SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                    FORM 10-K

(Mark One)

[X]   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
      ACT OF 1934

      For the fiscal year ended December 31, 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 incorporation  (IRS Employer Identification No.)
                or organization)

          3151 South Seventeenth Street
            Wilmington, North Carolina                                28412
     (Address of principal executive offices)                      (Zip Code)



       Registrant's telephone number, including area code: (910) 251-0081

Securities registered pursuant to Section 12(b) of the Act:  None

Securities registered pursuant to Section 12(g) of the Act:

                     Common Stock, par value $0.10 per share
                                (Title of class)

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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

The aggregate market value of the common stock held by non-affiliates of the
registrant was $606,797,458 as of February 16, 1999, based upon the closing
price of the Common Stock on that date on the NASDAQ National Market System.
Shares of Common Stock held by each executive officer and director and by each
person who owns 10% or more of the outstanding Common Stock have been excluded
in that such persons may be deemed to be affiliates. This determination of
affiliate status may not be conclusive for other purposes.

The number of shares outstanding of the registrant's class of Common Stock, par
value $0.10 per share, was 23,536,413 as of February 16, 1999.

                       DOCUMENTS INCORPORATED BY REFERENCE

The Company's definitive Proxy Statement for its 1999 Annual Meeting of
Stockholders (certain parts as indicated herein Part III).



<PAGE>

                                     PART I

         STATEMENTS IN THIS ANNUAL REPORT ON FORM 10-K THAT ARE NOT DESCRIPTIONS
OF HISTORICAL FACTS ARE FORWARD-LOOKING STATEMENTS THAT ARE SUBJECT TO RISKS AND
UNCERTAINTIES. ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE CURRENTLY
ANTICIPATED DUE TO A NUMBER OF FACTORS, INCLUDING THOSE SET FORTH HEREIN AND IN
THE COMPANY'S OTHER SEC FILINGS, AND INCLUDING, IN PARTICULAR, RISKS RELATING TO
GOVERNMENT REGULATION, DEPENDENCE ON CERTAIN INDUSTRIES, FIXED PRICE NATURE OF
CONTRACTS, DEPENDENCE ON PERSONNEL, MANAGEMENT OF GROWTH AND COMPETITION.


ITEM 1.           BUSINESS

Company Overview

         Pharmaceutical Product Development, Inc. ("PPD" or "the Company")
provides a broad range of research and development and consulting services in
the life and discovery sciences. PPD Pharmaco, Inc. is the Company's life
sciences subsidiary. The Company believes that PPD Pharmaco is the fourth
largest contract research organization ("CRO") in the world, providing
integrated product development resources on a global basis to complement the
research and development activities of companies in the pharmaceutical and
biotechnology industries. PPD Discovery, Inc., the Company's discovery sciences
subsidiary, focuses on the discovery segment of the research and development
outsourcing market.

     LIFE SCIENCES GROUP

         The Company's Life Sciences Group provides services through PPD
Pharmaco, Inc. and its wholly owned subsidiaries (collectively "PPD Pharmaco")
in the Americas (United States, Canada, South America), Africa, Asia, Europe and
the Pacific Rim. PPD Informatics, a division of PPD Pharmaco, provides software
development and system integration services to the pharmaceutical and
biotechnology industries.

         PPD PHARMACO provides its clients high quality 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 and investigator recruitment, Phase II-IV clinical trial monitoring and
management, clinical data management and biostatistical analysis, regulatory
consulting and submissions, medical writing, pharmacovigilance, and healthcare
economics and outcomes research. The Company believes that it is one of a few
CROs in the world capable of providing such a broad range of clinical
development services.

         PPD INFORMATICS became a division of the Company through the Company's
acquisition of Belmont Research, Inc., in March 1997. PPD Informatics clients
include international and domestic pharmaceutical and biotechnology companies,
scientific software vendors and government agencies including the FDA. PPD
Informatics develops specialized software products to support different aspects
of the pharmaceutical research and development process, including drug
discovery, clinical trials and regulatory review. Current PPD Informatics
software products include RESOLVE(TM), which manages data queries to
investigator sites, TABLETRANS(R), which enables ease of data transformation,
and CROSSGRAPHS(R) which is used for exploration and presentation of research
data.

         During 1998, the Life Sciences Group also included Intek Labs, Inc.
("Intek") which was acquired in November 1997. Intek provides molecular
genotyping, phenotyping and large-scale genomic DNA purification and archiving
services through its Good Laboratory Practice (GLP)-certified laboratories.
Intek also furnishes pharmaco-genetic services for clinical trials. In February
1999, Intek became a subsidiary of PPGx, Inc. ("PPGx"), the Company's
pharmacogenomics joint venture with Axys Pharmaceuticals, Inc. PPGx provides
comprehensive pharmacogenomics products and services to pharmaceutical and
biotechnology companies. Pharmacogenomics is the use of genetic information to
predict the safety, toxicity and/or efficacy of drugs in individual patients or
groups of patients. Pharmacogenomics is becoming widely adopted as an essential
drug discovery and development tool and increasingly important as part of an
individual's diagnosis and treatment regimen. The Company has exclusive
marketing rights to PPGx pharmacogenomics products and services. The Company
also owns a minority position in PPGx with the option to increase its ownership
share.

         During the first two months of 1998, the Life Sciences Group also
included Clinix International, Inc., which owned 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.



                                       1
<PAGE>


     DISCOVERY SCIENCES GROUP

         PPD DISCOVERY, INC. ("PPD DISCOVERY") was established in June 1997 when
the Company acquired SARCO, Inc. ("SARCO"), a combinational chemistry company,
and the GSX System, a functional genomics platform technology. PPD Discovery
focuses on the discovery research segment of the research and development
outsourcing market. In May 1998, the Company created GenuPro, Inc. ("GenuPro"),
a wholly owned subsidiary, which holds licenses to a number of compounds in the
genitourinary field. GenuPro manages the research and development of these
compounds.

     ENVIRONMENTAL SCIENCES GROUP

         During 1998, the Company also owned an environmental sciences
consulting and management subsidiary, APBI Environmental Sciences Group, Inc.,
which operated under the trade name ENVIRON. ENVIRON was acquired by the Company
in September 1996 as part of the Applied Bioscience International Inc.
acquisition. 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.
ENVIRON's services 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. The Company sold ENVIRON to the
management of ENVIRON effective January 1999.

Industry Overview

     LIFE SCIENCES GROUP

         The CRO industry provides independent product development services to
the pharmaceutical and biotechnology industries and derives substantially all of
its revenue from the research and development expenditures of these companies.
The CRO industry has evolved from providing limited clinical services in the
1970s to a full-service industry today that encompasses the clinical research
process (including pre-clinical evaluations), study design, clinical trial
management, data collection, biostatistical analysis and product registration
support. All of these services are provided in accordance with applicable
government regulations covering clinical trials and the drug approval process in
the jurisdictions where the services are provided, including the regulations of
the United States Food and Drug Administration ("FDA"), the European Medicines
Evaluation Agency ("EMEA") and other regulatory authorities.

         The healthcare industry is subject to changing political, economic and
regulatory influences that may affect the pharmaceutical and biotechnology
industries. Implementation of government healthcare reform may adversely affect
research and development expenditures by pharmaceutical and biotechnology
companies, which could decrease the business opportunities available to the
Company. The Company is unable to predict the likelihood of such or similar
legislation being enacted into law or the effects such legislation would have on
the Company. As a general matter, the clinical CRO industry is not capital
intensive and the financial costs of entry into the industry are relatively low.
The CRO industry is highly fragmented, with several hundred small,
limited-service providers, several medium-sized CROs and a few full-service CROs
with international capabilities. Although there are few barriers to entry for
small, limited-service providers, the Company believes that there are
significant barriers to becoming a full-service CRO with international
capabilities. Some of these barriers include the cost and experience necessary
to develop broad therapeutic expertise, the ability to manage large, complex
clinical trials, the experience to prepare regulatory submissions, and the
infrastructure and experience to respond to the international needs of clients.

         Historically, pharmaceutical companies, through use of internal
programming resources, produced much of the software used in the drug discovery,
clinical development and regulatory compliance processes. Now, these companies
are also seeking external sources, including the Company's PPD Informatics
division, to meet these automation needs both through custom application
development and through proprietary packaged software. While many companies have
the computer expertise to provide these products and services, the Company
believes that detailed knowledge of the pharmaceutical industry drug discovery
and development process forms a barrier to entry.


                                       2
<PAGE>

         DISCOVERY SCIENCES GROUP

         Drugs are chemical compounds that interact with biological targets in
the body. Discovering and developing new drugs is an extremely expensive and
time-consuming process. Pharmaceutical Research and Manufacturers of American
Association (PhRMA) estimates that the average cost of bringing a drug to market
exceeds $359 million and takes approximately 10-15 years. Recent figures from
the PhRMA, Vector Securities, Inc. and Lehman Brothers analysts' reports
indicate that global research-based pharmaceutical and biotechnology companies
invested approximately $39 billion in R&D activities in 1998. On average, these
companies allocate over 40% of their R&D budget to pre-clinical R&D functions.
Pre-clinical R&D functions include identification and validation of target
chemical compounds, screening to identify lead compounds, chemical optimization
of those leads, toxicology and safety testing in animals, and formulation and
stability testing for the new experimental drug.

         SARCO is a chemical technology company that provides chemical compounds
to the pharmaceutical, biotechnology, agrochemical and animal health industries.
SARCO's core expertise includes the rapid synthesis of large numbers of
compounds for use in the pre-clinical drug discovery and development process as
well as the chemical optimization of those compounds found to have beneficial
biological activity.

         The GSX System identifies targets for drug discovery by the selective
inhibition of genes responsible for key steps in a disease process. The system
is based on the finding that a gene fragment, when introduced into cells,
sometimes specifically inhibits the function of the whole gene from which the
fragment was obtained.

         PPD Discovery markets its products and services to those research-based
companies looking for outsource research support. The Company believes that this
outsourcing trend will continue over the next decade.

The Drug Development Process

         Before a new drug is marketed, the drug must undergo extensive testing
and regulatory review in order to determine that it is safe and effective. The
development process consists of two stages: pre-clinical and clinical. The first
stage is pre-clinical research, in which the new drug is tested IN VITRO (test
tube) and IN VIVO (in animals) generally over a one- to three-year period, in
order to determine the basic biological activity and safety of the drug. The
Company provides Investigational New Drug ("IND") submission preparation and
compilation but does not provide animal-based services in this stage of
development.

         If the drug is perceived to be safe for human testing, the drug then
enters the clinical stage. During the clinical stage, one of the most
time-consuming and expensive parts of the drug development process, the drug
undergoes a series of tests in humans, including healthy volunteers as well as
patients with the targeted disease or condition. The Company provides full
development services for the clinical stage.

         Prior to commencing human clinical trials in the United States, the
sponsor must file an IND application with the FDA. In order to receive IND
status, the sponsor of the new drug must provide available manufacturing data,
pre-clinical data, information about any use of the drug in humans for other
purposes and a detailed plan for the conduct of the proposed clinical trials.
The design of these trials, also referred to as the study protocols, is
essential to the success of the drug development effort, because the protocols
must correctly anticipate the nature of the data to be generated and results
that the FDA will require before approving the drug. In the absence of any FDA
comments within 30 days after the IND filing, human clinical trials may begin.

         Although there is no statutory definition of the structure or design of
clinical trials, human trials usually start on a small scale to assess safety
and then expand to larger trials to test efficacy. These trials are usually
grouped into the following three phases, with multiple trials generally
conducted within each phase:

   o   PHASE I. Phase I trials involve testing the drug on a limited
       number of healthy individuals, typically 20 to 80 persons, to
       determine the drug's basic safety data relating to tolerance,
       absorption, metabolism and excretion as well as other
       pharmacological indications and actions. This phase lasts an average of 
       six months to one year.

   o   PHASE II. Phase II trials involve testing a small number of
       volunteer patients, typically 100 to 200 persons who suffer from
       the targeted disease or condition, to determine the drug's
       effectiveness and dose response relationship. This phase lasts an
       average of one to two years.

   o   PHASE III. Phase III trials involve testing large numbers of
       patients, typically several hundred to several thousand persons,
       to verify efficacy on a large scale, as well as long-term safety.
       These trials involve numerous sites and generally last two to
       three years.


                                       3
<PAGE>

         After the successful completion of all three clinical phases, the
sponsor of a new drug in the United States submits a New Drug Application
("NDA") to the FDA requesting that the product be approved for marketing. The
NDA is a comprehensive, multi-volume filing that includes, among other things,
the results of all pre-clinical and clinical studies, information about the
drug's composition and the sponsor's plans for producing, packaging and labeling
the drug. In addition, while the FDA does not use price as a criterion for
approving a new drug, advisory panels of scientists that help the FDA evaluate
new types of therapies have started taking cost into consideration. The FDA's
review of an NDA can last from a few months (for drugs related to
life-threatening circumstances) to many years, with the average review lasting
18 months. Drugs that successfully complete this review may be marketed in the
United States, subject to any conditions imposed by the FDA.

         As a condition to its approval of a drug, the FDA may require that the
sponsor conduct additional clinical trials following receipt of NDA approval to
monitor long-term risks and benefits, study different dosage levels or evaluate
different safety and efficacy parameters in target patient populations. In
recent years, the FDA has increased its reliance on these trials, known as Phase
IV trials, which allow new drugs that show early promise to reach patients
without the delay associated with the conventional review process. Phase IV
trials usually involve thousands of patients. Phase IV trials also are initiated
by pharmaceutical manufacturers to gain longer market value for an approved
product. For example, large-scale trials would be used to prove efficacy and
safety of new dosage administration forms for approved drugs, such as inhalation
form versus tablets or a sustained-release form versus capsules taken multiple
times per day.

Regulatory Environment

         The market for the services offered by the Company's CRO operations has
developed as a result of significant laws and regulations governing the
development and testing of certain drugs and chemicals as well as the impact of
chemicals on the environment.

         Many countries require safety testing prior to obtaining governmental
approval to market pharmaceutical products. The results of clinical tests
conducted upon pharmaceutical products must be submitted to appropriate
government agencies, such as the FDA in the United States, the EMEA and national
regulatory agencies in Europe, and the Ministry of Health and Welfare in Japan,
as part of the relevant pre-market approval process in individual countries. The
Company's business depends on its ability to comply with these strict and
ever-changing laws and regulations.

Trends Affecting the CRO Industry

         In 1998, worldwide expenditures on research and development by
pharmaceutical and biotechnology companies are estimated to have been $39
billion, of which the Company estimates $8 to $10 billion was spent on drug
development activities of the type offered by the CRO industry. The Company
believes that approximately $4 billion of such spending was outsourced to CROs.

         The Company believes that the outsourcing of drug development
activities by pharmaceutical and biotechnology companies has been increasing and
will continue to increase for the following reasons:

         COST CONTAINMENT PRESSURES

         Market forces and governmental initiatives have placed significant
pressure on pharmaceutical and biotechnology companies to reduce drug prices.
Pressures on profit margins have arisen from increased competition as a result
of patent expiration, market acceptance of generic drugs, and governmental and
private efforts to reduce healthcare costs. In addition, private managed care
organizations are beginning to limit the selection of drugs from which
affiliated physicians may prescribe, thereby further increasing competition
among pharmaceutical and biotechnology companies. The Company believes that the
pharmaceutical industry is responding to these pressures by downsizing
operations, decentralizing the internal research and development process, and
converting the fixed costs of maintaining a research and development
infrastructure to variable costs by outsourcing drug development activities to
CROs. The downsizing of research and development activities also creates demand
for CROs as internal development bottlenecks arise when a large number of
compounds emerge from the research process and need to be pushed through the
development pipeline. In addition, increased pressure to differentiate products
and to generate support for product pricing serves as the foundation for growth
in the area of healthcare economics, both with respect to drugs under
development and to products already on the market.


                                       4
<PAGE>

         REVENUE ENHANCEMENT THROUGH FASTER DRUG DEVELOPMENT

         Pharmaceutical and biotechnology companies face increased pressure to
bring innovative, patent-protected medicines to market in the shortest possible
time, while following good scientific practices and adhering to government
regulations. Pharmaceutical and biotechnology companies are attempting to
increase the speed of new product development, and thereby maximize the period
of marketing exclusivity and economic returns for their products, by outsourcing
development activities to CROs. The Company believes that CROs, by providing
specialized development services, are often able to perform the needed services
with a higher level of expertise or specialization, and therefore more quickly
than a pharmaceutical or biotechnology company could perform such services
internally. In addition, some pharmaceutical and biotechnology companies are
beginning to contract with large full-service CROs to conduct all phases of
clinical trials for new product programs lasting several years, rather than
separately contracting specific phases of drug development to several different
CROs, an approach which the Company believes may result in shorter overall
development times. This trend may favor large full-service CROs like the
Company, but could also increase competitive pressures and risks.

         BIOTECHNOLOGY INDUSTRY GROWTH

         The United States biotechnology industry has grown rapidly over the
last ten years and is developing significant numbers of new drug candidates that
will require regulatory approval. Many of these new drug candidates are now
moving into clinical development and many biotechnology companies do not have
the necessary staff, expertise or financial resources to conduct clinical trials
on their own. Accordingly, many of these companies have chosen to outsource the
product development process rather than expend significant time and resources to
develop an internal clinical development capability. Further, PPD Pharmaco's
experience suggests that biotechnology companies are increasingly turning to
CROs for their sophisticated regulatory expertise to provide assistance in the
generation of the ideal development plan. Moreover, the biotechnology industry
is expanding into and within Europe, providing growth opportunities for CROs
with international capabilities.

         NEED FOR INTERNATIONAL SUPPORT

         More pharmaceutical and biotechnology companies are attempting
simultaneous filings of registration packages in several major jurisdictions
rather than following the past practice of sequential filings. The studies to
support such registration packages may include a combination of multinational
and domestic trials. Pharmaceutical and biotechnology companies may turn to CROs
for assistance with such trials, as well as collecting, analyzing, integrating
and reporting the data. The Company believes that CROs with an international
presence and management experience in the simultaneous filing of multiple
applications may benefit from these trends.

         CONSOLIDATION IN THE CRO INDUSTRY

         As a result of competitive pressures, the CRO industry is
consolidating. Mergers and acquisitions have resulted in the emergence of
several large, full-service CROs that have the capital, technical and financial
resources to conduct all phases of clinical trials on behalf of pharmaceutical
and biotechnology companies. As pharmaceutical and biotechnology companies
increasingly outsource development, they may increasingly turn to larger CROs
that provide a broad range of clinical services, while at the same time they may
also limit the number of CROs they choose to provide such services. The Company
believes that these trends will further concentrate market share among larger
CROs with a track record of speed, flexibility, responsiveness and overall
development experience and expertise.

Company Strategy

         The Company's fundamental strategy is to distinguish its services on
the basis of superior performance to maximize its clients' return on their R&D
investments. The Company strives to deliver to its clients efficient and
innovative services that accelerate the rate of new product development. The
Company intends to continue to expand the depth and breadth of its services by
(i) capitalizing on its managerial and operational strengths, (ii) focusing on
hiring and training its staff, (iii) focusing on its strategic marketing
initiatives, (iv) developing its services in healthcare economics and
communications consulting, (v) pursuing strategic acquisitions to enhance
discovery and development services, (vi) expanding geographically, (vii)
pursuing opportunities provided by technological advances, and (viii) expanding
on its vertical expertise in five core therapeutic areas.

         The Company differentiates itself from competitors by providing a
continuum of high-quality services, from discovery through aftermarket support.
The Company intends to be a leader in integrating pharmacogenomics in drug
development and research.


                                       5
<PAGE>

         MANAGERIAL AND OPERATIONAL STRENGTH

         The Company is guided by senior management who have spent much of their
careers as research or development experts within major pharmaceutical companies
and who have a record of success bringing drugs to market both nationally and
internationally. PPD Pharmaco concentrates on its core operational strengths in
all phases of clinical studies and other critical path studies such as treatment
INDs. Timely performance is based on parallel drug development processes and
leveraging the knowledge and experience of management and investigators. Basic
medical, scientific and regulatory services continue to be integrated with and
streamlined through various technological advances, all directed toward a
reduction in overall development times. PPD Pharmaco emphasizes efficiencies in
each phase of clinical trials initiation and management, data acquisition, data
management and analysis, and report writing and filing, in order to reduce the
time and cost of obtaining regulatory approval for its clients' products. As a
means of differentiating itself from its competitors, PPD Pharmaco emphasizes
therapeutic area specialization, in particular in the areas of
virology/infectious diseases, cardiopulmonary diseases, neuropyschiatric
disorders, oncology and immunology.

         HIRING AND TRAINING

         The Company believes that its success is based on the quality and
dedication of its employees. The Company strives to hire the best available
people in terms of ability, experience, attitude and fit with the Company's
performance philosophy. New employees are trained extensively, and the Company
believes that it is an industry leader in the thoroughness of its training
programs. In addition, employees are encouraged to continually upgrade and
broaden their skills through internal and external training programs. As new
technologies develop, employees are equipped with and trained to make use of
such technological innovations.

         GLOBAL STRATEGIC MARKETING INITIATIVES

         PPD Pharmaco focuses its integrated marketing and sales efforts on high
volume clients with needs in the service segments and therapeutic areas in which
the Company specializes. Direct salespeople concentrate on a group of assigned
clients, marketing across service segments. PPD Pharmaco's business development
personnel consult with potential clients early in the bidding process in order
to determine their needs. The business development personnel and PPD Pharmaco's
project managers then invest significant time to determine the optimal way to
design and carry out the potential client's proposal. PPD Pharmaco's
recommendations to the potential client with respect to study design and
implementation are an integral part of PPD Pharmaco's bids and an important
aspect of the integrated services that PPD Pharmaco offers to its clients. PPD
Pharmaco believes that its preliminary efforts relating to the evaluation of a
potential client's proposed clinical protocol and implementation plan allows
accelerated commencement of the clinical trial after the contract has been
awarded to PPD Pharmaco.

         Discovery services are marketed through centralized PPD corporate
marketing efforts to supplement localized marketing by scientists to scientists,
with support from appropriate outside consultants. The functional genomics
technology (GSX) is marketed primarily to large pharmaceutical companies, while
combinatorial chemistry is directed more toward biotechnology and virtual
companies.

         The Company sponsors and encourages the participation by its personnel
in a variety of scientific endeavors, including the presentation of papers by
its professional staff at meetings of professional societies and major
conferences, and the publication of scientific articles in respected journals.
The Company believes such activities enhance its reputation for professional
excellence. The Company's core marketing and communications efforts include
advertising in trade journals, participation at scientific conferences,
speakers' bureaus, direct mail, presentation materials and media relations.

         HEALTHCARE ECONOMICS AND OUTCOMES RESEARCH

         The healthcare market in the United States is evolving from a
fragmented system of individual providers with little incentive to control costs
to a managed care system in which large organizations attempt to lower the cost
of healthcare through a number of means. The Company believes that such market
dynamics support the need for healthcare economics analysis and outcomes
research. PPD Pharmaco offers programs integrating such analysis in clinical
development programs to support regulatory approval, as well as pricing,
marketing and reimbursement strategies. While PPD Pharmaco's current focus in
this area is on its traditional client base within the pharmaceutical and
biotechnology industries, both with respect to drugs under development and
products already on the market, PPD Pharmaco expects to extend such services to
payers and providers as well.


                                       6
<PAGE>

         ACQUISITIONS

         The Company will continue to actively seek strategic acquisitions, both
within and outside current CRO service segments. Acquisition candidates must
provide opportunities for innovation, synergy and growth. The Company's criteria
for acquisitions may include complementary client lists, ability to increase
market share within and across clients, complementary therapeutic area and
service segment strengths, strategic geographic capabilities or particular
process expertise.

         Acquisitions involve numerous risks, including difficulties in the
assimilation of the operations and services of the acquired companies, the
expenses incurred in connection with attempted or successful acquisitions and in
connection with subsequent assimilation of operations and products, the
diversion of management's attention from other business concerns and the
potential loss of key employees of the acquired company. If the Company
consummates any acquisitions in the future, there can be no assurance that such
acquisitions will be successfully integrated into the Company's operations.

         GEOGRAPHICAL EXPANSION

         PPD Pharmaco currently has operations in the Americas (the United
States, Canada, South America), Europe (including Eastern Europe), South Africa,
Asia and the Pacific Rim. PPD Pharmaco has identified certain strategic areas of
promise where CROs currently have limited or no presence and intends to
selectively pursue these and other strategic opportunities internationally.
Geographic expansion involves numerous risks, including up-front expenses,
potential political or economic instability, assimilation of staff and cultural
differences.

         TECHNOLOGICAL ADVANCES

         PPD Pharmaco believes that optimizing the use of information technology
can accelerate the drug development process and yield valuable marketing
information. PPD Pharmaco has experience in the use of information technology in
clinical trial management and offers a wide range of technology-based services,
including initial market research and study design, remote monitoring and data
acquisition, ongoing study management, outcomes research, patient and disease
management, and the filing of Computer Assisted New Drug Applications and
Product License Applications. The Company believes that the use of third-party
systems and selected internally developed software allows it to offer its
clients advanced technology for expediting the drug development process.

Services Offered

      LIFE SCIENCES GROUP

         PPD Pharmaco has designed its various global services to be flexible
and integrated in order to assist its clients in optimizing their research and
development spending through the clinical stages of the drug development
process. PPD Pharmaco provides Phase I clinical testing, laboratory services,
patient and investigator recruitment, Phase II-IV clinical trial monitoring and
management, clinical data management and biostatistical analysis, regulatory
consulting and submission, medical writing, pharmacovigilance, and healthcare
economics and outcomes research for its clients. These resources are provided
individually or as an integrated package of services to meet the client's needs.
PPD Informatics provides innovative software development and system integration
services and creates a data link between discovery and development.

         PHASE I CLINICAL TESTING

         After an Investigational New Drug Application has been filed with the
FDA, human testing of a new drug can begin. The drug is typically first
administered to healthy volunteers to determine the drug's basic safety data
based on tolerance, absorption, metabolism, excretion and other pharmacological
actions. Later, special studies are conducted in volunteers and special patient
populations to further define the drug's overall pharmacological profile. The
Company believes that PPD Pharmaco is one of the industry's largest Phase I
providers with clinical testing services conducted in its 212-bed unit in
Austin, Texas, its 64-bed unit located near Research Triangle Park, North
Carolina and its 52-bed unit in Leicester, England. The Company's professional
nursing staff administers general Phase I safety tests, special population
studies, and bioavailability and bioequivalence testing. Special population
studies may involve the elderly, women or patients with specific diagnoses, such
as renal failure or asymptomatic HIV disease. The Austin, Texas site also has a
Dental Research Center to evaluate new analgesic compounds used in molar
extractions for safety and effectiveness.

         The Company's clinical research studies rely upon the ready
accessibility and willing participation of volunteer subjects. These subjects
generally include volunteers from the communities in which the studies are
conducted, including the Phase I centers in Austin, Research Triangle Park and
Leicester, which to date have provided a substantial pool of potential subjects
for research studies. However, the Company's business could be adversely
affected if the Company were unable to attract suitable and willing volunteers.

                                       7
<PAGE>

         The Company also provides bioavailability and bioequivalence testing
services. This testing is generally conducted each time the dosage, form or
formulation of the drug is modified. It involves administration of the test
compounds and obtaining biological fluids sequentially over time to measure
absorption, distribution, metabolization and excretion of the drug.

         PPD Pharmaco attempts to manage its Phase I services to maximize
scheduling flexibility and efficiency. The services also can integrate with PPD
Pharmaco's other service segments such as laboratory, pharmacokinetic and
biostatistical services. PPD Pharmaco is one of the few full-service CROs
offering Phase I clinical testing in the United States and Europe.

         LABORATORY SERVICES

         PPD Pharmaco provides biodiscovery, bioanalytical and product analysis
services through its Good Laboratory Practice (GLP)-certified laboratories in
Richmond, Virginia and Middleton, Wisconsin. PPD Pharmaco's laboratories analyze
biological fluid samples from animal and human clinical studies. The latter
includes those conducted by PPD Pharmaco's Phase I units for drug and metabolite
content and concentration. PPD Pharmaco currently has over 800 validated assays
available for its clients' use in conducting laboratory analyses, qualifying PPD
Pharmaco for a wide range of assignments. PPD Pharmaco's laboratories also
process fluid samples for pre-clinical studies.

         The Company's biodiscovery group links drug discovery to development by
providing rapid IN VIVO screening of new chemical entities, producing
pharmacokinetic and enzyme-kinetic profiles to assess stability, metabolism and
bioavailability of compounds. This non-GLP, high throughput proof-of-principle
method of screening provides companies with a lower-cost way to quickly assess
viability of multiple lead compounds.

         Product analysis services include dissolution and stability studies,
which are necessary to characterize dosage form release patterns and stability
under various environmental conditions in the intended package for marketing.
These studies must be carried out over the commercial life of products,
beginning at the clinical trial stage. New formulations require the same set of
studies as the original dosage form. Comprehensive measurement services include
Gas Chromatography/Mass Spectrometry, Liquid Chromatography/Mass Spectrometry
(LC/MS and LC/MSMS), High Performance Liquid Chromatography, Gas Chromatography,
Radioimmunoassay and Enzyme Linked Immunosorbent Assay. Support services include
HIV-positive sample handling, sample/data management for kinetic studies from
multi-center trials and sample/data archiving.

         PPD Pharmaco is one of a few full-service CROs able to offer its
clients the advantages of both bioanalytical and product analysis, as well as
Phase I clinical testing.

                                       8
<PAGE>

         PHASE II-IV CLINICAL TRIAL MANAGEMENT

         The core of PPD Pharmaco's business is a comprehensive package of
services for the conduct of Phase II-IV clinical trials, which, in concert with
its other analytical and Phase I testing services, pharmacogenomics and
informatics, allows PPD Pharmaco to offer its clients an integrated package of
clinical management services. The Company has significant clinical trials
experience in the areas of:

   AIDS                         Primary disease and treatment/prophylaxis of
                                opportunistic infections

   Analgesia                    Acute and chronic pain modeling

   Biotechnology                Growth hormone, multiple sclerosis, sepsis,
                                wound healing

   Cardiovascular disease       Hypertension, angina pectoris

   Central nervous system       Schizophrenia, depression, epilepsy, chronic
                                pain, anxiety, obsessive-disease compulsive
                                disorders, panic disorders

   Dermatology                  Wound healing, acne, hair loss, psoriasis

   Gastroenterology             Duodenal ulcer, gastric ulcer, gastro-esophageal
                                reflux disease H. PYLORI, nonsteroidal
                                anti-inflammatory drug-induced ulcers,
                                inflammatory bowel disease

   Infectious disease           Acute and chronic bacterial and fungal diseases,
                                including pneumonia, influenza and sinusitis

   Metabolic disease            Diabetes, hormone replacement therapy

   Oncology                     Prostate, colorectal, breast and lung cancer

   Pulmonary/Allergy            Asthma, allergic rhinitis, community acquired
                                pneumonia, Acute Respiratory Distress Syndrome

   Rheumatology                 Rheumatoid and osteoarthritis

   Virology                     AIDS, herpes simplex, hepatitis B, chronic
                                hepatitis C

   Women's health               Osteoporosis, oral contraception

         Clients' needs are served by conducting clinical trials through a
dedicated project team. A project manager supervises all aspects of the conduct
of the clinical trial, while PPD Pharmaco's clinical research associates are in
the field monitoring the trial at the various investigational sites where it is
being conducted. Within this project-oriented structure, PPD Pharmaco can manage
every aspect of the clinical trial in Phases II through IV of the drug
development process, including protocol development, case report form ("CRF")
design, feasibility studies, investigator selection, recruitment and training,
site initiation and monitoring, accelerated patient enrollment, development of
training materials for investigators and training of clients' staff.

         PPD Pharmaco monitors its clinical trials in compliance with government
regulations. PPD Pharmaco has adopted global standard operating procedures
("SOPs") which are intended to satisfy regulatory requirements and serve as a
tool for controlling and enhancing the quality of its clinical trials. All PPD
Pharmaco SOPs are in compliance with Good Clinical Practice ("GCP") requirements
and the International Conference on Harmonization ("ICH") standards. The FDA has
adopted the ICH's standards, and, the European Community has agreed to conduct
all studies in accordance with the standards from ICH, which sets global
clinical study standards based on GCP. Data generated during clinical trials are
compiled, analyzed, interpreted and submitted in report form to the FDA or other
relevant regulatory agencies for purposes of obtaining regulatory approval. The
Company provides expert consulting on conducting clinical trials for
simultaneous regulatory submissions to multiple countries.

         PPD Pharmaco provides its clients with one or more of the following
core Phase II-IV clinical trials management services using parallel processing
to accelerate the development process:

         STUDY DESIGN

                  PPD Pharmaco serves its clients in the critical area of study
design by applying its wide development experience in the preparation of study
protocols and CRFs. A study protocol defines the medical issues to be examined
in evaluating the safety and efficacy of a drug, the number of patients required
to produce statistically valid results, the clinical tests to be performed, the
time period over which the study will be conducted, the frequency and dosage of
drug administration, and the exact patient criteria. The success of the study
depends not only on the ability of the protocol to correctly predict
requirements of regulatory authorities, but also on the ability of the protocol
to fit coherently with the other aspects of the development process and the
ultimate marketing strategy for the drug. This process includes healthcare
economic components to support rational pricing and positioning.

                                       9
<PAGE>

         Once the study protocol has been finalized, CRFs must be developed to
record the information to be obtained from the clinical studies. The various
other disciplines involved in the drug development process, including data
management, must work closely with the clinical trial management project team to
assure that the data are recorded in a form that is efficient for subsequent
data entry, management and reporting. Proper CRF design is critical to allowing
investigators and field monitors to conduct their respective jobs quickly,
accurately and effectively.

         INVESTIGATOR RECRUITMENT

         During clinical trials, physicians (also referred to as investigators)
at hospitals, clinics or other locations (also referred to as investigational
sites) supervise administration of the drug to patients. PPD Pharmaco recruits
investigators who contract directly with either the Company or its client. For
large scale trials, or trials with a short start-up timeline, PPD Pharmaco's
Telecommunications Center (TCC) is utilized for investigator recruitment. The
TCC integrates telephony, relational databases, computerized scripts, and
customized tracking software to provide high-speed results and to manage high
volumes of inbound and outbound calls for investigator recruitment. Recently,
the TCC staff recruited and obtained IRB approval for over 900 investigators in
12 weeks. The successful rapid identification and recruitment of investigators
who have the appropriate expertise and an adequate base of patients who satisfy
the requirements of the study protocol are critical to the timely completion of
the trial.

         PPD Pharmaco maintains and constantly expands and refines its
computerized database of over 20,500 investigators. Information regarding PPD
Pharmaco's experience with these investigators, including factors relevant to
rapid study initiation, are contained in the database. This information allows
project managers to efficiently choose the appropriate investigators for a
particular study.

         STUDY MONITORING

         PPD Pharmaco provides study-monitoring services, which include
investigational site initiation, patient enrollment assistance and data
collection through subsequent site visits. These visits also serve to assure
that data is gathered according to GCP, according to the requirements of the
client and applicable regulatory authorities, and as specified in the study
protocol.

         Project management and field-monitoring services are the operational
heart of Phase II and III clinical studies. In many instances, a project's
timely completion is based on meeting deadlines during the first few months of
study initiation. Therefore, PPD Pharmaco focuses at an early stage on
identifying and quickly completing the critical rate-limiting steps of screening
and selecting qualified investigators, processing pre-study regulatory
paperwork, obtaining investigative review board approvals and scheduling
investigational site initiation visits. Drugs under study cannot be released to
the investigational sites, and thus the study cannot begin, until these
activities have been completed.

         Following study initiation, PPD Pharmaco utilizes a number of
appropriate methods of accelerating patient recruitment. This may involve PPD
Pharmaco's integrated systems of telephone recruitment, telefaxing and media
advertising. As with Phase I clinical trials, rapid patient recruitment is
critical to the Company's success in providing services to maximize clients'
return on R&D investments.

         Patient data must be obtained from the field efficiently, quickly and
accurately to speed subsequent data entry, management and analysis, and report
writing. PPD Pharmaco reviews data through visits by its field monitors to
investigative sites. Field monitors receive orientation training and routine
updates on changes in federal study regulations and new company SOPs for quality
trial monitoring and reporting. These monitors are equipped with laptop
computers for the purpose of SOP and regulatory information updates as well as
report generation.

         PPD Pharmaco has monitored many clinical trials, including a number of
very large studies. For example, PPD Pharmaco is in its second five-year
contract with the National Institutes of Health ("NIH") to monitor
investigational sites for AIDS treatment related trials sponsored by the NIH.
This project involves approximately 250 investigational sites and total
enrollment of approximately 60,000 patients. PPD Pharmaco has monitored 33,000
patients in 233 protocols since the beginning of the project in 1990. There has
also been over 1,900 pharmacy, regulatory and operational audits at the sites.


                                       10
<PAGE>

         CLINICAL DATA MANAGEMENT AND BIOSTATISTICAL ANALYSIS

         The professionals who manage PPD Pharmaco's data management and
biostatistical analysis operations have extensive pharmaceutical and
biotechnology industry experience in the design and construction of local and
multinational clinical trial databases. PPD Pharmaco provides clients with
assistance in such areas as study design, sample size determination, CRF design
and production, fax based monitoring, database design and construction, New Drug
Application preparation and production (including electronic submissions to the
FDA, known as Computer Assisted New Drug Applications), and FDA presentations
and defense.

         The Company offers data management and biostatistical analysis services
both separately and as part of an integrated drug development program. During
the design of development plans and protocols, PPD Pharmaco offers consulting
services relating to sample size parameters for patient enrollment, development
of data analysis plans and randomization schemes. During clinical trials, PPD
Pharmaco assists in the rapid acquisition of clean and accurate data. Following
completion of the clinical trials, PPD Pharmaco assists in report preparation
and FDA presentations. PPD Pharmaco's biostatisticians may participate with
clients in meetings with the FDA to present and defend biostatistical analyses.
PPD Pharmaco has expertise in electronically capturing and integrating
geographically diverse data. PPD Pharmaco uses SAS(R), Clintrace(TM), Oracle(R),
BBN Clintrial(TM) and other third party software, as specified by clients,
combined with customized programs developed by PPD Pharmaco.

         Performing data management and biostatistical analysis activities in
parallel with other drug development activities where possible can reduce drug
development time. For example, data management personnel work with clinical
program managers and field monitors to continuously enter data, program output
tables and listings, and validate the database so that there is a rapid
progression to final tables, listing preparation and biostatistical analyses.
Similarly, there is a close working relationship with medical writing and
regulatory service personnel.

         TREATMENT INVESTIGATIONAL NEW DRUG APPLICATION

         A treatment Investigational New Drug ("IND") application includes a
procedure to allow patients to receive a new drug not yet approved for a serious
or immediate life-threatening disease, such as AIDS or multiple sclerosis, for
which no comparable or satisfactory therapy is available. This treatment is
provided during the clinical trial phase of development, but outside the
controlled clinical trial. The treatment IND application process has the
advantage of getting a new drug into an expanded patient base early, as well as
allowing earlier publicity about the potential success of the drug. PPD
Pharmaco's involvement in a treatment IND application may range from simply
monitoring the treatment to providing an integrated set of services involving
full investigational site management, data management, biostatistical analysis
and report writing.

         MEDICAL WRITING AND REGULATORY SERVICES

         PPD Pharmaco provides full planning services for product development
including pre-clinical review, CMC consulting and clinical protocol development.
These activities are complemented by report writing, program management and
regulatory services designed to reduce overall development time. Strategic
planning and program management provided over the course of a product
development life-cycle helps to ensure that regulatory dossiers are assembled in
a minimum of time and are focused on obtaining the desired labeling for the
compound. These development services are integrated with PPD Pharmaco's other
services to speed the process consistent with good service and regulatory
compliance.

         PPD Pharmaco maintains a large internal compliance and quality
assurance department to provide in-process monitoring of GCP performance. PPD
Pharmaco also offers these services to clients to assess trials conducted by the
client or another CRO.

         HEALTHCARE ECONOMICS, OUTCOMES AND MARKETING RESEARCH

         PPD Pharmaco offers a number of services in the healthcare economics
area to pharmaceutical and biotechnology companies as well as managed care
payers and providers. These services include prospective and retrospective
clinicoeconomics analysis, quality of life and drug therapy evaluation, large
sample market research, clinical hypothesis testing for product marketing,
enhanced patient, investigator and managed care plan recruiting, managed care
consulting, patient therapeutic support systems and disease management
consulting. This research helps clients demonstrate the value of their products
in cost-sensitive markets without costly delays from designing and implementing
new randomized clinical trials.

         DISCOVERY SCIENCES GROUP

         PPD Discovery consists of SARCO, a combinatorial chemistry company, and
the GSX System, a functional genomics platform technology for target discovery.
GSX is a proprietary whole-cell-based system that facilitates the rapid
identification, validation and functional analysis of novel targets.


                                       11
<PAGE>

         GSX identifies targets for drug discovery by the selective inhibition
of genes responsible for key steps in a disease process. The system is based on
the finding that a gene fragment, when introduced into cells, sometimes
specifically inhibits the function of the whole gene from which the fragment was
obtained. Effective inhibitory fragments are obtained by breaking the DNA
containing the genes of interest into many different random pieces, inserting
these fragments into a population of tester cells and identifying the rare
individual cells that acquire a selected new property as a consequence of the
inhibitory action. Examples of desirable cellular properties that can be
selected include increased resistance to a virus or increased sensitivity to a
drug. The "winning" DNA fragments are then recovered from the selected cells and
analyzed to determine what genes, and thereby targets, they represent.
Activities surrounding the GSX technology are conducted in Research Triangle
Park, North Carolina and Menlo Park, California.

         SARCO is a chemical technology company that provides proprietary
combinatorial chemistry and unique, drug-like small molecule combinatorial
libraries to pharmaceutical, biotechnology, agrochemical and animal health
industries. SARCO's core expertise includes the rapid synthesis of large numbers
of compounds for use in the pre-clinical drug discovery and development process
as well as the chemical optimization of those compounds found to have beneficial
biological activity.

         SARCO is located in the Park Research Center, a high-technology campus
in Research Triangle Park, North Carolina. SARCO's research facility is fully
equipped to perform solid and solution-phase combinatorial chemistry, custom
monomer synthesis and solution-phase medicinal chemistry. SARCO maintains full
analytical and computational capabilities in support of its combinatorial and
medicinal chemistry activities.

         Products include the SARCO base libraries, which are chemical compounds
designed for high throughput biological screening, and the SARCO Focus
Libraries, which are custom designed chemical libraries provided exclusively to
a client. Services include research collaborations and partnerships with
research-based discovery companies. These collaborations and partnerships are
typically structured for a fixed period of time or around discrete client
projects.

         Clients and Marketing

         The Company's Life Sciences Group provides services primarily to
pharmaceutical and biotechnology companies. For the year ended December 31,
1998, approximately 87% of the Company's Life Sciences Group's net revenue was
attributable to clinical services and 13.0% to laboratory services. For the year
ended December 31, 1998, net revenue of the Life Sciences Group was derived
approximately as follows:

                                                            Percentage of
         Source                                               Net Revenue
         ------                                               -----------
         Pharmaceutical                                            82.05%
         Biotechnology                                              7.97
         Government                                                 1.92
         Other                                                      8.06

         During 1998, the Company provided services to 40 of the top 50
pharmaceutical companies in the world as ranked by 1997 healthcare research and
development spending.

         The Company provides services to the pharmaceutical and biotechnology
industries and its revenue is highly dependent on expenditures on research and
development by clients in these industries. Accordingly, the Company's
operations could be materially and adversely affected by general economic
downturns in these industries, the current trend toward consolidation in these
industries or other factors resulting in a decrease in research and development
expenditures. Furthermore, the Company has benefited to date from the increasing
tendency of pharmaceutical and biotechnology companies to outsource large
clinical research projects. Should this trend be reversed, the revenue of the
Company could be materially and adversely affected. The Company believes that
concentration of business among certain large customers is not uncommon in the
CRO industry. The Company has experienced such concentration in the past and may
experience such concentration in the future. However, during 1998 and 1997, no
single client contributed more than 10% of the Company's total net revenue. In
1998, the Company's ten largest clients accounted for approximately 39.5% of the
Company's total net revenue and approximately 24% of the Company's total 1998
net revenue was derived from clients located outside the U.S., in particular in
Europe and Japan.


                                       12
<PAGE>

         Contractual Arrangements

         Many of PPD Pharmaco's contracts are fixed price, with some variable
components, and range in duration from a few months to several years. In other
contracts, PPD Pharmaco is paid based on applying agreed upon hourly rates to
hours worked. Generally, for multi-year contracts involving clinical trials, a
portion of the contract fee is paid at the time the trial is initiated, with the
balance of the contract fee payable in installments over the trial duration. The
installment payments are typically performance-based, relating payment to
pre-established events or milestones, such as investigator recruitment, patient
enrollment or database delivery. For fixed-price contracts, PPD Pharmaco bears
the risk of cost overruns, but benefits if costs are lower than anticipated.
Underpricing of such contracts or significant cost overruns could have a
material adverse effect on the Company. Most of PPD Pharmaco's contracts for the
provision of its services, including contracts with government agencies, are
terminable by the client upon 30- to 90-days' notice under certain
circumstances, including the client's unilateral decision to terminate the
development of the product or end the study. Contracts may be terminated for a
variety of reasons, including the failure of a product to satisfy safety
requirements, unexpected or undesired results of the product, the client's
decision to forego a particular study, or insufficient patient enrollment or
investigator recruitment. Although the contracts typically require payment of
certain fees for winding down the study and, in some cases, a termination fee,
the loss of a single large contract or of multiple contracts could materially
and adversely affect the Company.

Backlog

         Backlog consists of anticipated net revenue from letters of intent,
verbal commitments, and contracts that have not been completed. Net revenue is
defined as professional fee income (gross revenue) less reimbursed costs,
consisting principally of investigator fees and travel. Once contracted work
begins, net revenue is recognized over the life of the contract. In certain
cases, PPD Pharmaco begins work for a client before a contract is signed. The
backlog of the Life Sciences Group for the services described above under
written agreements, including signed letters of intent, was $291.7 million in
net revenue at December 31, 1998, compared to $205.7 million in net revenue at
December 31, 1997.

         PPD Pharmaco believes that its backlog as of any date is not
necessarily a meaningful predictor of future results, because backlog can be
affected by a number of factors, including variable size and duration of
contracts, many of which are performed over several years. Additionally,
contracts generally are subject to early termination by the client or delay for
many reasons, including unexpected test results. Moreover, the scope of a
contract can change during the course of a study. There can be no assurances
that PPD Pharmaco will be able to fully realize all of its backlog as net
revenue.

Competition

         The CRO industry consists of several hundred small, limited-service
providers, several medium-sized CROs and a few full-service global drug
development companies. The CRO industry is consolidating and, in recent years, a
few large, full-service competitors have emerged. This trend of industry
consolidation will likely result in greater competition among the larger CROs
for clients and acquisition candidates. PPD Pharmaco's large competitors include
Covance, Inc., Kendle International, Inc., Parexel International Corporation,
IBAH, ICON, Phoenix International, AAI and Quintiles Transnational Corporation.
PPD Pharmaco also competes against certain medium-sized companies, in-house
research and development departments of pharmaceutical and biotechnology
companies, as well as universities and teaching hospitals. In addition, the CRO
industry has few barriers to entry. Newer, smaller entities may compete
aggressively against larger CROs for clients. Furthermore, the CRO industry has
attracted the attention of the investment community, which could lead to
increased competition by increasing the availability of financial resources for
CROs. Increased competition may lead to price and other forms of competition
that may adversely affect PPD Pharmaco's operating results.

         CROs compete on the basis of several factors, including reputation for
on-time quality performance, expertise and experience in specific therapeutic
areas, scope of service offerings, strengths in various geographic markets,
technological expertise and systems, ability to acquire, process, analyze and
report data in a time-saving accurate manner, ability to manage large-scale
clinical trials both domestically and internationally, expertise and experience
in healthcare economics and client communication. Although there can be no
assurance that it will continue to do so, the Company believes that it competes
favorably in these areas.


                                       13
<PAGE>

         PPD Informatic's competitors for its packaged software include major
vendors of software used in pharmaceutical applications, such as Domain
Solutions, Oracle and SAS, as well as a variety of smaller, specialized software
companies. Competitors for PPD Informatic's application development services
include major consulting companies with pharmaceutical industry groups (e.g.,
Andersen Consulting, EDS, PricewaterhouseCoopers) and smaller companies with a
pharmaceutical industry focus (e.g. DataCeutics, Netforce, ISCG).

         The outsource chemistry research industry consists of several dominant
providers and numerous smaller niche companies. SARCO faces significant
competition from these companies as well as competition from research teams
funded internally by pharmaceutical and biotechnology companies. While the trend
to outsource research is increasing, the vast majority of research spending by
these companies is for their own internal research personnel.

         SARCO competes principally on the basis of reputation, scientific and
technical expertise, experience and qualifications of professional staff,
quality of services, and ability to delivery quality products to the client's
specifications. As such, SARCO's ability to attract and retain qualified
technical personnel is a key component in its ability to successfully compete in
the outsource contract research market.

Potential Liability and Insurance

         Clinical research services involve the testing of new drugs on human
volunteers pursuant to a study protocol. Such testing exposes the Company to the
risk of liability for personal injury or death to patients resulting from, among
other things, possible unforeseen adverse side effects or improper
administration of the new drug. Many of these patients are already seriously ill
and are at risk of further illness or death. The Company attempts to manage its
risk of liability for personal injury or death to patients from administration
of products under study through measures such as contractual indemnification
provisions with clients and through insurance maintained by clients. The
contractual indemnifications generally do not protect the Company against
certain of its own actions, such as negligence. The contractual arrangements are
subject to negotiation with clients and the terms and scope of such
indemnification vary from client to client and from trial to trial. Although
most of PPD Pharmaco's clients are large, well-capitalized companies, the
financial performance of these indemnities is not secured. Therefore, the
Company bears the risk that the indemnifying party may refuse, or not have the
financial ability, to fulfill its indemnification obligations. The Company could
be materially and adversely affected if it were required to pay damages or incur
defense costs in connection with a claim that is beyond the scope of an
indemnity provision or beyond the scope or level of insurance coverage or where
the indemnifying party does not fulfill its indemnification obligations. Until
September 1996, the Company did not maintain liability insurance with respect to
these risks. The Company currently maintains professional liability insurance
coverage of up to $5.0 million per claim, with an annual aggregate policy limit
of $5.0 million. Liability claims might exceed the limits of such coverage and
such insurance might not continue to be available on commercially reasonable
terms or at all.

Government Regulation

         The laboratory services performed by PPD Pharmaco are subject to
various regulatory requirements designed to ensure the quality and integrity of
the testing process. The industry standards for conducting laboratory testing
are embodied in the regulations for Good Laboratory Practice ("GLP") and Good
Manufacturing Practice ("GMP"). GLP and GMP have been adopted by the FDA, by the
Department of Health in the United Kingdom and by similar regulatory authorities
in other parts of the world. GLP and GMP stipulate requirements for facilities,
equipment and professional staff. The regulations require standardization
procedures for studies, for recording and reporting data, and for retaining
appropriate records. To help ensure compliance, PPD Pharmaco has established
quality assurance controls at its laboratory facilities that monitor ongoing
compliance with GLP and GMP regulations by auditing test data and conducting
regular inspections of testing procedures.

         The industry standard for the conduct of clinical research and
development studies is embodied in the ICH regulations for GCP. As a matter of
practice, the FDA and many other regulatory authorities require that test
results submitted to such authorities be based on studies conducted in
accordance with GCP. These regulations include (i) complying with regulations
governing the selection of qualified investigators, (ii) obtaining specific
written commitments from the investigators, (iii) verifying that informed
consent is obtained from patients, (iv) monitoring the validity and accuracy of
data, (v) verifying drug or device accountability, and (vi) instructing
investigators to maintain records and reports. For specified periods PPD
Pharmaco must also maintain reports for each study for inspection by the study
sponsor and governmental authorities during audits. Noncompliance with GCP can
result in the disqualification of data collected during the clinical trial.

         PPD Pharmaco's Global Standard Operating Procedures ("SOPs") are
written in accordance with the Code of Federal Regulations and ICH guidelines
agreed upon by the United States, certain European and the Japanese governments.
This enables our work to be conducted locally, regionally and globally to
standards that exceed all currently applicable regulatory requirements.


                                       14
<PAGE>

         PPD Pharmaco's business depends on the continued government regulation
of the drug development process, especially in the United States. Changes in
regulation, including a relaxation in regulatory requirements or the
introduction of simplified drug approval procedures, could materially and
adversely affect the demand for the services offered by the Company.

         The failure on the part of PPD Pharmaco to comply with applicable
regulations could result in the termination of ongoing research or the
disqualification of data for submission to regulatory authorities. Furthermore,
the issuance of a notice of finding by a governmental authority against either
PPD Pharmaco or its clients based upon a material violation by the Company of
GCP, GLP or GMP requirements could materially and adversely affect the Company.

Intellectual Property

         The Company has rights in certain trademarks such as PPD(TM), PPD
Pharmaco(R), The Power of Selection(TM), CLASSIFYTM, RESOLVETM, CROSS GRAPHS(R),
TABLETRANS(R) and others. In addition, the Company holds certain licensing
privileges related to the GSX technology.

         PPD Pharmaco also has developed certain computer software and
technically derived procedures intended to maximize the quality and efficiency
of its services. In addition to its rights to certain intellectual property, the
Company believes that other factors such as the technical expertise, knowledge,
ability and experience of the Company's professionals provide significant
benefits to its clients.

Employees

         At December 31, 1998, the Company had approximately 3,100 full-time
equivalent employees, of whom 2,500 were employed in the Life Sciences Group,
340 were employed in the Environmental Sciences Group (which was sold in January
1999), 50 were employed in the Discovery Sciences Group and the remainder were
in the Company's corporate headquarters. Of the Company's employees,
approximately 130 hold Ph.D., M.D., Pharm.D. or D.V.M. degrees and approximately
390 hold other masters or other postgraduate degrees. None of the Company's
employees is represented by a labor union or is subject to a collective
bargaining agreement. The Company believes that its relations with its employees
are good.

         The Company's performance depends on its ability to attract and retain
qualified professional, scientific and technical staff. The level of competition
among employers for such skilled personnel is high. The Company believes that
its employee benefit plans enhance employee morale, professional commitment and
work productivity and provide an incentive for employees to remain with the
Company. The Company, like many of its competitors, also relies on a number of
key executives. The loss of services of any of the Company's key executives
could have a material and adverse effect on the Company. While to date the
Company has not experienced any significant problems in attracting or retaining
qualified staff, it might in the future.

Foreign and Domestic Operations

         Note 18 of Notes to Consolidated Financial Statements presents
information about the Company's operations by geographic area for each of fiscal
years 1998, 1997 and 1996.


                                       15
<PAGE>

  ITEM 2.         PROPERTIES

         The Company's principal executive offices are located in Wilmington,
North Carolina. In June 1998, the Company entered into a new 10-year
build-to-suit lease for approximately 67,500 square feet in Morrisville, North
Carolina which is scheduled for completion in the summer of 1999. In September
1998, the Company entered into a new 10-year build-to-suit lease for
approximately 70,000 square feet in Wilmington, North Carolina which is
scheduled for completion in the fall of 1999. In December 1998, the Company
entered into a new 15-year build-to-suit lease for approximately 61,000 square
feet in Research Triangle Park, North Carolina which is scheduled for completion
in the winter of 1999.

         The Company owns and operates a 52-bed Phase I facility in Leicester,
England. The Company also owns a building in Kersewell, Scotland, which it
acquired when it purchased Data Acquisition and Research Limited in December
1996. All other facilities are leased. The Company's operations currently occupy
approximately 693,000 square feet of space worldwide, including over 126,000
square feet of space located outside of the United States. The Company believes
that its facilities have adequate capacity to handle significant additional
business growth. The locations of the Company's operating facilities as of
December 31, 1998 were as follows:
<TABLE>
<CAPTION>
<S>     <C>
LIFE SCIENCES GROUP
         The Americas                                         Europe
         ------------                                         ------
                  Sao Paulo, Brazil                                    Brussels, Belgium
                  La Jolla, California                                 Cambridge, England
                  San Bruno, California                                Chelmsford, England
                  Mississauga, Canada                                  Leicester, England
                  Overland Park, Kansas                                Southampton, England
                  Columbia, Maryland                                   Charenton-Le-Pont, France
                  Cambridge, Massachusetts                             Karlsruhe, Germany
                  Lawrenceville, New Jersey                            Nuremberg, Germany
                  Morrisville, North Carolina                          Milan, Italy
                  Research Triangle Park, North Carolina               Kersewell, Scotland
                  Wilmington, North Carolina                           Barcelona, Spain
                  Austin, Texas (1)                                    Madrid, Spain
                  Richmond, Virginia                                   Stockholm, Sweden
                  Middleton, Wisconsin                        Eastern Europe
                                                              --------------
         Pacific Rim                                                   Prague, Czech Republic
         -----------                                                   Budapest, Hungary               
                  Melbourne, Australia                                 Warsaw, Poland                  
         Asia                                                                                          
         ----                                                 Africa                                   
                  Osaka, Japan                                ------                                   
                                                                       Cape Town, South Africa (2)     
                  Bangkok, Thailand                                    Johannesburg, South Africa (2)  
                                                              
DISCOVERY SCIENCES GROUP
         The Americas
         ------------
                  Menlo Park, California
                  Morrisville, North Carolina
                  Research Triangle Park, North Carolina
</TABLE>
         The list of operating locations above does not include the locations in
which the Company's environmental sciences segment operates. This segment was
sold on January 31, 1999. See Note 4 of Notes to Consolidated Financial
Statements.

------
(1) In November 1995, the Company entered into a sale-leaseback transaction
    related to its Austin, Texas, facilities. See Note 10 of Notes to
    Consolidated Financial Statements.
(2) The operations for South Africa were merged into the Johannesburg location
    in February 1999.


                                       16
<PAGE>

ITEM 3.           LEGAL PROCEEDINGS

         In the normal course of business, the Company is a party to various
claims and legal proceedings. Although the ultimate outcome of these matters is
not yet determined, management of the Company, after consultation with legal
counsel, does not believe that the resolution of these matters will have a
material effect upon the Company's financial condition or results of operations
in any interim or annual period.

ITEM 4.           SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         No matter was submitted to a vote of security holders during the fourth
quarter of the fiscal year ended December 31, 1998.


                                       17
<PAGE>

EXECUTIVE OFFICERS

         The executive officers of the Company as of January 31, 1999, were as
follows:
<TABLE>
<CAPTION>
<S>     <C>
          Name                        Age                         Position
---------------------------           ---      -----------------------------------------------------
   Fredric N. Eshelman                50       Vice Chairman and Chief Executive Officer

   Thomas D'Alonzo                    55       President and Chief Operating Officer

   Rudy C. Howard                     41       Chief Financial Officer, Vice President - Finance and
                                               Treasurer

   Fred B. Davenport, Jr.             47       General Counsel, Vice President - Legal and Secretary

   Joshua S. Baker                    43       Senior Vice President, Global Operations
</TABLE>
         FREDRIC N. ESHELMAN has served as Chief Executive Officer and as a
director of the Company since July 1990. Dr. Eshelman founded the Company's
predecessor in 1985. Prior to rejoining the Company in 1990, Dr. Eshelman served
as Senior Vice President, Development and as a director of Glaxo Inc., a
subsidiary of Glaxo Holdings plc.

         THOMAS D'ALONZO is President and Chief Operating Officer of the Company
and of its contract research organization subsidiary, PPD Pharmaco, Inc. Mr.
D'Alonzo served as General Counsel of Adria Laboratories, a pharmaceutical
company, from 1977 to 1983 and was employed from 1983 to 1993, in various
capacities, including as President, by Glaxo Inc., a subsidiary of Glaxo
Holdings plc. Mr. D'Alonzo was President of GenVec, Inc., a gene therapy
biotechnology company, from 1993 until his employment by the Company in October
1996.

         RUDY C. HOWARD is Chief Financial Officer, Vice President - Finance and
Treasurer of the Company. Prior to joining the Company in October 1995, Mr.
Howard worked with Coopers & Lybrand L.L.P., an accounting firm, since 1990 and
had been a Partner at Coopers & Lybrand L.L.P. since 1993.

         FRED B. DAVENPORT, JR. is General Counsel, Vice President - Legal and
Secretary of the Company. Prior to his employment by the Company in December
1996, Mr. Davenport was a Partner in the Wilmington, North Carolina law firm of
Murchison, Taylor, Kendrick and Gibson, L.L.P., which he joined in 1977. Mr.
Davenport was also a member of the faculty of the University of North Carolina
at Wilmington's Cameron School of Business Administration from 1982 to 1991.

         JOSHUA S. BAKER is Senior Vice President, Global Operations of the
Company. Prior to holding this position, Dr. Baker served as Vice President,
Biostatistics and Data Management of the Company. Prior to joining the Company
in May 1994, Dr. Baker served as Director of Biostatistics of Glaxo Research
Institute, the research and development division of Glaxo Inc., a position he
had held since September 1987.



                                       18
<PAGE>

                                     PART II

ITEM 5.           MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
                  STOCKHOLDER MATTERS

         The Common Stock of the Company, par value $0.10 per share (the "Common
Stock"), is traded under the symbol "PPDI" in the over-the-counter market and is
quoted on the National Market System of the National Association of Securities
Dealers Automated Quotation System ("NASDAQ"). The following table sets forth
the high and low prices for shares of the Common Stock, as reported by the
National Association of Securities Dealers, Inc. These prices are based on
quotations between dealers, which do not reflect retail mark-up, markdown or
commissions.

                               1998                                 1997
                 ---------------------------------------------------------------
                      High               Low              High             Low
    
First Quarter      $  24.25         $   13.00          $   30.00        $  18.50
Second Quarter     $  25.875        $   18.50          $   25.125       $  16.00
Third Quarter      $  29.375        $   18.625         $   24.00        $  18.50
Fourth Quarter     $  30.688        $   20.00          $   22.625       $  12.25



         As of February 16, 1999, there were approximately 8,450 holders of the
Company's Common Stock.

         Since its initial public offering, the Company has not paid any cash
dividends on its Common Stock. The Company has no present plans to pay cash
dividends to its shareholders and, for the foreseeable future, intends to retain
all of its earnings for use in continuing to develop its business. The
declaration of any future dividends by the Company is within the discretion of
its Board of Directors and is dependent upon the earnings, financial condition
and capital requirements of the Company, as well as any other factors deemed
relevant by the Board of Directors.


ITEM 6.           SELECTED CONSOLIDATED FINANCIAL DATA

         The selected consolidated financial data set forth below for the
Company as of December 31, 1998 and 1997 and for each of the three years in the
period ended December 31, 1998 are derived from the audited consolidated
financial statements included elsewhere herein. The selected financial data set
forth below for the Company as of December 31, 1996, 1995 and 1994 and for each
of the two years in the period ended December 31, 1995 are derived from the
financial statements of the Company not included elsewhere herein. The data
presented below should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and with the
Company's consolidated financial statements and related notes thereto included
elsewhere in this Report.

         The Company's consolidated financial data reflects its former
environmental sciences segment as discontinued operations due to the sale of
this segment on January 31, 1999. See Note 4 of Notes to Consolidated Financial
Statements.


                                       19
<PAGE>
<TABLE>
<CAPTION>


                                                                       Years Ended December 31,
                                             -------------------------------------------------------------------------------
                                                 1998          1997            1996 (4)      1995(1) (2) (3)   1994 (1) (2)
                                             -----------    -----------      -----------     ---------------   ------------
                                                                  (in thousands, except per share data)

<S>         <C>                              <C>            <C>              <C>              <C>              <C>
Net revenue (5)                              $   235,553    $  187,487       $  152,304       $  160,495       $ 146,342
                                             -----------    ----------       ----------       ----------       ---------
Operating expenses                               211,349       170,468          143,459          157,837         142,396
Loss on sale of business, special charges,
  restructuring costs, merger costs, and 
  acquired in-process research and                 3,163         9,670           14,773           24,290               -
  development costs                          -----------    ----------       ----------       ----------       ---------
                                                 214,512       180,138          158,232          182,127         142,396
                                             -----------    ----------       ----------       ----------       ---------
Income (loss) from operations                     21,041         7,349           (5,928)         (21,632)          3,946
Other income (expense), net                        3,562         1,464            1,804           (2,616)         (2,728)
                                             -----------    ----------       ----------       ----------       ---------
Income (loss) from continuing operations
  before provision for income taxes               24,603         8,813           (4,124)         (24,248)          1,218
                                                  
Provision (benefit) for income taxes               9,448         3,363            2,257          (17,163)            591
Income from operations of discontinued
  environmental sciences segment, net (6)          4,614         4,152            2,874            2,578          (8,614)
Extraordinary loss from early
  extinguishment of debt                               -             -                -             (897)              -
                                             -----------    ----------       ----------       ----------       ---------
Net income (loss)                            $    19,769    $    9,602       $   (3,507)      $   (5,404)      $  (7,987)
                                             ===========    ==========       ==========       ==========       =========
Income (loss) from continuing operations
  per share:
    Basic                                    $       0.65   $     0.24       $    (0.30)      $    (0.38)      $     0.03
                                             ============   ==========       ==========       ==========       ==========
    Diluted                                  $       0.65   $     0.24       $    (0.30)      $    (0.38)      $     0.03
                                             ============   ==========       ==========       ==========       ==========

Income (loss) from discontinued operations
   per share:
    Basic                                    $       0.20   $     0.18       $     0.13         $  0.14        $    (0.46)
                                             ============   ==========       ==========         =======        ==========
    Diluted                                  $       0.20   $     0.18       $     0.13         $  0.14        $    (0.46)
                                             ============   ==========       ==========         =======        ==========

Loss from extraordinary item per share:
    Basic                                    $        -     $        -       $       -          $ (0.05)       $       -
                                             ==========     ==========       =========          =======        =========
    Diluted                                  $        -     $        -       $       -          $ (0.05)       $       -
                                             ==========     ==========       =========          =======        =========

Net income (loss) per share:
    Basic                                    $       0.85   $     0.42       $    (0.17)        $ (0.29)       $    (0.43)
                                             ============   ==========       ==========         =======        ==========
    Diluted                                  $       0.85   $     0.42       $    (0.17)        $ (0.29)       $    (0.43)
                                             ============   ==========       ==========         =======        ==========

Weighted average number of shares 
   outstanding:
    Basic                                         23,186        22,825           21,168           18,815          18,671
    Dilutive effect of stock options                 169            60                -                -               -
                                             -----------      --------       ----------         --------       ---------
    Diluted                                       23,355        22,885           21,168           18,815          18,671
                                             ===========      ========       ==========         ========       =========


                                                                           As of December 31,
                                                 1998          1997           1996           1995                1994
                                             -----------    ----------    ----------     ----------          -----------
                                                                             (in thousands)
Consolidated Balance Sheet Data:
Cash and cash equivalents                   $   34,083      $   15,879    $   21,838     $   13,565          $   9,804
Marketable securities                                -           7,994        14,210            242                203
Working capital                                 93,917          69,950        66,603         37,320             27,795
Total assets                                   236,582         197,047       181,457        142,661            202,773
Long-term debt                                     161             340         1,428          3,471             47,620
Long-term debt, including current portion        3,741           5,246         5,649          5,672             51,170
Shareholders' equity                           155,410         127,605       115,306         77,300             74,198
</TABLE>


                                       20
<PAGE>

         SELECTED FINANCIAL DATA, EXCLUDING TOXICOLOGY OPERATIONS (SOLD 11/95),
LOSS ON SALE OF BUSINESS, SPECIAL CHARGES, RESTRUCTURING CHARGES, MERGER COSTS,
ACQUIRED IN-PROCESS RESEARCH AND DEVELOPMENT COSTS, GAIN ON SALE OF CCCR,
DISCONTINUED OPERATIONS AND EXTRAORDINARY LOSS.
<TABLE>
<CAPTION>

                                                                        Years Ended December 31,
                                               1998           1997            1996             1995(1)(2) (3) 1994(1) (2)
                                            ---------     -----------      ---------      ------------------- -------------
                                                                 (in thousands, except per share data)
<S>         <C>                             <C>           <C>              <C>                 <C>              <C>
Net revenue (5)                             $ 235,553     $187,487         $ 152,304           $122,049         $  99,955
Operating expenses                            211,349      170,468           143,459            118,255            98,418
                                            ---------     --------         ---------           --------         ---------
Income from operations                         24,204       17,019             8,845              3,794             1,537
Other income (expense), net                     2,490        1,464             1,804             (2,616)           (2,728)
                                            ---------     --------         ---------           --------         ---------
Income from continuing operations before
   provision for income taxes                  26,694       18,483            10,649              1,178            (1,191)
Provision (benefit) for income taxes           10,274        7,215             4,249                471              (476)
                                            ---------     --------         ---------           --------         ---------
Net income (loss)                           $  16,420     $ 11,268         $   6,400           $    707         $    (715)
                                            =========     ========         =========           ========         =========
Weighted average number of
   diluted shares outstanding                  23,355       22,885            21,319             18,815            18,761
                                            =========     ========         =========           ========         =========
Net income (loss) per share                 $    0.70    $    0.49        $     0.30          $    0.04         $   (0.04)
                                            =========    =========        ==========          =========         =========
</TABLE>
----------
1.   Following termination of its status as an S corporation prior to completion
     of its initial public offering in January 1996, PPD became subject to
     federal and state income taxes. The income tax data for each of the years
     ended December 31, 1995 and 1994 reflects the application of corporate
     income taxes to PPD's net income at the statutory combined federal and
     state tax rate as if the termination of PPD's S Corporation status had
     occurred on January 1, 1994.

2.   Weighted average shares outstanding for each of the years ended December
     31, 1995 and 1994 assumes the occurrence of events pursuant to PPD's
     initial public offering and the issuance of sufficient shares at $18.00 per
     share to provide net proceeds, after aggregate offering expenses and
     underwriting discounts, to repay the $5.5 million debt incurred by PPD in
     making the final S corporation distribution.

3.   The loss from continuing operations for 1995 was affected by (i) the sale
     of APBI's toxicology business, which resulted in a pre-tax loss of $19.3
     million charged against operating income, (ii) a special charge against
     operating income of $5.0 million primarily related to the impairment of
     APBI's available for sale investments and (iii) an increase in APBI's tax
     benefit as a result of the reversal of certain tax liabilities recorded in
     prior years for which it was determined that APBI will not be liable for
     payment.

4.   The net loss for 1996 was affected by $14.8 million of merger costs
     incurred in connection with the acquisition of APBI. After associated tax
     benefits, the impact on net income of such merger costs was $13.0 million.

5.   Revenues are presented net of subcontractor costs. See accompanying
     consolidated statements of operations.

6.   The discontinued operations include the Company's environmental sciences
     segment sold in January 1999 and the writeoff of its remaining investment
     in PACE Incorporated during the fourth quarter of 1995. All prior periods
     have been restated to exclude both of the above operations.

                                       21
<PAGE>

 ITEM 7.          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                  AND RESULTS OF OPERATIONS

         Statements in this Management's Discussion and Analysis that are not
descriptions of historical facts are forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995 reflecting
management's current view with respect to certain future events and financial
performance that are subject to risks and uncertainties. Actual results could
differ materially from those currently anticipated due to a number of factors,
including those set forth herein and in the Company's other SEC filings, and
including, in particular, risks relating to government regulation; dependence on
certain industries; the fixed price nature of contracts; the commencement,
completion or cancellation of large contracts; progress of ongoing contracts;
potential liability associated with the Company's lines of business; dependence
on personnel; management of growth and competition. 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.

GENERAL

         During 1998, the Company reported net income of $19.8 million, or $0.85
per share, compared to net income of $9.6 million, or $0.42 per share, during
1997. Excluding gain on sale of business and acquisition related costs, the
Company's net income of $21.0 million was 36.1% higher than prior year net
income, excluding merger and acquisition costs, of $15.5 million.


         Effective January 31, 1999, the Company sold its environmental sciences
segment to Environ Holdings, Inc., a new company formed by the management of
ENVIRON. The Company received as consideration cash of $1.4 million, a four-year
note in the amount of $7.0 million and a 12-year note in the amount of $18.0
million. The Company received an opinion from Lehman Brothers to the effect that
the consideration received is fair from a financial standpoint. The Company will
not recognize a pre-tax gain or loss as a result of the sale of the
environmental sciences segment as the sales price was based on the net assets of
the environmental sciences segment at January 31, 1999. The Company entered into
a three year consulting agreement to provide certain consulting services to
Environ Holdings for a fee of $0.5 million per year.


         In February 1999, the Company formed a joint venture, PPGx, with Axys
Pharmaceuticals, Inc. to pursue the business of pharmacogenomics. The Company
contributed $1.5 million in cash, the net assets of Intek, and assigned the
rights to a certain software license from Axys for an 18.2% ownership interest
in PPGx. Separately, the Company and Axys entered into a software licensing
agreement whereby the Company licensed certain software from Axys in exchange
for a $2.0 million license fee. The Company has received exclusive marketing
rights to PPGx pharmacogenomics products and services and an option to increase
its ownership share of PPGx after the first anniversary of PPGx.


         In February 1999, the Company signed a non-binding letter of intent to
acquire ATP, Inc., a health information services company. ATP provides
customized inbound and outbound telecommunications programs targeting consumers
and health care providers. Under the terms of the letter of intent, the Company
will issue approximately 1 million shares of unregistered common stock, subject
to certain closing adjustments, to the shareholders of ATP in return for their
ATP stock. The transaction is expected to be accounted for as a pooling of
interests.


         In May 1998, the Company created GenuPro, Inc., a subsidiary of PPD
which holds a license to a number of compounds in the genitourinary field which
was purchased from Eli Lilly & Co. in the second quarter of 1998. As a result of
the purchase of these compounds, the Company recorded an acquired in-process
research and development charge of $3.2 million in the second quarter of 1998 as
these compounds were in the initial stage of research and development at the
date the compounds were acquired. The formation of GenuPro, Inc. is an addition
to the Company's Discovery Sciences Group.


         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 $7.8 million
in the form of $5.3 million in cash and a promissory note for $2.5 million which
will be received over a period of five years. The sale resulted in a gain of
approximately $1.1 million 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.


                                       22
<PAGE>

         In June 1997, the Company moved into a new line of business with the
acquisitions of SARCO and the GSX System. These acquisitions formed the basis of
the Company's Discovery Sciences Group, which focuses on the discovery segment
of the research and development outsourcing market. The Company acquired SARCO
in a transaction accounted for as a pooling of interests. The consideration for
SARCO consisted of 263,158 shares of the Company's common stock. The Company
acquired the GSX System, a functional genomics platform technology, for
approximately $8.7 million in cash.

         In March 1997, the Company acquired Belmont, a software systems
company, in a transaction accounted for as a pooling of interests. The
consideration for Belmont consisted of 502,384 shares of the Company's common
stock. In November 1997, the Company acquired Intek Labs, Inc. ("Intek"), a
pharmacogenetics company, in a transaction accounted for as a pooling of
interests. The consideration for Intek consisted of 399,999 shares of the
Company's common stock.

RESULTS OF OPERATIONS

         The following tables set forth, for the periods indicated, amounts for
certain items in the Company's consolidated financial statements expressed as a
percentage of net revenue from continuing operations and the percentage changes
in dollar amounts of certain items compared with the prior period:
<TABLE>
<CAPTION>
                                    PERCENTAGE OF NET REVENUE FROM CONTINUING OPERATIONS

                                                             For the Years Ended December 31,
                                              1998                      1997                      1996
                                     -----------------------   ----------------------    ----------------------
                                       Amount          %        Amount           %          Amount         %
                                     ----------   ----------   ----------   ----------   ----------   ----------
                                                                   (dollars in thousands)
Net revenue (1):
<S>                                  <C>                <C>    <C>              <C>      <C>            <C>
   Life sciences                     $  234,626         99.6%  $  187,201       99.8%    $  152,304     100.0%
   Discovery sciences                       927          0.4          286        0.2              -         -
                                     ----------    ---------   ----------   --------     ----------    ------
                                        235,553        100.0      187,487      100.0        152,304     100.0
Direct costs:
   Life sciences                        117,625                    94,909                    79,108
   Discovery sciences                     3,623                     1,859                         -
                                     ----------                ----------                ----------
                                        121,248         51.5       96,768       51.6         79,108      51.9
Selling, general, and
  administrative expenses                77,784         33.0       62,820       33.5         55,453      36.4
Depreciation and amortization            12,317          5.2       10,880        5.8          8,898       5.8
Acquired in-process research
   and development costs                  3,163          1.3        9,112        4.9              -        -
Merger costs                                  -            -          558        0.3         14,773       9.7
                                     ----------    ---------   ----------   --------     ----------    ------
Operating income (loss)              $   21,041          8.9%  $    7,349        3.9%    $   (5,928)     (0.4)%
                                     ==========    =========   ==========   ========     ==========    ======

                                                                                Percentage Change
                                                                        For the Years Ended December 31,
                                                                 ----------------------------------------------
                                                                 1998 vs. 1997                    1997 vs. 1996
                                                                 -------------                    -------------
         Net revenue:
              Life sciences                                          25.3%                              22.9%
              Discovery sciences                                    224.1                                N/A
                Total net revenue                                    25.6                               23.1
         Direct costs:
              Life sciences                                          23.9                               20.0
              Discovery sciences                                     94.9                                N/A
         Selling, general and administrative expenses                23.8                               13.3
         Depreciation and amortization                               13.2                               22.3
</TABLE>
----------
(1)  Revenues are presented net of subcontractor costs.


                                       23
<PAGE>

         YEAR ENDED DECEMBER 31, 1998 VERSUS YEAR ENDED DECEMBER 31, 1997

         Net revenue increased $48.1 million, or 25.6%, to $235.6 million in
1998 from $187.5 million. The Life Sciences Group's operations accounted for
99.6% of the Company's net revenue for 1998. The Life Sciences Group generated
net revenue of $234.6 million, up $47.4 million, or 25.3%, from last year. The
growth in the Life Sciences Group operations was primarily attributable to an
increase in the size, scope and number of contracts in the global CRO Phase
II-IV division. The Discovery Sciences Group generated net revenue of $0.9
million, up $0.6 million, or 224.1%, from last year. The growth in the Discovery
Sciences operations was primarily attributable to an increase in the number of
contracts in the combinatorial chemistry division. Net revenue is expected to
increase in the Discovery Sciences operations during 1999, however, unless net
revenue from achievement of development milestones is received, the effect of
the segment on the Company's earnings per share should remain relatively
constant.


         Total direct costs increased 25.3% to $121.2 million from $96.8 million
last year and remained relatively constant as a percentage of net revenue at
51.5% for the current year from 51.6% last year. The Life Sciences Group direct
costs decreased as a percentage of related net revenue to 50.1% from 50.7%. This
decrease is principally due to higher utilization of direct labor employees and
a focused effort to control costs. The Discovery Sciences Group direct costs
increased to $3.6 million in 1998 as compared to $1.9 million in 1997. This
increase was due to a full year of operations being recorded in the current year
as opposed to a half-year of operations recorded in 1997. (As discussed
previously, the Discovery Sciences Group was formed in June 1997 with the
acquisitions of SARCO and the GSX System).


         Selling, general and administrative ("SG&A") expenses increased 23.8%
to $77.8 million from $62.8 million in 1997. The increase is primarily
attributable to the investment in additional personnel to support the Company's
expanding operations. As a percentage of net revenue, SG&A expenses decreased
slightly to 33.0% from 33.5% last year.


         Total depreciation and amortization expense of $12.3 million was $1.4
million, or 13.2%, higher than last year. The increase was related to the
Company's growth as well as the ongoing capital investment in the Company's
business. The Company's capital expenditures (excluding the environmental
sciences segment) were $17.6 million in 1998. Computer equipment and software
accounted for approximately 47% of this capital investment, while expanded
capabilities in the Company's labs and Discovery Sciences Group accounted for
approximately 12%.


         The Company recorded an acquired in-process research and development
charge of $3.2 million in 1998 as a result of the purchase of a license to six
genitourinary compounds from Eli Lilly & Co. during the second quarter. The
Company immediately expensed the acquired in-process research and development
costs because the compounds were in the initial phase of research and
development and had no alternative future use. This compares to an acquired
in-process research and development charge of $9.1 million recognized in 1997
related to the acquisition of the GSX System.


         Operating income improved $13.7 million to $21.0 million for the year
ended December 31, 1998, as compared to $7.3 million for the year 1997.
Excluding gain on sale of CCCR, merger and acquisition related costs, the
Company's adjusted operating income of $24.2 million in 1998 was 42.2% higher
than adjusted operating income of $17.0 million in 1997. As a percentage of net
revenue, the yearly operating income of 8.9% represents a dramatic improvement
from 3.9% of net revenue last year.


         Net interest and other income (expense), net, improved $2.1 million,
rising to $3.6 million for the year ended December 31, 1998 from $1.5 million
for the year 1997. Excluding the gain related to the sale of CCCR, net other
income of $2.5 million was $1.0 million higher than the prior year. The
improvement was primarily the result of the covenant not to compete payments of
$0.7 million resulting from the sale of CCCR in the first quarter of 1998. The
Company expects to receive an additional $0.1 million related to the non-compete
agreement in the first quarter of 1999.


         The Company recorded income from discontinued operations, net of income
tax expense, related to its environmental sciences segment, of $4.6 million in
1998, as compared to $4.2 million in 1997. The environmental sciences segment
was sold on January 31, 1999.


                                       24
<PAGE>

         The net income of $19.8 million in 1998 represents an improvement of
$10.2 million over the $9.6 million from 1997. Net income per basic and diluted
share of $0.85 for 1998 compares to $0.42 in 1997. Excluding the impact of the
gain on sale of CCCR and acquisition-related charges in 1998 and the merger and
acquisition-related charges in 1997, the Company's 1998 net income of $21.0
million is 36.1% higher than net income of $15.5 million for 1997.

YEAR ENDED DECEMBER 31, 1997 VERSUS YEAR ENDED DECEMBER 31, 1996

         Net revenue increased $35.2 million, or 23.1%, to $187.5 million in
1997 from $152.3 million. The Life Sciences Group's operations accounted for
99.8% of the Company's net revenue for 1997. The Life Sciences Group generated
net revenue of $187.2 million, up $34.9 million, or 22.9%, as compared to 1996.
The growth in the Life Sciences Group operations was primarily attributable to
an increase in the size, scope and number of contracts in the North America
clinical development and biostatistics business over 1996. The acquisitions of
Belmont and Intek, both completed in 1997, contributed net revenue of $5.7
million for 1997. The acquisitions of SARCO and the GSX System in June 1997
formed the basis for the Company's Discovery Sciences Group which had $0.3
million of net revenue during 1997.


         Total direct costs increased 22.3% to $96.8 million from $79.1 million
last year and remained relatively constant as a percentage of net revenue at
51.6% for 1997 from 51.9% in 1996. The Life Sciences Group direct costs
decreased as a percentage of related net revenue to 50.7% from 51.9%. This
decrease is principally due to higher utilization of direct labor employees and
a focused effort to control costs.


         Selling, general and administrative ("SG&A") expenses increased 13.3%
to $62.8 million from $55.5 million in 1996. SG&A expenses from 1997
acquisitions comprised $2.8 million of the increase. The remaining increase is
primarily attributable to the investment in the Company's business development
and marketing organization and in the area of information technology. Additional
costs in these areas include personnel costs, training and recruitment of highly
qualified individuals. As a percentage of net revenue, SG&A expenses decreased
to 33.5% from 36.4% last year.


         Total depreciation and amortization expense of $10.9 million was $2.0
million, or 22.3%, higher than last year. The increase was related to the
Company's growth as well as the ongoing capital investment in the Company's
business.


         During 1997, the Company recorded merger costs of $0.6 million in
connection with the acquisitions of Belmont, SARCO and Intek. These costs were
primarily cash expenses, such as legal and accounting fees related to pooling
transactions. During 1996, the Company recorded merger costs of $14.8 million.
These costs were primarily cash expenses, such as investment banking fees, legal
and accounting fees, and employee severance as a result of the integration of
the administrative functions of PPD and APBI.


         The Company recorded an acquired in-process research and development
charge of $9.1 million in the second quarter of 1997. These costs were charged
to operations upon the acquisition of the GSX System. The Company hired an
independent consultant to determine the fair value of the acquired in-process
research and development. The purchase price in excess of the net assets of the
GSX System was allocated to acquired in-process research and development costs,
because the technology had no alternative future use and had not reached
technological feasibility at the date of the acquisition.


         Operating income improved $13.3 million to $7.3 million for the year
ended December 31, 1997, as compared to an operating loss of $5.9 million for
the year 1996. Excluding merger and acquisition related costs, the Company's
operating income of $17.0 million in 1997 was 92.4% higher than operating income
(before the impact of merger and acquisition related costs) of $8.8 million in
1996. As a percentage of net revenue, the 1997 operating income of 3.9%
represents a dramatic improvement from the operating loss of 3.9% of net revenue
in 1996.


         The Company recorded income from its discontinued environmental
sciences segment of $4.2 million in 1997, as compared to $2.9 million in 1996.
The increase in income from discontinued operations in 1997 as compared to 1996
was due to the 1997 acquisition of Technical Assessment Systems, Inc.


                                       25
<PAGE>

         The net income of $9.6 million in 1997 represents an improvement of
$13.1 million over the $3.5 million net loss in 1996. Net income per basic and
diluted share of $0.42 for 1997 compares to a net loss per basic and diluted
share of $0.17 in 1996. Excluding the impact of the merger costs and
acquisition-related charges on both years, the Company's 1997 net income of
$15.5 million is 53.6% higher than 1996's net income of $10.1 million. Excluding
these non-recurring charges, net income per diluted share of $0.68 for 1997
compares to $0.47 for 1996 computed on 1.6 million more shares outstanding for
1997.


LIQUIDITY AND CAPITAL RESOURCES


         As of December 31, 1998, the Company had $34.1 million of cash and cash
equivalents on hand. The Company has historically funded its operations and
growth, including acquisitions, with cash flow from operations, borrowings and
through the use of the Company's stock.


         For the year ended December 31, 1998, the Company experienced a net
increase in cash flow from operating activities to $23.6 million as compared to
$11.1 million for the year ended December 31, 1997. The increase in cash flow
from operations is primarily due to an increase in the Company's net revenues
and an increase in operating margins as a percentage of net revenues. For the
1998 period, net income of $19.8 million, depreciation and amortization of $14.2
million and the acquired in-process research and development of $3.2 million
were offset primarily by the net increase of $13.8 million in other assets and
liabilities (which includes a $28.1 million increase in accounts receivable and
unbilled services due to the growth in revenue).


         For the year ended December 31, 1998, the Company's investing
activities used net cash of $11.0 million. Capital expenditures of $19.3
million, cash paid for the acquisition of a license to certain compounds of $3.2
million and $1.8 million in net cash paid for acquisitions were partially offset
by $8.0 million in proceeds from the sale of investments and $5.3 million of net
proceeds received from the sale of CCCR.


         For the year ended December 31, 1998, the Company's financing
activities provided $5.6 million in cash, as net proceeds from stock option
exercises of $7.0 million were partially offset by $1.5 million in repayment of
long-term debt.


         For the year ended December 31, 1997, the Company experienced a net
increase in cash flow from operating activities to $11.1 million as compared to
$0.3 for the year ended December 31, 1996. For the period, net income of $9.6
million, depreciation and amortization of $12.4 million and the acquired
in-process research and development of $9.1 million were offset primarily by the
net decrease of $19.1 million in other assets and liabilities (which includes a
$24.5 million increase in billed and unbilled receivables due to the growth in
revenue), as well as cash disbursements of $7.4 million related to previously
accrued merger expenses.


         For the year ended December 31, 1997, the Company used net cash of
$16.8 million in investing activities, as capital expenditures of $13.6 million
and the cash paid for the acquisition of the GSX technology of $9.1 million were
only partially offset by $6.3 million in cash provided by net maturities of
investments.


         For the year ended December 31, 1997, the Company's financing
activities provided $1.0 million in cash, as net proceeds from stock option
exercises of $2.2 million were partially offset by $1.3 million in net repayment
of long-term debt and $0.4 million in cash used to pay pre-merger distributions
to shareholders of Belmont.


         In June 1998, the Company obtained 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
December 31, 1998, the Company had $15.0 million reserved under this facility in
the form of a letter of credit. This credit facility expires in June 2000, at
which time any outstanding balance is due.


                                       26
<PAGE>

         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 December 31,
1998, the Company had $3.3 million outstanding under this facility. This credit
facility expires in March 1999, at which time the outstanding balance is due.
The Company plans to renegotiate this credit facility before its expiration
date.


         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 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 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, computer systems and/or software used by many companies in a very wide
variety of applications may 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 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 was 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, execution of those plans and
testing of all technology affected by this issue. In addition, the Company is
engaged in assessing the Year 2000 issue with significant suppliers and clients.

         At December 31, 1998, the assessment process is 95% complete for all
equipment (including computer hardware and software technology) used internally
by the Company as compared to 85% at September 30, 1998. 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 services and
products sold by the Company. Remediation is well underway, with approximately
80% of all systems requiring remediation completed at December 31, 1998 as
compared to 50% at September 30, 1998. All systems, regardless of whether they
require remediation, are being tested to ensure Year 2000 compliance. The
Company has completed testing for Year 2000 compliance as of December 31, 1998
for 89% of our systems as compared to 50% at September 30, 1998. The Company
expects to complete this effort by April 1999. The Company has initiated 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 responds promptly 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 $1.4 million on Year 2000
compliance, and expects to spend an additional $0.2 million to complete the
compliance process. Of the total amount that 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.


                                       27
<PAGE>

         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 clinical studies being
performed for these clients, the Company will have a specified period of time to
correct those issues. If not corrected, the client can modify or terminate its
contract with the Company. 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 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 key 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 and develop contingency
plans for a possible Year 2000 failure as it completes its testing 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. 

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
amounts in dollars 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 (approximately 15%). It is anticipated
that those conditions will persist for at least through December 31, 1999.

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


                                       28
<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 and other international business
risks 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.


ITEM 7A.          QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK


         The Company is exposed to foreign currency risk by virtue of its
international operations. The Company conducts business in several foreign
countries and approximately 15%, 13% and 14% of the Company's net revenues for
the years ended December 31, 1998, 1997 and 1996, respectively, were derived
from the Company's operations outside the United States. Funds generated by each
subsidiary of the Company are generally reinvested in the country where they are
earned. The operations in the United Kingdom have generated more than 45% of the
Company's revenue from foreign operations. Accordingly, some exposure exists to
potentially adverse movements in the pound sterling. The United Kingdom has
traditionally had a relatively stable currency. It is anticipated that those
conditions will persist for at least through December 31, 1999.


         Additionally, the Company's consolidated financial statements are
denominated in U.S. dollars and, accordingly, changes in the exchange rates
between the Company's subsidiaries' local currency and the U.S. dollar will
affect the translation of such subsidiaries' financial results into U.S. dollars
for purposes of reporting the Company's consolidated financial results.
Translation adjustments are reported with accumulated other comprehensive income
(loss) as a separate component of shareholders' equity. Financial statement
translation has not, to date, been material to the Company's balance sheet. Such
adjustments may in the future be material to the Company's financial statements.


ITEM 8.           FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         The information called for by this Item is set forth herein commencing
on page F-1.


ITEM 9.           CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
                  AND FINANCIAL DISCLOSURE

         None.


                                       29
<PAGE>

                                    PART III

         Certain information required by Part III is omitted from this report,
because the Registrant intends to file a definitive proxy statement for its 1999
Annual Meeting of Stockholders (the "Proxy Statement") within 120 days after the
end of its fiscal year pursuant to Regulation 14A promulgated under the
Securities Exchange Act of 1934, as amended, and the information included
therein is incorporated herein by reference to the extent provided below.


ITEM 10.          DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         The information required by Item 10 of Form 10-K concerning the
Registrant's executive officers is set forth under the heading "Executive
Officers" located at the end of Part I of this Form 10-K.

         The other information required by Item 10 of Form 10-K is incorporated
by reference to the information under the headings "Proposal No. 1 - Election of
Directors" and "Other Information-Section 16(a) Beneficial Ownership Reporting
Compliance" in the Proxy Statement.


ITEM 11.          EXECUTIVE COMPENSATION

         The information required by Item 11 of Form 10-K is incorporated by
reference to the information under the heading "Proposal No. 1 - Election of
Directors - Information About the Board of Directors and Its Committees," "Other
Information - Executive Compensation Tables," "--Director Compensation,"
"--Report of the Compensation Committee on Executive Compensation,"
"--Compensation Committee Interlocks and Insider Participation," and
"--Performance Graph" in the Proxy Statement.


ITEM 12.          SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The information required by Item 12 of Form 10-K is incorporated by
reference to the information under the heading "Other Information - Principal
Shareholders" in the Proxy Statement.


ITEM 13.          CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         None.


                                       30
<PAGE>

                                     PART IV


ITEM 14.          EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
                  FORM 8-K

         (a)  Financial Statements and Financial Statement Schedules
              1.  The consolidated financial statements of the Company and its
                  subsidiaries filed as part of this Report are listed in the
                  attached Index to Consolidated Financial Statements and
                  Financial Statement Schedule.
              2.  The schedule to the consolidated financial statements of the
                  Company and its subsidiaries filed as part of this Report is
                  listed in the attached Index to Consolidated Financial
                  Statements and Financial Statement Schedule.
              3.  The exhibits filed as part of this Report are listed in Item
                  14(c) below.
         (b)  Reports on Form 8-K.
                  The Company filed a Current Report on Form 8-K with the
                  Securities and Exchange Commission on February 16, 1999,
                  relating to the Company's disposition of its environmental
                  sciences consulting and management subsidiaries in a
                  management buyout, which was effective January 31, 1999. As
                  part of the Current Report on Form 8-K, the Company filed
                  unaudited pro forma financial statements as of December 31,
                  1998 and for the twelve months ended December 31, 1998,
                  December 31, 1997 and December 31, 1996, giving pro forma
                  effect to the sale of the environmental sciences subsidiaries
                  transaction.
         (c)  Exhibits

 EXHIBIT NO.                                         DESCRIPTION

  2.1**          --Plan of Merger to Merge PPD Subsidiary, Inc. with and into
                   Pharmaceutical Product Development Clinical Research Unit,
                   Inc. ("PPD-CRU").

  2.2**          --Plan of Merger to Merge PPD-Europe, Inc. ("PPD Europe") with
                   and into the Registrant.

  2.3*           --Agreement and Plan of Reorganization, dated as of June 20,
                   1996, among the Registrant, Wilmington Merger Corp. and
                   Applied Bioscience International Inc.

  2.4*           --Stock and Asset Master Purchase Agreement by and among
                   Huntingdon International Holdings plc, Huntingdon Life
                   Sciences Inc., Applied Bioscience International Inc. and
                   Pharmaco LSR International Inc., dated as of November 1,
                   1995, incorporated by reference to Exhibit 2 to Applied
                   Bioscience International Inc.'s Current Report on Form 8-K
                   filed with the Securities and Exchange Commission on December
                   6, 1996.

  2.5*           --Stock Purchase Agreement among Applied Bioscience
                   International Inc., PPD UK Holdings Limited and Environ
                   Holdings Inc. for the acquisition of all the capital stock of
                   APBI Environmental Sciences Group, Inc., Environmental
                   Assessment Group Limited and Environ International Limited,
                   dated January 31, 1999.

  3.1*           --Restated Articles of Incorporation.

  3.2*           --Amended and Restated Bylaws.

  10.4**         --Plan of Merger to Merge PPD Subsidiary, Inc. with and into
                   PPD-CRU (see Exhibit 2.1).

  10.5**         --Plan of Merger to Merge PPD-Europe with and into the
                   Registrant (see Exhibit 2.2).

  10.8**         --Pharmaceutical Product Development, Inc. Equity Compensation
                   Plan, effective as of October 30, 1995.

  10.9**         --Pharmaceutical Product Development, Inc. Stock Option Plan
                   for Non-Employee Directors, effective as of October 31, 1995.

  10.10**        --Registration Rights Agreement, dated January 24, 1996, by and
                   among the Registrant and certain of its shareholders.

  10.31**        --Lease Agreement, dated as of August 1, 1991, by and between
                   Connecticut General Life Insurance Company and the
                   Registrant, as amended on January 5, 1993 and on August 18,
                   1995.

  10.35**        --Lease, dated January 26, 1994, by and between Michael James
                   Lawton, Jeffrey William Ware, Prudential Nominees Limited and
                   Gabbay Group Limited.

  10.36**        --Lease on Offices, dated October 19, 1993, by and between
                   Eucro European Contract Research GmbH and Gabbay Group Ltd.

  10.38**        --Lease Agreement, dated as of October 25, 1995, by and between
                   the Registrant and Perimeter Park West Associates Limited
                   Partnership.

  10.39**        --Lease Agreement, dated as of October 25, 1995, by and between
                   PPD-CRU and Perimeter Park West Associates Limited
                   Partnership.

  10.55**        --Lease made January 23, 1996 between PPD-CRU and Western
                   Center Properties, Inc.

  10.57*         --First Amendment to Registration Rights Agreement.

  10.59*         --First Amendment to Lease Agreement, dated October 25, 1995,
                   between PPD and Perimeter Park West Associates Limited
                   Partnership.

  10.60*         --First, Second and Third Amendments to Lease Agreement, dated
                   March 25, 1996, between PPD and BBC Family Limited
                   Partnership.

                                       31
<PAGE>

  10.61*         --Lease Agreement, dated March 25, 1996, between PPD and BBC
                   Family Limited Partnership.

  10.71*         --Lease Agreement by and between ABI (TX) QRS 12-11, Inc. and
                   Pharmaco LSR International Inc., incorporated by reference to
                   Exhibit 10.43 to Applied Bioscience International Inc.'s
                   Annual Report on Form 10-K for the year ended December 31,
                   1995.

  10.79*         --Consulting Agreement, dated as of October 1, 1996, by and
                   between Applied Bioscience International Inc., and John D.
                   Bryer, incorporated by reference to Exhibit 10.66 to the
                   Registrant's Quarterly Report on Form 10-Q for the period
                   ended September 30, 1996.

  10.80*         --Employment Agreement, dated as of October 5, 1996, by and
                   between Pharmaceutical Product Development, Inc., and Thomas
                   D'Alonzo, incorporated by reference to Exhibit 10.67 to the
                   Registrant's Quarterly Report on Form 10-Q for the period
                   ended September 30, 1996.

  10.81*         --Employment Agreement, dated as of September 26, 1996, by and
                   between Pharmaceutical Product Development, Inc., and Fred B.
                   Davenport, Jr.

  10.83a-83f*    --Substitute Non-Statutory Stock Option Agreements by and
                   between Pharmaceutical Product Development, Inc. and Grover
                   C. Wrenn, dated as of September 26, 1996.

  10.84*         --Employment Agreement dated June 4, 1997, by and between the
                   PPD Discovery, Inc. and Mark E. Furth.

  10.85*         --Note and Loan Agreement, dated June 25, 1997, made by the PPD
                   Discovery, Inc. for the benefit of First Union National Bank
                   of North Carolina.

  10.86*         --Pharmaceutical Product Development, Inc. Employee Stock
                   Purchase Plan, dated May 15,1997.

  10.87*         --Amendment to Employee Stock Purchase Plan, dated June 21,
                   1997.

  10.88*         --Amendment to Stock Option Plan for Non-Employee Directors,
                   dated May 15, 1997.

  10.89*         --Amendment to Equity Compensation Plan, dated May 15, 1997.

  10.90*         --Employment Agreement, effective July 1, 1997, between
                   Pharmaceutical Product Development, Inc. and Fredric N.
                   Eshelman.

  10.91*         --Note and Loan Agreement, dated August 7, 1997, between
                   Pharmaceutical Product Development, Inc. and Wachovia Bank,
                   N.A.

  10.92*         --First Amendment to Loan Agreement dated August 11, 1997,
                   between the Registrant and First Union National Bank.

  10.93*         --Lease Agreement dated July 9, 1997, between Weeks Realty,
                   Inc. and PPD Pharmaco, Inc.

  10.94*         --Employment Agreement dated October 1, 1997 between PPD
                   Pharmaco, Inc. and Joshua S. Baker.

  10.95*         --Employment Agreement dated January 1, 1998 between
                   Pharmaceutical Product Development, Inc. and Rudy C. Howard.

  10.96*         --Employment Agreement dated January 1, 1998 between PPD
                   Pharmaco, Inc. and Patrick C. O'Connor.

  10.97*         --Employment Agreement dated January 1, 1998 between PPD
                   Pharmaco, Inc. and Paul S. Covington.

  10.98*         --Employment Agreement dated January 1, 1998 between PPD
                   Pharmaco, Inc. and Mark A. Sirgo.

  10.99*         --Amendment to Employment Agreement dated February 2, 1998
                   between Pharmaceutical Product Development, Inc. and Fred B.
                   Davenport, Jr.

  10.100*        --Severance Agreement dated February 2, 1998 between
                   Pharmaceutical Product Development, Inc. and Fredric N.
                   Eshelman.

  10.101*        --Severance Agreement dated February 2, 1998 between
                   Pharmaceutical Product Development, Inc. and Thomas D'Alonzo.

  10.102*        --Severance Agreement dated February 2, 1998 between
                   Pharmaceutical Product Development, Inc. and Rudy C. Howard.

  10.103*        --Severance Agreement dated February 2, 1998 between
                   Pharmaceutical Product Development, Inc. and Fred B.
                   Davenport, Jr.

  10.104*        --Severance Agreement dated February 2, 1998 between
                   Pharmaceutical Product Development, Inc. and Joseph H.
                   Highland.

  10.105*        --Severance Agreement dated February 2, 1998 between
                   Pharmaceutical Product Development, Inc. and Joshua S. Baker.

  10.106*        --Severance Agreement dated February 2, 1998 between
                   Pharmaceutical Product Development, Inc. and Patrick C.
                   O'Connor.

  10.107*        --Severance Agreement dated February 2, 1998 between
                   Pharmaceutical Product Development, Inc. and Paul S.
                   Covington.

                                       32
<PAGE>

  10.108*        --Severance Agreement dated February 2, 1998 between
                   Pharmaceutical Product Development, Inc. and Mark A. Sirgo.

  10.109*        --Severance Agreement dated February 2, 1998 between
                   Pharmaceutical Product Development, Inc. and William Neilson.

  10.110*        --Amendment to Employee Stock Purchase Plan, dated March 2,
                   1998.

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

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

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

  10.114*        --Lease Agreement dated June 26, 1998 between Weeks Realty
                   Limited Partnership and PPD Pharmaco, Inc.

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

  10.116*        --First Amendment to Lease Agreement dated October 28, 1998,
                   between PPD Pharmaco, Inc. and Weeks Realty, Inc.

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

  10.118         --Lease Agreement dated December 16, 1998 between PPD Pharmaco,
                   Inc. and Weeks Realty Limited Partnership.

  10.119         --Employment Agreement dated January 1, 1999 between
                   Pharmaceutical Product Development, Inc. and David R.
                   Williams.

  10.120         --Severance Agreement dated February 2, 1998 and Amendment No.
                   1 to Severance Agreement dated January 1, 1999 between
                   Pharmaceutical Product Development, Inc. and David R.
                   Williams.

  10.121         --Loan Agreement dated February 1, 1999, by and among PPGx,
                   Inc., Pharmaceutical Product Development, Inc., as Guarantor,
                   and First Union National Bank.

  10.122         --First Amendment to Loan Agreement dated January 30, 1999,
                   between Pharmaceutical Product Development, Inc. and First
                   Union National Bank.

  10.123         --Second Amendment to Loan Agreement dated January 30, 1999,
                   between Pharmaceutical Product Development, Inc. and Wachovia
                   Bank, N.A.

  10.124         --Stock Purchase Agreement dated February 1, 1999 between PPGx,
                   Inc. and Pharmaceutical Product Development, Inc.

  10.125         --Software License Agreement dated January 31, 1999 between
                   Axys Pharmaceuticals and Pharmaceutical Product Development,
                   Inc.

  10.126         --PPD Technology Transfer Agreement dated February 1, 1999
                   between PPGx, Inc. and Pharmaceutical Product Development,
                   Inc.

  10.127         --Assignment and Assumption of License Agreement dated February
                   1, 1999 between Pharmaceutical Product Development, Inc. and
                   PPGx, Inc.

  10.128         --Credit and Security Agreement dated February 2, 1999, between
                   Applied Bioscience International Inc., Environ Holdings, Inc.
                   and APBI Environmental Sciences Group, Inc.

  21             --Subsidiaries of the Registrant.

  23.1           --Consent of PricewaterhouseCoopers LLP

  27             --Financial Data Schedule (for SEC use only).


*        Previously filed.

**       Incorporated by reference to the Registrant's Registration Statement on
         Form ex-27, as amended (File No. 33-98996).

                                       33
<PAGE>

            PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


                                                                          Page
                                                                          ----

     Report of Independent Accountants                                     F-2

     Consolidated Statements of Operations for the Years Ended
           December 31, 1998, 1997 and 1996                                F-3

     Consolidated Balance Sheets as of December 31, 1998 and 1997          F-4

     Consolidated Statements of Shareholders' Equity for the Years
           Ended December 31, 1998, 1997 and 1996                          F-5

     Consolidated Statements of Cash Flows for the Years Ended
           December 31, 1998, 1997 and 1996                                F-6

     Notes to Consolidated Financial Statements                            F-7


                                       F-1
<PAGE>
                        REPORT OF INDEPENDENT ACCOUNTANTS




The Board of Directors and Shareholders
Pharmaceutical Product Development, Inc. and its Subsidiaries



         In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of shareholders' equity and of
cash flows present fairly, in all material respects, the financial position of
Pharmaceutical Product Development, Inc. and its subsidiaries at December 31,
1998 and 1997, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 1998, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.




PRICEWATERHOUSECOOPERS LLP


Raleigh, North Carolina
February 2, 1999



                                      F-2
<PAGE>

            PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS

              FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996

                      (IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
                                                                         1998              1997             1996
                                                                       ---------        ---------         ---------
  Life sciences revenues, net of subcontractor costs of $91,432,
<S>            <C>                                                     <C>              <C>               <C>
   $69,094 and $47,933, respectively                                   $ 234,626        $ 187,201         $ 152,304
  Discovery sciences revenues, net of subcontractor costs of $48
    and $45 in 1998 and 1997, respectively                                   927              286                 -
                                                                       ---------        ---------         ---------
       Net revenue                                                       235,553          187,487           152,304
                                                                       ---------        ---------         ---------
  Direct costs - Life sciences                                           117,625           94,909            79,108
  Direct costs - Discovery sciences                                        3,623            1,859                 -
  Selling, general and administrative expenses                            77,784           62,820            55,453
  Depreciation and amortization                                           12,317           10,880             8,898
  Merger costs                                                                 -              558            14,773
  Acquired in-process research and development costs                       3,163            9,112                 -
                                                                       ---------        ---------         ---------
                                                                         214,512          180,138           158,232
                                                                       ---------        ---------         ---------
       Operating income (loss)                                            21,041            7,349            (5,928)
Interest:
   Income                                                                  1,584            1,342             1,919
   Expense                                                                  (414)            (478)             (420)
Other income (expense), net                                                2,392              600               305
                                                                       ---------        ---------         ---------
       Income (loss) from continuing operations before
         provision for income taxes                                       24,603            8,813            (4,124)
Provision for income taxes                                                 9,448            3,363             2,257
                                                                       ---------        ---------         ---------
       Income (loss) from continuing operations                           15,155            5,450            (6,381)
Income from operations of discontinued environmental sciences segment,
  net of income taxes of $3,012, $2,711 and $1,877, respectively           4,614            4,152             2,874
                                                                       ---------        ---------         ---------
Net income (loss)                                                      $  19,769        $   9,602         $  (3,507)
                                                                       =========        =========         =========
Income (loss) from continuing operations per share:
       Basic                                                           $    0.65        $    0.24         $   (0.30)
                                                                       =========        =========         =========
       Diluted                                                         $    0.65        $    0.24         $   (0.30)
                                                                       =========        =========         =========
Income from discontinued operations per share:
       Basic                                                           $    0.20        $    0.18         $    0.13
                                                                       =========        =========         =========
       Diluted                                                         $    0.20        $    0.18         $    0.13
                                                                       =========        =========         =========
Net income (loss) per share:
       Basic                                                           $    0.85        $    0.42         $   (0.17)
                                                                       =========        =========         =========
       Diluted                                                         $    0.85        $    0.42         $   (0.17)
                                                                       =========        =========         =========
Weighted average number of common shares outstanding:
       Basic                                                              23,186           22,825            21,168
       Dilutive effect of stock options                                      169               60                 -
                                                                       ---------        ---------         ---------
       Diluted                                                            23,355           22,885            21,168
                                                                       =========        =========         =========
</TABLE>


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


                                      F-3
<PAGE>

            PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS

                        AS OF DECEMBER 31, 1998 AND 1997

                        (IN THOUSANDS, EXCEPT SHARE DATA)

                                     ASSETS

<TABLE>
<CAPTION>
                                                                                           1998             1997
                                                                                       ----------        ----------
Current assets
<S>                                                                                    <C>               <C>
     Cash and cash equivalents                                                         $   34,083        $   15,879
     Marketable securities                                                                      -             7,994
     Accounts receivable and unbilled services, net                                       126,815           101,554
     Investigator advances                                                                  1,505             1,870
     Prepaid expenses and other current assets                                              7,812             7,227
     Deferred tax asset                                                                     2,751             1,973
                                                                                       ----------         ---------
         Total current assets                                                             172,966           136,497

Property and equipment, net                                                                42,509            34,902
Goodwill, net                                                                              14,869            18,026
Other assets                                                                                6,238             7,622
                                                                                       ----------        ----------

         Total assets                                                                  $  236,582        $  197,047
                                                                                       ==========        ==========

                                       LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities
     Current maturities of long-term debt                                              $    3,580        $    4,906
     Accounts payable                                                                       7,812             6,249
     Payables to investigators                                                              5,204             4,138
     Other accrued expenses                                                                28,007            20,484
     Accrued income taxes                                                                       -             3,048
     Unearned income                                                                       34,446            27,722
                                                                                       ----------        ----------
         Total current liabilities                                                         79,049            66,547

Long-term debt, less current maturities                                                       161               340
Deferred rent and other                                                                     1,962             2,555
                                                                                       ----------        ----------

         Total liabilities                                                                 81,172            69,442
                                                                                       ----------        ----------

 Commitments and contingencies (Notes 10 and 14)

Shareholders' equity
     Common stock, $0.10 par value, 95,000,000 shares authorized; 23,433,000 and
         22,949,000 shares issued and outstanding,
         respectively                                                                       2,343             2,295
     Paid-in capital                                                                      123,709           115,680
     Retained earnings                                                                     29,929            10,112
     Accumulated other comprehensive income                                                  (571)             (482)
                                                                                       ----------        ----------
         Total shareholders' equity                                                       155,410           127,605
                                                                                       ----------        ----------

         Total liabilities and shareholders' equity                                    $  236,582        $  197,047
                                                                                       ==========        ==========
</TABLE>

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


                                      F-4
<PAGE>

            PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
              FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>



                                                                                      Earnings     Comprehensive
                                                     Common Shares       Paid in    (Accumulated      Income
                                                 Shares    Par Value     Capital      Deficit)        (Loss)
                                                 -----------------------------------------------------------------
<S>               <C> <C>                        <C>       <C>          <C>          <C>
BALANCE, DECEMBER 31, 1995                       18,677    $   1,870    $  65,701    $  10,621
Net loss                                                                                (3,507)   $  (3,507)
                                                                                                  ---------
Other comprehensive income:
   Unrealized gain on investments                                                                       226
   Translation adjustments                                                                            1,093
                                                                                                  ---------
   Other comprehensive income                                                                         1,319
                                                                                                  ---------
Comprehensive loss                                                                                $  (2,188)
                                                                                                  =========
Public offering, net of cash offering costs       2,300          230       36,952
Shareholder S corp. distributions                                           1,595      (7,532)
Issuance of common shares                           242           24          622
Issuance of common shares for exercise
  of stock options                                  365           37        5,058
Income tax benefit from exercise of stock
  options and unearned compensation
  amortization                                                              1,990
Other                                                40            2          688           55
                                              ------------------------------------------------
BALANCE DECEMBER 31, 1996                        21,624        2,163      112,606         (363)
Net income                                                                               9,602    $   9,602
                                                                                                  ---------
Other comprehensive income:
   Unrealized loss on investments, net                                                                  (64)
   Translation adjustments                                                                           (1,318)
                                                                                                  ---------
   Other comprehensive income                                                                        (1,382)
                                                                                                  ---------
Comprehensive income                                                                              $   8,220
                                                                                                  =========
Issuance of common shares in
  connection with acquisitions                    1,165          115           89        1,304
Issuance of common shares for exercise
  of stock options                                  142           16        2,199
Income tax benefit from exercise of
  stock options                                                               510
Distribution to shareholders                                                              (431)
Proceeds of Section 16(b) transaction,
  net of related tax provision of $155                                        276
Other                                                18            1
                                              ------------------------------------------------
BALANCE DECEMBER 31, 1997                        22,949        2,295      115,680       10,112
Net income                                                                              19,769    $  19,769
                                                                                                  ---------
Other comprehensive income:
   Reclassification adjustment for net gain
     included in net income                                                                            (167)
   Translation adjustments                                                                               78
                                                                                                  ---------
   Other comprehensive income                                                                           (89)
                                                                                                  ---------
Comprehensive income                                                                              $  19,680
                                                                                                  =========
Issuance of common shares for exercise
  of stock options and employee stock
  purchase plan                                     484           48        6,980
Income tax benefit from exercise of
  stock options                                                             1,049
Repayment from shareholders                                                                 48
                                              ------------------------------------------------
BALANCE DECEMBER 31, 1998                        23,433    $   2,343    $ 123,709    $  29,929
                                              =========    =========    =========    =========



                                               Accumulated
                                                  Other
                                              Comprehensive        Unearned
                                               Income (Loss)     Compensation      Total
                                              ------------------------------------------
BALANCE, DECEMBER 31, 1995                      $    (419)       $    (473)    $  77,300
Net loss                                                                          (3,507)

Other comprehensive income:
   Unrealized gain on investments                                                    226
   Translation adjustments                                                         1,093

   Other comprehensive income                       1,319

Comprehensive loss

Public offering, net of cash offering costs                                       37,182
Shareholder S corp. distributions                                                 (5,937)
Issuance of common shares                                                            646
Issuance of common shares for exercise
  of stock options                                                                 5,095
Income tax benefit from exercise of stock
  options and unearned compensation
  amortization                                                                     1,990
Other                                                                   473        1,218
                                                    ------------------------------------
BALANCE DECEMBER 31, 1996                             900                --      115,306
Net income                                                                         9,602

Other comprehensive income:
   Unrealized loss on investments, net                                               (64)
   Translation adjustments                                                        (1,318)

   Other comprehensive income                      (1,382)

Comprehensive income

Issuance of common shares in
  connection with acquisitions                                                     1,508
Issuance of common shares for exercise
  of stock options                                                                 2,215
Income tax benefit from exercise of
  stock options                                                                      510
Distribution to shareholders                                                        (431)
Proceeds of Section 16(b) transaction,
  net of related tax provision of $155                                               276
Other                                                                                  1
                                                    ------------------------------------
BALANCE DECEMBER 31, 1997                            (482)             --        127,605
Net income                                                                        19,769

Other comprehensive income:
   Reclassification adjustment for net gain
     included in net income                                                         (167)
   Translation adjustments                                                            78

   Other comprehensive income                         (89)

Comprehensive income

Issuance of common shares for exercise
  of stock options and employee stock
  purchase plan                                                                    7,028
Income tax benefit from exercise of
  stock options                                                                    1,049
Repayment from shareholders                                                           48
                                                    ------------------------------------
BALANCE DECEMBER 31, 1998                       $    (571)       $    --       $ 155,410
                                                =========        =========     =========

</TABLE>

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

                                      F-5
<PAGE>

            PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

              FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996

                                 (IN THOUSANDS)
<TABLE>
<CAPTION>
                                                                         1998              1997             1996
                                                                       ---------        ---------         ---------
Cash flows from operating activities:
<S>                                                                    <C>              <C>               <C>
    Net income (loss)                                                  $  19,769        $   9,602         $  (3,507)
    Adjustments to reconcile net income (loss) to net cash provided by
      operating activities:
      Depreciation and amortization                                       14,210           12,394            10,436
      Acquired in-process research and development                         3,163            9,112                 -
      Gain on sale of CCCR                                                (1,071)               -                 -
      Deferred income taxes                                                1,409             (910)            1,375
      Stock compensation amortization                                          -                -               668
      Loss on disposition of property and equipment                           55               32                 6
      (Gain) loss on sale of investments                                    (174)               3                (8)
      Change in operating assets and liabilities:
         Accounts receivable and unbilled services, net                  (28,140)         (24,470)           (2,043)
         Prepaid expenses and other current assets                          (381)           2,073            (4,317)
         Current income taxes                                             (2,088)           3,406             1,354
         Other assets                                                      1,468              842             1,068
         Accounts payable and other accrued expenses                       7,046           (8,336)           (3,873)
         Payable to investigators                                          1,066           (1,291)           (2,999)
         Unearned income                                                   7,243            8,740             2,569
         Other                                                                 -              (58)             (411)
                                                                       ---------        ---------         ---------
                Net cash provided by operating activities                 23,575           11,139               318
                                                                       ---------        ---------         ---------

Cash flows from investing activities:
      Purchases of property and equipment                                (19,343)         (13,599)          (11,176)
      Net cash received from sale of CCCR                                  5,285                -                 -
      Net cash paid for acquisition of in-process
        research and development                                          (3,163)          (9,112)                -
      Proceeds from sale of property and equipment                             5              174                74
      Proceeds from sale of marketable securities                          8,000           17,240            37,655
      Purchases of marketable securities                                       -          (10,972)          (51,454)
      Sale of investments                                                      -                -               244
      Purchase of investments                                                  -           (1,500)                -
      Net cash received from (paid for) acquisitions                      (1,829)             991            (3,867)
                                                                       ---------        ---------         ---------
                Net cash used in investing activities                    (11,045)         (16,778)          (28,524)
                                                                       ---------        ---------         ---------

Cash flows from financing activities:
      Line of credit borrowings                                                -                -               669
      Proceeds from long-term debt                                             -              138               167
      Principal repayments on long-term debt                              (1,480)          (1,355)           (2,415)
      Cash dividends paid                                                      -                -            (5,937)
      Proceeds of Section 16(b) transaction                                    -              431                 -
      Repayment from (distribution to) shareholders                           48             (431)                -
      Proceeds from issuance of common stock                               7,028            2,215            42,902
                                                                       ---------        ---------         ---------
                Net cash provided by financing activities                  5,596              998            35,386
                                                                       ---------        ---------         ---------

Effect of exchange rate changes on cash                                       78           (1,318)            1,093
                                                                       ---------        ---------         ---------
Net increase (decrease) in cash and cash equivalents                      18,204           (5,959)            8,273
Cash and cash equivalents, beginning of the year                          15,879           21,838            13,565
                                                                       ---------        ---------         ---------
Cash and cash equivalents, end of the year                             $  34,083        $  15,879         $  21,838
                                                                       =========        =========         =========
</TABLE>
   The accompanying notes are an integral part of these financial statements.

                                      F-6
<PAGE>

            PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                      (IN THOUSANDS, EXCEPT PER SHARE DATA)



1.       SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES:

NATURE OF BUSINESS
         Pharmaceutical Product Development, Inc. and its subsidiaries,
collectively (the "Company"), provide a broad range of research and consulting
services in two business segments: life sciences and discovery sciences. Prior
to the divestiture of its environmental sciences segment on January 31, 1999
(see Note 4), the Company also provided environmental sciences services.
Services provided in the life sciences segment include worldwide clinical
research and development of pharmaceutical products and medical devices,
biostatistical analysis and analytical laboratory services. Discovery sciences
services include target identification and validation, compound creation,
screening and compound selection. Environmental sciences services included
assessment and management of chemical and environmental health risk, site
investigation and remediation planning and litigation support. The Company
provides its services under contract to clients in the pharmaceutical, general
chemical, agrochemical, biotechnology and other industries. The environmental
sciences segment also marketed services to clients in the industrial,
manufacturing and oil and gas industries. The Company's life sciences services
are marketed primarily in the United States and Europe. Revenues derived from
the Company's discovery segment are all within the United States. The
environmental sciences segment marketed its services primarily in the United
States and Europe.

PRINCIPLES OF CONSOLIDATION

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

MERGER COSTS AND SPECIAL CHARGES

         During 1997, the Company recorded merger costs of $600 in connection
with the acquisitions of Belmont Research, Inc., SARCO, Inc., and Intek Labs,
Inc., which were accounted for using the pooling of interests method of
accounting. These costs were primarily transaction expenses related to these
pooling transactions.

         In connection with the acquisition of Applied Bioscience International
Inc. ("APBI") in September 1996, the Company implemented a reorganization plan
under which the Company would eliminate certain positions and close a facility.
The Company recorded merger and reorganization costs related to this acquisition
of $16,100. Included in these costs were transaction costs of $7,100, related
primarily to investment banking, legal and accounting fees. In addition, the
Company recorded $9,000 in accruals for severance, lease termination and certain
other costs. Of the amounts accrued, $3,200 was for severance payments primarily
for administrative personnel.

ACQUIRED IN-PROCESS RESEARCH AND DEVELOPMENT COSTS

         The Company recorded an acquired in-process research and development
charge of $3,200 in the second quarter of 1998 related to the purchase of a
license to six genitourinary compounds from Eli Lilly & Co. The Company
immediately expensed the acquired in-process research and development costs
because these compounds were in the initial phase of research and development
and had no alternative future use.

         The Company acquired the GSX System for $8,700 in cash in June 1997.
Liabilities assumed in this transaction were $832. The purchase price in excess
of the net assets of the GSX System of $9,100 was allocated to acquired
in-process research and development costs and charged to operations at the
acquisition date, as the technology under development by the GSX System had not
reached technological feasibility and had no alternative future use.


                                      F-7
<PAGE>

            PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                      (IN THOUSANDS, EXCEPT PER SHARE DATA)



1.       SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):

REVENUE RECOGNITION

         The Company records revenues from fixed-price contracts on a
percentage-of-completion basis. Revenues from time-and-material contracts are
recognized as hours are accumulated multiplied by the billable rates for each
contract. Revenues are recorded net of reimbursement received from clients for
pass-through expenses, which generally include subcontractor costs that consist
of investigator fees, travel and certain other contract costs.

         If it is determined that a loss will result from the performance of a
fixed-price contract, the entire amount of the estimated loss is charged against
income in the period in which such determination is made. Clients generally may
terminate a study at any time, which may cause unplanned periods of excess
capacity and reduced revenues and earnings. To offset the effects of early
terminations of significant contracts, the Company attempts to negotiate the
payment of an early termination fee as part of the original contract.

CASH AND CASH EQUIVALENTS

         Cash and cash equivalents consist of unrestricted cash accounts, which
are not subject to withdrawal restrictions or penalties, and all highly liquid
investments with a maturity of three months or less at the date of purchase.

         Supplemental cash flow information consisted of the following:

                                              YEARS ENDED DECEMBER 31,

                                    1998              1997             1996
                                  ---------        ---------         ---------
     Cash paid:
Interest                          $     420        $     354         $     326
                                  =========        =========         =========
Income taxes, net                 $  12,628        $   2,583         $   1,594
                                  =========        =========         =========


MARKETABLE SECURITIES
         The Company records its investment in marketable securities in
accordance with Statement of Financial Accounting Standards No. 115, "Accounting
for Certain Investments in Debt and Equity Securities." The classification of
securities is generally determined at the date of purchase. All marketable
securities of the Company have been classified as available-for-sale and have
been reported at fair value with unrealized gains and losses reported in other
comprehensive income. The unrealized net loss on investment in marketable
securities included in other comprehensive income at December 31, 1998 and 1997
totaled $0 and $64, respectively. Gains and losses on sales of investments in
marketable securities, which are computed based on specific identification of
adjusted cost of each security, are included in other income at the time of the
sales.

INVESTIGATOR PAYMENTS
         Billings and payments to investigators are based on predetermined
contractual agreements that may differ from the accrual of the expense.
Investigator expenses are recognized based upon the status of the work completed
as a percentage of the total procedures required under the contract or based on
patient enrollment over the term of the contract. Payments made in excess of the
accrued expenses are classified as investigator advances, and accrued expenses
in excess of amounts paid are classified as payables to investigators in the
consolidated balance sheet. Contracted physician costs are considered a
pass-through expense and are recorded as a reduction to revenues in the
consolidated statements of operations.

                                      F-8
<PAGE>

            PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                      (IN THOUSANDS, EXCEPT PER SHARE DATA)



1.       SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):

PROPERTY AND EQUIPMENT

         Property and equipment are stated at cost less accumulated depreciation
and amortization. Depreciation is recorded using the straight-line method, based
on estimated useful lives of 20 to 40 years for buildings, five to 12 years for
laboratory equipment, three to five years for computers and related equipment,
and four to 10 years for furniture and equipment. Leasehold improvements are
amortized over the shorter of the respective lives of the leases or the useful
lives of the improvements. Property under capital leases is amortized over the
life of the lease or the service life, whichever is shorter.


INTERNAL USE SOFTWARE


         The Company accounts for internal use software in accordance with the
provisions of AICPA Statement of Position 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use," which allows certain
direct costs and interest costs that are incurred during the application stage
of development to be capitalized and amortized over the useful life of the
software.


GOODWILL


         The excess of the purchase price of the businesses 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 15 to 40
years. As of December 31, 1998 and 1997, accumulated amortization was $4,926 and
$4,383, respectively. The amortization charges for each of the three years ended
December 31, 1998, 1997 and 1996 were $1,235, $1,401 and $950, respectively.


OTHER ASSETS

         Other assets are comprised of investments in certain technology
companies, other intangible assets, a note receivable and net long-term deferred
tax assets. Other intangible assets are being amortized over periods of three to
five years. See Note 8.


REALIZABILITY OF CARRYING VALUE OF LONG-LIVED ASSETS
         The Company is required to review long-lived assets for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable, in accordance with the provisions of Statement
of Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of". Accordingly,
when indicators of impairment are present, the Company evaluates the carrying
value of property, plant and equipment and intangibles, including goodwill, in
relation to the operating performance and estimates of future discounted cash
flows of the underlying business and recognizes an impairment, if necessary, to
state property, equipment and intangibles at their fair value. No such
impairment was necessary during each of the three years ended December 31, 1998,
1997 and 1996.


UNBILLED SERVICES AND UNEARNED INCOME
         In general, prerequisites for billings are established by contractual
provisions, including predetermined payment schedules, the achievement of
contract milestones or submission of appropriate billing detail. Unbilled
services arise when services have been rendered but clients have not been
billed. Similarly, unearned income represents amounts billed in excess of
revenue recognized.

INCOME TAXES

         Income taxes are computed using the asset and liability approach that
requires the recognition of deferred tax assets and liabilities for the expected
future tax consequences of events that have been recognized in the Company's
financial statements or tax returns. In estimating future tax consequences, the
Company generally considers all expected future events other than enactment of
changes in tax law or rates. If it is "more likely than not" that some portion
or all of a deferred tax asset will not be realized, a valuation allowance is
recorded.


                                      F-9
<PAGE>

            PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                      (IN THOUSANDS, EXCEPT PER SHARE DATA)



1.       SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):

CONCENTRATION OF CREDIT RISK

         Statement of Financial Accounting Standards No. 105, "Disclosure of
Information about Financial Instruments with Off-Balance-Sheet Risk and
Financial Instruments with Concentrations of Credit Risk", requires disclosure
of information about financial instruments with off-balance-sheet risk and
financial instruments with concentrations of credit risk. Financial instruments
which subject the Company to concentrations of credit risk consist principally
of accounts receivable and cash equivalents.

         The Company's clients are primarily pharmaceutical and biotechnology
companies. No single client accounted for more than 10% of the Company's net
revenue in 1998, 1997 or 1996. Concentrations of credit risk with respect to
accounts receivable are limited due to the large number of clients comprising
the Company's client base. Ongoing credit evaluations of customers' financial
condition are performed and, generally, no collateral is required. The Company
maintains reserves for potential credit losses and such losses, in the
aggregate, have not exceeded management's estimates.

         The Company's cash equivalents consist principally of commercial paper.
Certain bank deposits may at times be in excess of the FDIC insurance limit.
Based on the nature of the financial instruments and/or historical realization
of these financial instruments, management believes they bear minimal risk.

TRANSLATION OF FOREIGN FINANCIAL STATEMENTS

         Assets and liabilities of foreign operations, where the functional
currency is the local currency, are translated into U.S. dollars at the rate of
exchange at each reporting date. Income and expenses are translated at the
average rates of exchange prevailing during the month in which a transaction
occurs. Gains or losses from translating foreign currency financial statements
are accumulated in other comprehensive income. The cumulative translation
adjustment included in other comprehensive income at December 31, 1998 and 1997
totaled $78 and $(1,318), respectively. Foreign currency transaction gains and
losses are included in other income.

         Funds generated by each subsidiary of the Company are generally
reinvested in the country where they are earned.

EARNINGS PER SHARE

         The Company adopted Statement of Financial Accounting Standards No.
128, "Earnings Per Share" ("SFAS No. 128"), on December 31, 1997. The
computation of basic income (loss) per share information is based on the
weighted average number of common shares outstanding during the year. The
computation of diluted income (loss) per share information is based on the
weighted average number of common shares outstanding during the year plus the
effects of any dilutive common stock equivalents at year-end. Earnings per share
for all periods presented in the statements of operations conforms to the
provisions of SFAS No. 128.

COMPREHENSIVE INCOME

         The Company adopted Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income" ("SFAS No. 130"), effective January 1,
1998. SFAS No. 130 requires the Company to display an amount representing
comprehensive income for the year in a financial statement which is displayed
with the same prominence as other financial statements. The Company has elected
to present this information in the Statements of Shareholders' Equity. Upon
adoption, all prior period data presented was restated to conform to the
provisions of SFAS No. 130.

NEW ACCOUNTING PRONOUNCEMENTS

         The Company adopted Statement of Financial Accounting Standards No.
131, "Disclosures about Segments of an Enterprise and Related Information"
("SFAS No. 131"), on 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 periods
issued to shareholders. It also establishes standards for related disclosures
about products and services, geographic areas and major customers. See Notes 17
and 18.

                                      F-10
<PAGE>

            PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                      (IN THOUSANDS, EXCEPT PER SHARE DATA)



1.       SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):

         The Company adopted Statement of Financial Accounting Standards No.
132, "Employers' Disclosures about Pensions and Other Postretirement Benefits"
("SFAS No. 132"), on December 31, 1998. SFAS No. 132 standardizes the disclosure
requirements for pensions and other postretirement benefits to the extent
practicable, requires additional information on 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. See Note
13.

USE OF ESTIMATES

         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 prior year amounts have been reclassified to conform to the
1998 presentation.

2.       ACQUISITIONS:

POOLINGS

         In March 1997, the Company acquired Belmont Research, Inc. ("Belmont").
The consideration for Belmont consisted of 502 shares of the Company's common
stock plus options to purchase approximately 115 shares of Company common stock.
In June 1997, the Company acquired SARCO, Inc. ("SARCO"). The consideration for
SARCO consisted of 263 shares of the Company's common stock. In November 1997,
the Company acquired Intek Labs, Inc. ("Intek"). The consideration for Intek
consisted of 400 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 nor have the Company's consolidated financial
statements for 1996 been restated to reflect the impact of these acquisitions as
the results of operations of Belmont, SARCO and Intek prior to the dates of the
acquisitions are not material individually or collectively to the Company.

         On September 26, 1996, a wholly-owned subsidiary of the Company was
merged with and into APBI in a transaction accounted for as a pooling of
interests. As a result of the merger, APBI became a wholly-owned subsidiary of
the Company. Under the terms of the merger agreement, APBI shareholders received
0.4054 of a share of the Company's common stock for each APBI share. As a result
of the merger, the Company issued 12,064 shares of its common stock in exchange
for all the outstanding shares of common stock of APBI. Holders of options to
acquire APBI stock had the choice to receive either shares of Company common
stock for the value of the options, or substitute options to acquire Company
common stock. As a result of the APBI option holders' choices, 203 additional
shares of the Company's common stock were issued, and options to purchase 601
shares of the Company's common stock were issued. In accordance with the pooling
of interests method of accounting, the consolidated financial statements are
based on the assumption that the companies were combined for all of 1996 and the
financial statements for 1996 were restated to give effect to the combination.

PURCHASES

         In January 1998, the Company acquired two environmental consulting
businesses for a total of $1,006 in cash and 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 in goodwill. Pro forma information is not
presented as the acquired companies' results of operations prior to the dates of
the acquisitions are not material individually or collectively to the Company.

                                      F-11
<PAGE>

            PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                      (IN THOUSANDS, EXCEPT PER SHARE DATA)


2.       ACQUISITIONS (CONTINUED):

         In January 1997, the Company acquired Technical Assessment Systems,
Inc. ("TAS") for $490 in cash, a note for approximately $300 and the potential
to earn an additional amount depending on TAS's profitability for a certain
period after the acquisition. In connection with the acquisition, the Company
recorded $1,070 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 in cash. Liabilities assumed in this transaction were $832.
Pro forma information is not presented as the acquired companies' results of
operations prior to the dates of the acquisitions are not material individually
or collectively to the Company.

         The Company's Life Sciences Group furthered its expansion outside of
the U.S. in 1996 through the acquisitions of Trilife Gesellschaft Fur
Medizinische Entwicklung Verwaltungs GmbH ("Trilife") in Germany, Medisys S.L.
("Medisys") in Spain, Q&Q Suporte A Pesquisa Clinica Ltda. ("Q&Q") in Brazil,
Data Acquisition and Research Limited ("DAR") in Scotland, and Environmental
Assessment Group Limited ("EAG") in England. The consideration for these five
companies consisted of approximately $4,359 in cash and a note for $350. The
Company has paid an additional $1,264 for these acquisitions, due to earnout
clauses in the purchase agreements and amounts due on anniversaries of the
acquisitions during the period from the date of purchase through December 31,
1998. Included in debt on the consolidated balance sheet at December 31, 1998 is
another $340 which will be paid related to the acquisitions of Q&Q and DAR. In
connection with these acquisitions, the Company recorded $6,278 in goodwill. Pro
forma information is not presented as the acquired companies' results of
operations prior to the dates of the acquisitions are not material individually
or collectively to the Company.

3.       SALE OF BUSINESS:

         On February 27, 1998, the Company, through its subsidiary Clinix
International Inc., sold the business and assets of the Chicago Center for
Clinical Research ("CCCR"). The consideration received by the Company for CCCR
totaled approximately $7,785 which was comprised of $5,285 in cash and a
promissory note of $2,500 which will be received over five years. The sale
resulted in a gain of approximately $1,071 that 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.

4.       DISCONTINUED OPERATIONS:

         Effective January 31, 1999, the Company sold its environmental sciences
segment for total consideration of $26,431 in a management buyout. The Company
received as consideration cash of $1,431, a four-year note of $7,000 and a
12-year note of $18,000. The sale resulted in no pre-tax gain or loss as the
sales price was based on the net assets of the environmental sciences segment at
January 31, 1999.

         The consolidated balance sheets at December 31, 1998 and 1997 include
the following assets and liabilities of the environmental sciences segment:

                                                            December 31,
                                                    ---------------------------
                                                       1998             1997
                                                    ----------       ----------
         Current assets                             $   24,214       $   21,866
         Total assets                                   32,527           28,647

         Current liabilities                             6,030            6,260
         Total liabilities                               6,209            6,735
                                                    ----------       ----------
         Net assets of discontinued operations      $   26,318        $  21,912
                                                    ==========        =========

         The operating results of the environmental sciences segment for each of
the years ended December 31, 1998, 1997 and 1996 were as follows:

                                              Years Ended December 31,
                                      ---------------------------------------
                                         1998           1997            1996
                                         ----           ----            ----
         Net revenues                 $ 50,056       $ 47,785          45,492
         Income from operations          7,627          6,863           4,751
         Net income                      4,614          4,152           2,874

                                      F-12
<PAGE>

            PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                      (IN THOUSANDS, EXCEPT PER SHARE DATA)



5.       MARKETABLE SECURITIES:

         The estimated market value and aggregate cost of current marketable
securities were as follows:

                                                     DECEMBER 31,
                                              1998                 1997
                                          ----------           ----------
         Estimated market value           $        -           $   7,994
         Aggregate cost                            -               8,000
                                          ----------           ---------
         Gross unrealized loss            $        -           $      (6)
                                          ==========           =========

         Marketable securities at December 31, 1997 consisted of debt securities
issued by the U.S. Treasury. These securities were classified as
available-for-sale, and reported in the balance sheet at fair value, which was
determined based on quoted market prices.


6.       ACCOUNTS RECEIVABLE AND UNBILLED SERVICES:

         Accounts receivable and unbilled services consisted of the following:

                                                           DECEMBER 31,

                                                    1998                 1997
                                                ----------           -----------
         Trade:
               Billed                           $   75,405           $   55,257
               Unbilled                             51,702               46,730
               Reserve for doubtful accounts        (2,042)              (1,515)
                                                ----------            ---------
                                                   125,065              100,472
         Officers and employees                        313                  386
         Other                                       1,437                  696
                                                ----------           ----------
                                                $  126,815           $  101,554
                                                ==========           ==========

         Change in reserve for doubtful accounts consisted of the following:
<TABLE>
<CAPTION>
                                                                          YEARS ENDED DECEMBER 31,

                                                              1998                 1997            1996
                                                          ----------           -----------       ---------
<S>                                                       <C>                  <C>               <C>
               Balance at beginning of period             $    1,515           $    1,511        $   3,319
               Additions charged to costs and expenses           993                  647            1,715
               Deductions                                       (466)                (740)          (3,497)
               Other changes                                       -                   97              (26)
                                                          ----------           ----------        ---------
               Balance at end of period                   $    2,042           $    1,515        $   1,511
                                                          ==========           ==========        =========
</TABLE>

                                      F-13
<PAGE>

            PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                      (IN THOUSANDS, EXCEPT PER SHARE DATA)



7.       PROPERTY AND EQUIPMENT:

         Property and equipment, stated at cost, consisted of the following:
<TABLE>
<CAPTION>
                                                                                               DECEMBER 31,
                                                                                           1998             1997
                                                                                        ---------         ---------


<S>                                                                                     <C>               <C>
         Land                                                                           $     519         $     517
         Buildings and leasehold improvements                                              14,002            13,291
         Construction in progress and asset deposits                                        2,621               620
         Furniture and equipment                                                           41,296            33,066
         Computer equipment and software                                                   43,688            36,466
                                                                                        ---------         ---------
                                                                                          102,126            83,960
         Less accumulated depreciation and amortization                                    59,617            49,058
                                                                                        ---------         ---------
                                                                                        $  42,509         $  34,902
                                                                                        =========         =========

         The annual depreciation and amortization charges on property and
equipment for each of the three years ended December 31, were:
                                    1998                                                $  12,887
                                    1997                                                   10,830
                                    1996                                                    9,399

8.       OTHER ASSETS:
         Other assets consisted of the following:
                                                                                               DECEMBER 31,
                                                                                          1998              1997
                                                                                        ---------         ---------

         Investment in DAS                                                              $   1,500         $   1,500
         Investment in SDI                                                                      -             1,161
         Long-term deferred tax asset                                                       1,555             3,742
         Note receivable from sale of CCCR                                                  2,000                 -
         Intangible and other assets, net of accumulated
           amortization of $1,190 and $1,040, respectively                                  1,183             1,219
                                                                                        ---------         ---------
                                                                                        $   6,238         $   7,622
                                                                                        =========         =========
</TABLE>
         The Company owns 600 shares of Digital Arts and Sciences ("DAS") Series
D preferred stock which represent approximately 6.8% and 8.0% ownership of DAS
as of December 31, 1998 and 1997, respectively. The Company's investment in DAS
is valued at cost, which approximates fair market value.

         The Company owned 715 shares of Strategic Diagnostics Inc. ("SDI")
common stock as of December 31, 1997. The trading price per share was $2.25 as
of December 31, 1997. During 1997 the Company sold options to various other
companies that provided them the right to acquire all SDI shares owned by the
Company at a price of $1.625 per share. Accordingly, during 1997 the Company
reduced the carrying value of this investment to $1.625 per share. At December
31, 1997, $174 was reported in other comprehensive income to represent the
difference between option value and the carrying value of this investment at
such date. The Company received $1,161 in March 1998 when all the options to
acquire the SDI shares were exercised. At that time, a gain on the sale of the
investment in SDI was realized of $174.

         The note receivable related to the sale of CCCR (see Note 3) will be
received over five years in equal annual payments and bears interest at a rate
of 10%.

         The annual amortization charges on intangible assets for each of the
three years ended December 31, 1998, 1997 and 1996 were $88, $163 and $87,
respectively.

                                      F-14
<PAGE>

            PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                      (IN THOUSANDS, EXCEPT PER SHARE DATA)



9.       OTHER ACCRUED EXPENSES:

         Other accrued expenses consisted of the following:
<TABLE>
<CAPTION>
                                                                                               DECEMBER 31,

                                                                                           1998             1997
                                                                                        ---------         ---------
<S>                                                                                     <C>               <C>
         Accrued salaries, wages, benefits and related costs                            $  21,721         $  15,626
         Other                                                                              6,286             4,858
                                                                                        ---------         ---------
                                                                                        $  28,007         $  20,484
                                                                                        =========         =========

10.      LONG-TERM DEBT AND LEASE OBLIGATIONS:

         Long-term debt consisted of the following:
                                                                                               DECEMBER 31,
                                                                                           1998             1997
                                                                                        --------          ------
         LIBOR (5.20% at December 31, 1998) plus 0.70%
           unsecured line of credit facility due March 22, 1999                         $   3,300         $   3,300

         Equipment leases                                                                      47               721

         Various notes at interest rates up to 8.75%                                          394             1,225
                                                                                        ---------         ---------

                                                                                            3,741             5,246
         Less current maturities                                                            3,580             4,906
                                                                                        ---------         ---------
                                                                                        $     161         $     340
                                                                                        =========         =========

</TABLE>
         In June 1998, the Company entered into a $50,000 revolving credit
facility with First Union National Bank. Interest accrues on amounts borrowed at
a floating rate equal to the 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 December 31, 1998, the
Company had $15,000 reserved in the form of a letter of credit and $35,000
available for borrowings under this facility. This credit facility expires in
June 2000, at which time any outstanding balance is due.

         In August 1998, the Company renegotiated a credit facility for $50,000
with Wachovia Bank, N.A. Interest accrues on amounts borrowed at a floating rate
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 December 31, 1998, the Company had
$3,300 outstanding and $46,700 available for borrowings under this facility.
This credit facility expires in March 1999, at which time the outstanding
balance is due.
         For the years subsequent to December 31, 1998, annual maturities of
long-term debt outstanding are:

                                            1999                    $   3,580
                                            2000                           76
                                            2001                           52
                                            2002                           33
                                                                    ---------
                                                                    $   3,741


                                      F-15
<PAGE>

            PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                      (IN THOUSANDS, EXCEPT PER SHARE DATA)



10.      LONG-TERM DEBT AND LEASE OBLIGATIONS (CONTINUED):


OPERATING LEASES
         The Company is obligated under noncancellable leases expiring at
various dates through 2011 relating to its operating facilities and certain
equipment. Rental expense for all operating leases, net of sublease income, was
$13,330, $13,492 and $10,334 for the years ended December 31, 1998, 1997 and
1996, respectively.

         The Company completed a sale-leaseback transaction involving owned real
estate in Austin, Texas in November 1995. Total gross proceeds in the
transaction were $12,000, resulting in a pre-tax gain of approximately $2,100.
The gain, which has been deferred, is classified as deferred rent and other in
the accompanying consolidated balance sheets and is being amortized as a
reduction of rent expense on a straight-line basis over the 15-year lease term.
The facilities are leased to the Company with all responsibility of operations
and maintenance residing with the Company.

         Certain facility leases entered into provided for concessions by the
landlords, including payments for leasehold improvements, moving expenses, and
free rent periods. These concessions have been reflected as deferred rent and
other in the accompanying consolidated financial statements. The Company is
recording rent expense on a straight-line basis for these leases.

         Future minimum payments for all operating lease obligations for years
subsequent to December 31, 1998 are as follows:

                    1999                                             $  11,841
                    2000                                                12,751
                    2001                                                11,828
                    2002                                                 9,845
                    2003                                                 8,786
                    2004 and thereafter                                 46,682
                                                                     ---------
                                                                     $ 101,733

         Omitted from the table above are the operating lease obligations
related to the Company's environmental sciences segment which was sold on
January 31, 1999. See Note 4. Future minimum payments related to operating lease
obligations of this segment were $18,593 at December 31, 1998

                                      F-16
<PAGE>

            PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                      (IN THOUSANDS, EXCEPT PER SHARE DATA)



11.      STOCK PLANS:

STOCK INCENTIVE PROGRAM
         The Company has two stock option plans (the "Plans") under which the
Company may grant options to its employees and directors for up to 2,600 shares
of common stock. Under the Plans, the exercise price of each option equals the
market price of the Company's stock on the date of grant and an option's maximum
term is 10 years. Options are granted upon approval of the Board of Directors
and vest over various periods, as determined by the Board of Directors at the
date of the grant.

         On January 1, 1996, the Company adopted the disclosure requirements of
Statement of Financial Accounting Standards No. 123 ("SFAS No. 123"),
"Accounting for Stock Based Compensation." As permitted by SFAS No. 123, the
Company has chosen to apply Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees", and related interpretations in
accounting for the Plans. Accordingly, no compensation cost has been recognized
for options granted under the Plans. Had compensation cost for the Company's
Plans been determined based on the fair value at the grant dates for awards
under the Plans consistent with the method required by SFAS No. 123, the
Company's net income (loss) and basic and diluted net income (loss) per share
would have been the pro forma amounts indicated below.
<TABLE>
<CAPTION>
                                            1998                        1997                       1996
                                    -----------------------   -----------------------   -----------------------
                                      AS                         AS                            AS
                                    REPORTED    PRO FORMA     REPORTED    PRO FORMA          REPORTED    PRO FORMA
<S>                                  <C>        <C>           <C>         <C>               <C>         <C>
Net income (loss)                    $19,769    $   17,236    $   9,602   $    7,730        $ (3,507)   $   (7,670)
Basic and diluted net income
 (loss) per share                    $  0.85    $    0.74     $    0.42   $     0.34        $  (0.17)   $    (0.36)
</TABLE>
         For the purposes of the pro forma presentation above, the fair value of
each option grant is estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted average assumptions used for
grants in 1998, 1997 and 1996: expected volatility of 60.3%, 58.7% and 49.9%,
respectively; risk-free interest of 5.75%, 6.0% and 6.25%, respectively; and
expected lives of five years. The resulting estimated weighted average fair
value of options granted during 1998, 1997 and 1996 was $13.49, $9.48 and $11.48
per share, respectively. All options granted during the years ended December 31,
1998, 1997 and 1996 were granted with an exercise price equal to the fair value
of the Company's common stock at the grant date The estimated pro forma amounts
above include the compensation cost for the Company's Employee Stock Purchase
Plan based on the fair value of the contributions under this plan consistent
with the method of SFAS No. 123.
         A summary of the status of the Plans as of December 31, 1998, 1997 and
1996, and changes during the years ending on those dates, is presented below:
<TABLE>
<CAPTION>
                                              1998                       1997                         1996
                                    -----------------------   --------------------------   -------------------------
                                                WEIGHTED                    WEIGHTED                     WEIGHTED
                                                AVERAGE                     AVERAGE                      AVERAGE
                                     SHARES  EXERCISE PRICE   SHARES      EXERCISE PRICE    SHARES    EXERCISE PRICE
                                     ------  --------------   ------      --------------    ------    --------------
<S>                                    <C>       <C>             <C>        <C>             <C>           <C>
Outstanding at beginning of year       1,532     $ 20.53         1,274      $  22.28        1,181         $ 16.29
Granted                                  381       23.20           526         15.56        1,089           22.57
Exercised                               (256)      15.69          (158)        14.74         (859)          15.10
Forfeited                                (83)      25.97          (110)        24.55         (137)          17.96
                                       -----                    ------                      -----
Outstanding at end of year             1,574     $ 21.67         1,532      $  20.53        1,274         $ 22.28
                                       =====     =======        ======      ========        =====         =======
Options exercisable at year-end          837     $ 21.90           841      $  20.80          771         $ 19.85
                                       =====     =======        ======      ========        =====         =======
</TABLE>

                                      F-17
<PAGE>


            PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                      (IN THOUSANDS, EXCEPT PER SHARE DATA)



11.      STOCK PLANS (CONTINUED):


         The following table summarizes information about the Plans' stock
options at December 31, 1998:
<TABLE>
<CAPTION>

                                                 OPTIONS OUTSTANDING                       OPTIONS EXERCISABLE
                                 --------------------------------------------------    ----------------------------
                                     NUMBER      WEIGHTED AVERAGE       WEIGHTED          NUMBER       WEIGHTED
                  RANGE OF       OUTSTANDING         REMAINING           AVERAGE       EXERCISABLE      AVERAGE
               EXERCISE PRICES   AT 12/31/98     CONTRACTUAL LIFE    EXERCISE PRICE    AT 12/31/98   EXERCISE PRICE
               ---------------   -----------     ----------------    --------------    -----------   --------------
<S>            <C>      <C>               <C>        <C>                   <C>             <C>       <C>
               $  0.00-$ 10.00            14         4.4 years             $   6.46        13        $   6.27

               $ 10.01-$ 20.00           607         6.6 years             $  15.73       357        $   16.33

               $ 20.01-$ 30.00           891         7.3 years             $  24.96       405        $   25.17

               $ 30.01-$ 40.00            56         0.4 years             $  35.58        56        $   35.58

               $ 40.01-$ 50.00             6         3.2 years             $  40.55         6        $   40.55
                                    --------                                        ---------
                                       1,574                                              837
                                    ========                                        =========
</TABLE>
OTHER STOCK PROGRAMS

         In August 1995, APBI granted a total of 60 restricted stock units
("RSUs") to two executive officers of APBI. The RSUs vested at the time the
average closing price for APBI's common stock equaled or exceeded $10.00 per
share for a period of 10 consecutive trading days. The RSUs vested in July 1996.
The executives were not required to pay any consideration in exchange for the
RSUs. Unearned compensation was amortized to expense over the vesting period of
the RSUs. Compensation expense of $534 related to these RSUs has been recorded
in the accompanying statement of operations for the year ended December 31,
1996.

SAVINGS RELATED STOCK OPTION PLAN

         The Company has a United Kingdom Savings Related Stock Option Plan
under which options are granted to employees who elect to purchase shares of
common stock at the end of a five or seven-year period. Savings are accumulated
through voluntary payroll deductions. The Company contributes a bonus to each
participant's savings account equal to nine monthly contributions at the end of
the five-year period and 18 monthly contributions at the end of the seven-year
period. When the savings period ends, the employee may elect to purchase the
shares using the savings balance, including the bonus; purchase some of the
shares and receive the savings balance in cash; or receive the savings and bonus
in cash. The United Kingdom Plan, as approved by the shareholders, was
implemented by Applied Bioscience International Inc. during 1988. Currently,
employees of the Company's United Kingdom subsidiary, Pharmaco International
Ltd., participate in this plan. Outstanding options of APBI at the time of the
merger were converted in accordance with the exchange ratio provided for in the
merger agreement.

         At December 31, 1998, there were 1 options outstanding at an average
exercise price of $13.72. Of those, 0.9 options were exercisable at December 31,
1998, at an average exercise price of $13.75.

                                      F-18
<PAGE>

            PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                      (IN THOUSANDS, EXCEPT PER SHARE DATA)



11.      STOCK PLANS (CONTINUED):

EMPLOYEE STOCK PURCHASE PLAN

         The Board of Directors has reserved 500 shares of the Company's common
stock for issuance under the Employee Stock Purchase Plan (the "ESPP"). The ESPP
has two six-month offering periods (each an "Offering Period") annually,
beginning January 1 and July 1, respectively. The first Offering Period under
the ESPP began July 1, 1997. Eligible employees can elect to make deductions
from 1% to 15% of their compensation during each payroll period of an Offering
Period. Special limitations apply to eligible employees who own 5% or more of
the outstanding common stock of the Company. None of the contributions made by
eligible employees to purchase the Company's common stock under the ESPP are tax
deductible to the employees. At the end of an Offering Period, the total payroll
deductions by an eligible employee for that Offering Period will be used to
purchase common stock of the Company at a price equal to 85% of the lesser of
(a) the reported closing price of the Company's common stock for the first day
of the Offering Period, or (b) the reported closing price of the common stock
for the last day of the Offering Period. Only 150 shares will be available for
purchase during each of the Offering Periods beginning with the period
commencing January 1, 1998.

         Employees eligible to participate in the ESPP include employees of the
Company and its United States operating subsidiaries, except those employees who
customarily work less than 20 hours per week or five months in a year. Since the
eligible employee determines both participation in and contributions to the
ESPP, it is not possible to determine the benefits and amounts that would be
received by an eligible participant or group of participants in the future.

         At December 31, 1998, $957 had been contributed to the ESPP relating to
unissued shares. Shares were not issued on December 31, 1998 since the market
had to be closed before a purchase price could be determined. On January 4,
1999, 51 shares were issued. During 1998, $2,971 had been contributed to the
ESPP and 225 shares were issued. The compensation costs for the ESPP as
determined based on the fair value of the contributions under the ESPP,
consistent with the method of SFAS No. 123, was $532 and $196 and is reflected
in the pro forma net income and basic and diluted net income per share for 1998
and 1997, respectively as disclosed above.

12.      INCOME TAXES:


         The components of income (loss) before provision for income taxes were
as follows:
<TABLE>
<CAPTION>
                                                                         YEARS ENDED DECEMBER 31,
                                                               1998              1997             1996
                                                               ----           ---------         ---------
<S>                                                          <C>              <C>               <C>
         Domestic                                            $  24,875        $  10,044         $  (3,523)
         Foreign                                                  (272)          (1,231)             (601)
                                                             ---------        ---------         ---------
         Income (loss) from continuing operations               24,603            8,813            (4,124)

         Domestic                                                7,357            6,169             4,817
         Foreign                                                   269              694               (66)
                                                             ---------        ---------         ---------
         Income from discontinued operations                     7,626            6,863             4,751
                                                             ---------        ---------         ---------

               Total                                         $  32,229        $  15,676         $     627
                                                             =========        =========         =========
</TABLE>

                                      F-19
<PAGE>

            PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                      (IN THOUSANDS, EXCEPT PER SHARE DATA)



12.      INCOME TAXES (CONTINUED):

         The components of the provision for income taxes were as follows:


                                                 YEARS ENDED DECEMBER 31,
                                        1998            1997          1996
                                      -------        -------        ---------

         State income taxes:
              Current                 $     942      $     313      $     330
              Deferred                       99            (97)            90
         Federal income taxes:
              Current                     9,607          5,305          2,130
              Deferred                    1,549            115          1,285
         Foreign income taxes:
              Current                       503            438            299
              Deferred                     (240)             -              -
                                      ---------      ---------      ---------
         Provision for income taxes   $  12,460      $   6,074      $   4,134
                                      =========      =========      =========


         The income tax provision is included in the financial statements as
follows:


                                             YEARS ENDED DECEMBER 31,
                                    1998              1997             1996
                                  -------          --------          ---------

         Continuing operations    $   9,448        $   3,363         $   2,257
         Discontinued operations      3,012            2,711             1,877
                                  ---------        ---------         ---------
               Total              $  12,460        $   6,074         $   4,134
                                  =========        =========         =========


         The 1998, 1997 and 1996 current foreign income tax expense represents
the foreign income tax liabilities associated with the Company's foreign
operations.

         The 1998 federal and state tax expense reflects the benefit related to
the utilization of capital loss carryforwards on the sale of the assets of
Clinix International, Inc.

                                      F-20
<PAGE>


            PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                      (IN THOUSANDS, EXCEPT PER SHARE DATA)

12.      INCOME TAXES (CONTINUED):

         Taxes computed at the statutory U.S. federal income tax rate of 35% are
reconciled to the provision for income taxes as follows: 


<TABLE>
<CAPTION>
                                                                                  YEARS ENDED DECEMBER 31,
                                                                       ----------------------------------------------
                                                                         1998               1997              1996
                                                                       ---------        ---------         -----------
         Effective tax rate                                                38.7%            38.7%              660.2%
                                                                       =========        =========         ===========
<S>                                                                    <C>              <C>               <C>
         United States federal statutory rate of 35%                   $  11,280        $   5,487         $       213
         Differential on rates applied to foreign earnings                     -                -                 (72)
         State taxes (net of federal benefit)                                677              237                 277
         Utilization of capital loss carry forward                        (1,799)               -                   -
         Tax gain in excess of book                                        1,319                -                   -
         Foreign taxes in excess of U.S. rate                                423                -                   -
         Allowance for limitation of utilization of foreign
           tax losses                                                        (38)             533                 299
         APBI merger costs not deductible for income tax purposes              -                -               2,751
         Goodwill and other items not deductible for income
             tax purposes                                                    450              449                 435
         Other                                                               175             (371)                231
         Benefit of federal statutory rate reduction from 35% to 34%           -             (100)                  -
         Deferred taxes set up for S to C conversion on
            acquisitions                                                       -             (161)                  -
         Change in valuation allowance                                       (27)               -                   -
                                                                       ---------        ---------         -----------
         Provision for income taxes                                    $  12,460        $   6,074         $     4,134
                                                                       =========        =========         ===========
</TABLE>

         During 1997, the Company began recording deferred taxes at a 35%
federal rate due to expected levels of income in the future.

         Components of the net current deferred tax asset are as follows:

                                                               DECEMBER 31,
                                                            1998        1997
                                                         ---------    ---------

         Future benefit of foreign net operating losses  $   2,736    $   2,523
         Allowance for doubtful accounts                       413          787
         Accruals                                            2,002        1,090
         Valuation allowance                                (2,400)      (2,427)
                                                         ---------    ---------
         Net current deferred tax asset                  $   2,751    $   1,973
                                                         =========    =========

         Components of the net long-term deferred tax asset, which are included
in other assets on the consolidated balance sheets, are as follows:

                                                                DECEMBER 31,
                                                            1998        1997
                                                         ---------    ---------
         Depreciation and amortization                   $   1,504    $   2,721
         Deferred rent                                         220        1,068
         Other                                                (169)         (47)
                                                         ---------    ---------
         Net long-term deferred tax asset                $   1,555    $   3,742
                                                         =========    =========

         A valuation allowance was recorded against the foreign net operating
loss carryforwards because there is a significant uncertainty that the deferred
tax assets will be realized. In addition, there is an $11,000 gross capital loss
carryforward, which the Company has written off against the valuation allowance
as the Company does not expect to realize this.

                                      F-21

<PAGE>

            PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                      (IN THOUSANDS, EXCEPT PER SHARE DATA)

12.      INCOME TAXES (CONTINUED):

         The cumulative amount of undistributed earnings of foreign subsidiaries
for which the Company has not provided U.S. income taxes at December 31, 1998
was $1,223. No provision has been made for the additional taxes that would
result from the distribution of earnings of foreign subsidiaries since such
earnings have been permanently reinvested in the foreign operations.

         During 1997, the Company utilized all U.S. net operating loss
carryforwards and alternative minimum tax credit carryforwards.


13.      EMPLOYEE SAVINGS AND PENSION PLANS:

SAVINGS PLANS

         The Company provides a 401(k) Retirement Savings Plan to its U.S.
employees. The Company matches 50% of an employee's savings up to 6% of pay, and
these contributions vest ratably over a four-year period. Company matching
contributions for all employees for each of the three years ended December 31,
1998, 1997 and 1996 were $2,201, $1,945 and $1,483, respectively.

PENSION PLANS

         Pension costs and related disclosures are determined under the
provisions of Statement of Financial Accounting Standards No. 132, "Employers'
Disclosures about Pensions and other Postretirement Benefits," which was adopted
by the Company in 1998. There was no impact on the Company's financial statement
balances as a result of the adoption of this pronouncement.

         The Company has a separate contributory defined benefit plan (the "U.K.
Plan") for its qualifying United Kingdom employees and directors employed by the
Company's U.K. subsidiaries. The benefits for the U.K. Plan are based primarily
on years of service and average pay at retirement. Plan assets consist
principally of investments managed in a mixed fund.

     Pension costs for the U.K. Plan included the following components:

                                                YEARS ENDED DECEMBER 31,
                                          1998           1997         1996
                                        ---------     ---------     ---------

         Service cost-benefits earned
           during the year              $     662     $     738     $     553
         Interest cost on projected
           benefit obligation                 777           631           623
         Actual return on plan assets        (984)         (954)         (771)
         Net amortization and deferral        (13)          (13)          (14)
                                        ---------     ---------     ---------
         Net pension cost               $     442     $     402     $     391
                                        =========     =========     =========

                                      F-22
<PAGE>

            PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                      (IN THOUSANDS, EXCEPT PER SHARE DATA)


13.      EMPLOYEE SAVINGS AND PENSION PLANS (CONTINUED):

     The change in benefit obligation, change in plan assets and funded status
     of the defined benefit plan was as follows:

<TABLE>
<CAPTION>
                                                                                   YEARS ENDED DECEMBER 31,
                                                                         1998              1997             1996
                                                                       ---------        ---------         ---------
<S>                                                                    <C>              <C>               <C>
         Change in benefit obligations
           Benefit of obligation at beginning of year                  $   8,528        $   8,404         $   7,456
           Service cost                                                      662              738               553
           Interest cost                                                     777              631               623
           Net actuarial loss (gain)                                       2,046             (403)                -
           Benefits paid                                                    (513)            (540)             (228)
           Foreign currency translation adjustment                            45             (302)                -
                                                                       ---------        ---------         ---------
           Benefit obligation at end of year                           $  11,545        $   8,528         $   8,404
                                                                       =========        =========         =========

         Change in plan assets
           Fair value of plan assets at beginning of year              $  10,931        $   9,963         $   9,162
           Actual return on plan assets                                    1,535            1,451               779
           Employer contributions                                            430              366               171
           Plan participants' contributions                                  141               50                79
           Benefits and expenses paid                                       (513)            (540)             (228)
           Foreign currency translation adjustment                            55             (359)                -
                                                                       ---------        ---------         ---------
           Fair value of plan assets at end of year                    $  12,579        $  10,931         $   9,963
                                                                       =========        =========         =========

         Net amount recognized
           Funded status                                               $   1,034        $   2,404         $   1,558
           Unrecognized transition asset                                     (85)             (97)             (115)
           Unrecognized net actuarial loss (gain)                          1,085             (406)              512
                                                                       ---------        ---------         ---------
            Prepaid pension cost                                       $   2,034        $   1,901         $   1,955
                                                                       =========        =========         =========
</TABLE>

     Assumptions used to determine pension costs and projected benefit
obligations were as follows:

<TABLE>
<CAPTION>
                                                                           1998            1997             1996
                                                                       -----------      -----------       ---------
<S>                                                                        <C>              <C>              <C>
         Discount rate                                                     7.5%             8.5%             8.5%
         Rate of compensation increase                                     5.0%             6.0%             6.5%
         Long-term rate of return on plan assets                           8.5%             9.5%             8.5%
</TABLE>

         Prior to January 31, 1999, the Company maintained the APBI
Environmental Sciences Group, Inc. Pension Plan (the "Pension Plan"), a
tax-qualified, defined-contribution money-purchase pension plan, for the benefit
of its eligible ENVIRON employees. ENVIRON is required to make annual
contributions to the Pension Plan in an amount equal to the sum of 3.75% of each
eligible employee's total compensation, plus 3.75% of the portion of such
employee's compensation in excess of the Social Security wage base. Participants
vest in 20% of their account balances after two years of service and 20% per
year until they are fully vested. The annual pension expense of the Pension Plan
for the three years ended December 31, 1998, 1997 and 1996 was $697, $638 and
$620, respectively. As of December 31, 1998 and 1997, accrued pension cost,
included in other accrued expenses, was $651 and $701, respectively.

         Effective January 1, 1994, APBI Environmental Sciences Group, Inc.
established the ENVIRON Supplemental Executive Retirement Plan. This plan is
nonqualified and provides certain key employees defined-contribution benefits
that supplement those provided by the Pension Plan. Company contributions to
this plan in 1998, 1997 and 1996 were $35, $35 and $39, respectively.

         The Pension Plan and the ENVIRON Supplemental Executive Retirement Plan
became the responsibility of the purchaser of the environmental services segment
on January 31, 1999.

                                      F-23
<PAGE>

            PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                      (IN THOUSANDS, EXCEPT PER SHARE DATA)

14.      COMMITMENTS AND CONTINGENCIES:

         The Company currently maintains liability insurance on a "claims made"
basis for professional acts, errors and omissions. As of December 31, 1998, this
coverage included two policies. One policy is for the Life and Discovery
Sciences Groups with a self-insured retention per claim of $250 and one is for
the environmental sciences segment with a $500 self-insured retention per claim.
As of December 31, 1998 and 1997 there are no open claims related to these
coverages.

         The Company currently is self-insured for group health for employees
located within the United States. The Company maintains insurance on a "claims
made" basis, up to a maximum of $100 per occurrence. As of December 31, 1998 and
1997 the Company maintained a reserve of approximately $1,500 and $1,300,
respectively, included in other accrued expenses on the consolidated balance
sheets to cover estimated open claims.

         In the normal course of business, the Company is a party to various
claims and legal proceedings. The Company records a reserve for these matters
when an adverse outcome is probable and the amount of the potential liability is
reasonably estimable. Although the ultimate outcome of these matters is
currently not determinable, management of the Company, after consultation with
legal counsel, does not believe that the resolution of these matters will have a
material effect upon the Company's financial condition or results of operations
for an interim or annual period.


15.      RELATED PARTY TRANSACTIONS:
         Several of the Company's shareholders collectively own 14.6% of LOI
Building, Inc. ("LOI"), which leased operating facilities to the Company through
November 1996. Rent paid to LOI for the year ended December 31, 1996 totaled
$402.

         One of the members of the Company's Board of Directors (who was a
member of APBI's Board of Directors prior to the Company's acquisition of APBI)
is Vice Chairman at Lehman Brothers. Lehman Brothers acted as APBI's investment
banker for APBI's acquisition by the Company. For those investment-banking
services, Lehman Brothers earned $3,059 in 1996.

         The Company is related through common ownership with E.M. Associates,
Inc., which provides investigative board services to the Company. The Company
had transactions with E.M. Associates, Inc. of $37 and $66 in expenses for the
years ended December 31, 1997 and 1996, respectively. There were no transactions
with E.M. Associates during the year ended December 31, 1998.

         The Company paid legal fees in 1996 of approximately $333 to a firm,
which had a partner who became General Counsel of the Company in 1996. At the
time this individual became the Company's General Counsel, this individual
disposed of all of his interest in the law firm.

16.      FAIR VALUE OF FINANCIAL INSTRUMENTS:

         The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is practicable to
estimate that value:

CURRENT ASSETS AND CURRENT LIABILITIES

         The carrying amount approximates fair value because of the short
maturity of those instruments.

INVESTMENT IN DAS

         The Company's investment in DAS is recorded at $1,500 at December 31,
1998. The Company's investment in DAS is valued based on the cost method as the
preferred stock of DAS is not tradeable and does not exceed estimated net
realizable value.

                                      F-24
<PAGE>
            PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                      (IN THOUSANDS, EXCEPT PER SHARE DATA)


16.      FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED):

INVESTMENT IN SDI

         The Company's investment in SDI was recorded at $1,161 compared to the
market price $1,608 as quoted on the National Market System of the National
Association of Securities Dealers Automated Quotation System at December 31,
1997. At December 31, 1997, this investment was not valued at the market price
due to the purchase options outstanding at the exercise price of $1.625 per
share for all shares of SDI which the Company owned. The Company received $1,161
in March 1998 when all the options were exercised.

LONG-TERM DEBT

         The fair value of the Company's long-term debt is estimated based on
the quoted market prices for the same or similar issues or on the current rates
offered to the Company for debt of the same remaining maturities. Fair value
approximates the carrying amount as the Company's debt instruments bear interest
based on variable rates.

LETTERS OF CREDIT

         The Company utilizes letters of credit to back certain guarantees and
insurance policies. The letters of credit reflect fair value as a condition of
their underlying purpose and are subject to fees competitively determined in the
market place.

17.      BUSINESS SEGMENT DATA:

         During 1998 and 1997, the Company operated in three business segments -
life sciences, environmental sciences and discovery sciences. The Company sold
its environmental sciences segment in January 1999 (see Note 4). Prior to 1997,
the Company operated in two segments - life sciences and environmental sciences.
Accordingly, the income statements have been restated to conform to the
provisions of APB 30, "Reporting the Results of Operations - Reporting the
Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual, and
Infrequently Occurring Events and Operations". The consolidated balance sheets
and cash flows have not been restated to exclude the assets, liabilities and
cash flows of the environmental sciences segment.

                                      F-25
<PAGE>

            PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                      (IN THOUSANDS, EXCEPT PER SHARE DATA)

17.      BUSINESS SEGMENT DATA (CONTINUED):


         Revenues by principal business segment are separately stated in the
consolidated financial statements. Merger costs and acquired in-process research
and development costs incurred in 1998, 1997 and 1996 of $3,163, $9,670 and
$14,773, respectively, were not allocated to the Company's business segments and
are shown separately for purposes of business segment analysis. Income taxes are
allocated evenly to each division for purposes of business segment analysis.
Income (loss) from operations, net income, depreciation and amortization,
identifiable assets and capital expenditures by principal business segment were
as follows:

<TABLE>
<CAPTION>
                                                                    YEARS ENDED DECEMBER 31,
                                                          1998              1997            1996
                                                        ---------        ---------        ---------
<S>                                                        <C>              <C>           <C>
         Income (loss) from operations: (a)
                Life sciences                           $  28,693        $  19,344        $   8,845
                Discovery sciences                         (4,489)          (2,325)               -
                Merger costs and acquired in-process
                  research and development costs           (3,163)          (9,670)         (14,773)
                                                        ---------        ---------         --------
                Total                                   $  21,041        $   7,349        $  (5,928)
                                                        =========        =========        =========

         Net income (loss)
                Life sciences                           $  17,851        $   6,856        $  (6,381)
                Discovery sciences                         (2,696)          (1,406)               -
                Environmental sciences                      4,614            4,152            2,874
                                                        ---------        ---------         --------
                Total                                   $  19,769        $   9,602        $  (3,507)
                                                        =========        =========        =========

         Depreciation and amortization: (a)
                Life sciences                           $  11,897        $  10,651        $   8,898
                Discovery sciences                            420              229                -
                                                        ---------        ---------         --------
                Total                                   $  12,317        $  10,880        $   8,898
                                                        =========        =========        =========

         Identifiable assets:
                Life sciences                           $ 200,382        $ 165,855        $ 159,394
                Discovery sciences                          3,672            1,465                -
                Environmental sciences                     32,528           29,727           22,063
                                                        ---------        ---------         --------
                Total                                   $ 236,582        $ 197,047        $ 181,457
                                                        =========        =========        =========

         Capital expenditures:
                Life sciences                           $  16,866        $  11,589        $   9,895
                Discovery sciences                            740              495                -
                Environmental sciences                      1,737            1,515            1,281
                                                        ---------        ---------        ---------
                Total                                   $  19,343        $  13,599        $  11,176
                                                        =========        =========        =========
</TABLE>


(a)      Does not include results of operations of the environmental sciences
         segment which was sold January 31, 1999. See Note 4.

                                      F-26
<PAGE>

            PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                      (IN THOUSANDS, EXCEPT PER SHARE DATA)

18.      OPERATIONS BY GEOGRAPHIC AREA:

          The following table presents information about the Company's
operations by geographic area:

<TABLE>
<CAPTION>
                                                         YEARS ENDED DECEMBER 31,
                                              1998              1997             1996
                                          -----------       ----------       ------------
<S>                                       <C>              <C>               <C>
          Net revenue:  (a)
                United States             $   199,295      $   162,822       $   130,851
                U.K.                           16,506           14,583            14,372
                Other (b)                      19,752           10,082             7,081
                                          -----------      -----------       -----------
                Total                     $   235,553      $   187,487       $   152,304
                                          ===========      ===========       ===========

         Operating income (loss): (a)
                United States             $    20,749      $     8,778       $    (6,032)
                U.K.                           (1,004)            (575)             (939)
                Other (b)                       1,296             (854)            1,043
                                          -----------      -----------       -----------
                Total                     $    21,041      $     7,349       $    (5,928)
                                          ===========      ===========       ============

         Identifiable assets:
                United States             $   183,411      $   157,543       $   142,464
                U.K.                           36,825           27,063            27,657
                Other (b)                      16,346           12,441            11,336
                                          -----------      -----------       -----------
                Total                     $   236,582      $   197,047       $   181,457
                                          ===========      ===========       ===========
</TABLE>

(a)      Does not include results of operations of the environmental sciences
         segment which was sold January 31, 1999. See Note 4.
(b)      Principally consists of revenue from 15 countries, nine of which are
         located in Europe, none of which individually comprise more than 5% of
         net revenue, operating income (loss) or identifiable assets.

                                      F-27


<PAGE>

            PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                      (IN THOUSANDS, EXCEPT PER SHARE DATA)



19.      QUARTERLY FINANCIAL DATA (UNAUDITED):

<TABLE>
<CAPTION>
              1998 (A)                FIRST            SECOND            THIRD            FOURTH            TOTAL
-------------------------------     --------         ---------         ---------        ---------         ---------
<S>                                 <C>              <C>               <C>              <C>               <C>
Net revenue                         $ 52,153         $  57,465         $ 61,452        $  64,483         $ 235,553

Operating income                       3,976             2,183            6,596            8,286            21,041
Net income from continuing
  operations                           3,434             1,669            4,428            5,624            15,155
Net income from operations of
  discontinued environmental
  sciences segment                     1,102             1,206            1,198            1,108             4,614
Net income                             4,536             2,875            5,626            6,732            19,769
Net income per share:
         Basic                      $   0.20         $    0.12         $   0.24         $   0.29         $    0.85
         Diluted                    $   0.20         $    0.12         $   0.24         $   0.29         $    0.85
Income from continuing operations
  per share:
         Basic                      $   0.15         $    0.07         $   0.19         $   0.24         $    0.65
         Diluted                    $   0.15         $    0.07         $   0.19         $   0.24         $    0.65


              1997 (A)

Net revenue                         $ 45,969         $  47,942         $ 46,295         $ 47,281         $ 187,487

Operating income (loss)                3,980            (4,300)           4,544            3,125             7,349

Net income (loss) from
  continuing operations                2,565            (2,382)           2,917            2,350             5,450

Net income from operations of
  discontinued environmental
  sciences segment                       778             1,036            1,224            1,114             4,152

Net income (loss)                      3,343            (1,346)           4,141            3,464             9,602

Net income (loss) per share:
         Basic                      $   0.15         $   (0.06)        $   0.18         $   0.15         $    0.42
         Diluted                    $   0.15         $   (0.06)        $   0.18         $   0.15         $    0.42

Income (loss) from continuing
   operations per share:
         Basic                      $   0.12         $   (0.11)        $   0.13         $   0.10         $    0.24
         Diluted                    $   0.11         $   (0.11)        $   0.13         $   0.10         $    0.24
</TABLE>
----------------
(a)      Quarterly financial operating results have been restated to reflect the
         environmental sciences segment as discontinued operations.

                                      F-28
<PAGE>

            PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                      (IN THOUSANDS, EXCEPT PER SHARE DATA)

20.      SUBSEQUENT EVENTS:

         On January 31, 1999, the Company sold its environmental sciences
segment. See Note 4.

         In February 1999, the Company formed a joint venture, PPGx, with Axys
Pharmaceuticals, Inc. to pursue the business of pharmacogenomics. The Company
contributed $1,500 in cash, the net assets of Intek, and assigned the rights to
a certain software license from Axys for an 18.2% ownership interest in PPGx.
Separately, the Company and Axys entered into a software licensing agreement
whereby the Company licensed certain software, from Axys in exchange for a
$2,000 license fee. The Company has received exclusive marketing rights to PPGx
pharmacogenomics products and services and an option to increase its ownership
share of PPGx after the first anniversary of the forming of PPGx.

         In February 1999, the Company signed a non-binding letter of intent to
acquire ATP, Inc., a health information services company. ATP provides
customized inbound and outbound telecommunications programs targeting consumers
and health care providers. Under the terms of the letter of intent, the Company
will issue approximately 1,000 shares of its unregistered common stock, subject
to certain closing adjustments, to the shareholders of ATP in return for their
ATP stock. The transaction will be accounted for as a pooling of interests.

                                      F-29
<PAGE>

                                   SIGNATURES


         Pursuant to the requirements of Section 13 or 15(d) 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.
Date:  March 4, 1999               By: /s/ Fredric N. Eshelman, Pharm.D.
                                       ---------------------------------
                                   Name:  Fredric N. Eshelman, Pharm.D.
                                   Title:     Chief Executive Officer


         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.


<TABLE>
<CAPTION>
<S>                                             <C>                                            <C>
/s/ Fredric N. Eshelman, Pharm.D.                Director and Chief Executive Officer          March 4, 1999
---------------------------------                (Principal Executive Officer)
Fredric N. Eshelman, Pharm.D.

/s/ Rudy C. Howard                              Chief Financial Officer, Vice President of     March 4, 1999
---------------------------------               Finance and Treasurer (Principal Financial
Rudy C. Howard                                  Officer)

/s/ Linda Baddour                               Chief Accounting Officer and Executive         March 4, 1999
---------------------------------               Director, Finance  (Principal Accounting
Linda Baddour                                   Officer)                                 
                                                
/s/ Ernest Mario, Ph.D.                         Director                                       March 4, 1999
---------------------------------
Ernest Mario, Ph.D.

/s/ Stuart Bondurant, M.D.                      Director                                       March 4, 1999
---------------------------
Stuart Bondurant, M.D.

/s/ Abraham Cohen                               Director                                       March 4, 1999
---------------------------
Abraham E. Cohen

/s/ Thomas D'Alonzo                             Director                                       March 4, 1999
------------------------------------
Thomas D'Alonzo

/s/ Frederick Frank                             Director                                       March 4, 1999
------------------------------------
Frederick Frank

/s/ Paul J. Rizzo                               Director                                       March 4, 1999
------------------------------------
Paul J. Rizzo

/s/ John A. McNeill, Jr.                        Director                                       March 4, 1999
------------------------------------
John A. McNeill, Jr.

/s/ Donald C. Harrison, M.D.                    Director                                       March 4, 1999
------------------------------------
Donald C. Harrison, M.D.
</TABLE>

                                      S-1