traditionally had a relatively stable currency compared to our functional
currency, the U.S. dollar. We anticipate that those conditions will persist for
at least the next 12 months.

     The vast majority of our contracts are entered into by our United States or
United Kingdom subsidiaries. The contracts entered into by our United States
subsidiaries are almost always denominated in U.S. dollars. The contracts
entered into by our United Kingdom subsidiaries are generally denominated in
pounds sterling, U.S. dollars or Euros. In most transactions involving multiple
currencies, contractual provisions either limit or reduce the foreign currency
risk.

     We do have some currency risk resulting from the passage of time between
the invoicing of customers under contracts and the ultimate collection of
customer payments against such invoices. If a contract is denominated in a
currency other than the subsidiary's local currency, we recognize a receivable
at the time of invoicing for the local currency equivalent of the foreign
currency invoice amount. Changes in exchange rates from the time the invoice is
prepared and payment from the customer is received will result in our receiving
either more or less in local currency than the local currency equivalent of the
invoice amount at the time the invoice was prepared and the receivable
established. We recognize this difference as a foreign currency transaction gain
or loss, as applicable, and report it in other income (expense).

     Changes in exchange rates between the applicable foreign currency and the
U.S. dollar will affect the translation of foreign subsidiaries' financial
results into U.S. dollars for purposes of reporting our consolidated financial
results. The process by which each foreign subsidiary's financial results are
translated to U.S. dollars is as follows:

     .    income statement accounts are translated at average exchange rates for
          the period;
     .    balance sheet assets and liability accounts are translated at end of
          period exchange rates; and
     .    equity accounts are translated at historical exchange rates.

     Translation of the balance sheet in this manner affects the shareholders'
equity components of the balance sheet, referred to as the cumulative
translation adjustment account. This account exists only in the foreign
subsidiary's U.S. dollar balance sheet and is necessary to keep the foreign
balance sheet stated in U.S. dollars in balance. Translation adjustments are
reported within accumulated other comprehensive income (loss) as a separate
component of shareholders' equity. To date, cumulative translation adjustments
have not been material to our consolidated financial position. Adjustments might
be material in the future to our financial statements.

     There are no material exchange controls currently in effect in any country
in which we conduct operations on the payment of dividends or otherwise
restricting the transfer of funds outside these countries. Although we perform
services for clients located in a number of foreign jurisdictions, to date, we
have not experienced any difficulties in receiving funds remitted from foreign
countries. However, if any of these jurisdictions imposed or modified existing
exchange control restrictions, the restrictions could have an adverse effect on
our financial condition.

                                       16

<PAGE>

Part II.  Other Information

Item 6.  Exhibits and Reports on Form 8-K

(a)      Exhibits

         Exhibit 10.169  Sixth Amendment to Loan Agreement dated June 30, 2001,
                         between Pharmaceutical Product Development, Inc. and
                         First Union National Bank.

         Exhibit 10.171  First Amendment dated June 30, 2001, by and among
                         Spotlight Health, Inc., Pharmaceutical Product
                         Development, Inc. and First Union National Bank.


         Exhibit 10.172  Amended and Restated Loan Agreement, dated July 31,
                         2001, between Pharmaceutical Product Development, Inc.
                         and Wachovia Bank, N.A.


         Exhibit 10.173  Second Amendment to and Reaffirmation of Subordination
                         and Intercreditor Agreement dated June 30, 2001,
                         between First Union National Bank and Applied
                         Bioscience International Inc.

         Exhibit 10.174  Amendment No. 4 to Credit and Security Agreement dated
                         June 30, 2001, between Applied Bioscience International
                         Inc., Environ Holdings, Inc. and Environ International
                         Corporation and Environ Facility Services Corporation.

         Exhibit 10.169 is being refiled due to a typographical error in the
previous filing.


 (b)     Reports on Form 8-K

         No reports on Form 8-K were filed during the quarter ended September
30, 2001.

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<PAGE>

     SIGNATURE

     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/             Philippe Maitre
                                ------------------------------------------------
                                            Chief Financial Officer
                                         (Principal Financial Officer)

Date: November 13, 2001

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