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, 1997

                                                        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 Seventeenth Street Extension
            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 10K or any amendment to this
Form 10-K. [ X ]

The aggregate market value of the voting stock held by non-affiliates of the
registrant was $370,122,685 as of February 27, 1998, 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 23,024,417 as of February 27, 1998.

                       DOCUMENTS INCORPORATED BY REFERENCE

The Company's definitive Proxy Statement for its 1998 Annual Meeting of
Stockholders (certain parts as indicated herein Part III).



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                                     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, environmental and discovery sciences. The Company's life sciences
subsidiaries include PPD Pharmaco, Inc., Belmont Research, Inc. and Intek Labs,
Inc. The Company believes that PPD Pharmaco is the fourth largest contract
research organization ("CRO") in the world, providing integrated product
development services on a global basis to complement the research and
development activities of companies in the pharmaceutical and biotechnology
industries. Through its environmental sciences subsidiary, APBI Environmental
Sciences Group, Inc. (operating under the trade name ENVIRON), the Company also
provides assessment and management of chemical and environmental health risk.
PPD Discovery, Inc., the Company's discovery sciences subsidiary, focuses on the
discovery segment of the research and development outsourcing market.

     LIFE SCIENCES GROUP

         The Company's Life Sciences Group provides services through (i) PPD
Pharmaco, Inc. and its wholly-owned European, South American, South African,
Australian and Canadian subsidiaries (collectively "PPD Pharmaco"), (ii) Belmont
Research, Inc. ("Belmont"), and (iii) Intek Labs, Inc. ("Intek").

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

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

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

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

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     ENVIRONMENTAL SCIENCES GROUP

         ENVIRON, the Company's Environmental Sciences Group, provides
environmental services through APBI Environmental Sciences Group, Inc.,
operating under the trade name ENVIRON. ENVIRON provides a broad range of
scientific, technical and strategic management consulting services that address
a wide variety of public health and environmental issues related to the presence
of chemicals in foods, drugs, medical devices, consumer products, the workplace,
and the environment. Services provided by ENVIRON are concentrated in the
assessment and management of chemical risk and are characterized by engagements
supporting private sector clients with complex, potentially high-liability
concerns.

         In 1997, the Company expanded its Environmental Sciences Group through
the acquisition of Technical Assessment Systems, Inc. ("TAS"). ENVIRON expanded
its geographic reach through a new presence in the Midwest United States and a
strategic alliance with Gerling Consulting Group in Cologne, Germany.
Geographical expansion is one of ENVIRON's strategic objectives. The firm's
opportunity to service existing clients more efficiently and to penetrate local
markets is enhanced by offices in critical regions of the U.S. and other parts
of the world.

     DISCOVERY SCIENCES GROUP

         PPD DISCOVERY, INC. ("PPD DISCOVERY") was established in June 1997. The
Company acquired SARCO, Inc. ("SARCO"), a combinational chemistry company. The
Company also acquired the GSX System, a functional genomics platform technology.
The acquisitions form the basis of the new wholly-owned subsidiary focused on
the discovery research segment of the research and development outsourcing
market.

Industry Overview

     LIFE SCIENCES GROUP

         The CRO industry provides independent product development services to
the pharmaceutical and biotechnology industries and derive substantially all of
their 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") and the European
Medicines Evaluation Agency ("EMEA").

         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 produced much of the software
used in the drug discovery, clinical development, and regulatory compliance
processes through use of internal programming resources. Now, these companies
are also seeking external sources, provided by companies including our Belmont
subsidiary, 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, detailed
knowledge of the pharmaceutical industry drug discovery and development process
forms a barrier to entry.

     ENVIRONMENTAL SCIENCES GROUP

         The environmental industry historically has grown from assisting
private sector clients in responding to the regulatory systems that have been
put into place at both the federal and state levels. In addition, litigation
support on behalf of private sector clients involved in disputes with government
agencies or other private parties has been a significant source of market
opportunity and revenue.

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         For the next several years, the Company believes that the environmental
industry will find continued, but more limited, opportunities to grow.
Opportunities to provide litigation support are expected to increase. In
addition, after many years of dealing with problems created in the past, general
industry, especially the manufacturing, industrial and chemical concerns, is now
able to turn its attention to current operations and prevention of future
environmental issues. The industry's proactive approach will create new and
expanding opportunities for the environmental industry.

         The Company believes that international opportunities for environmental
industry growth will continue to expand as the world moves toward a global
economy. Companies seeking to enter the world economy will need assistance in
developing environmental management systems and in monitoring these programs for
compliance with international standards. In addition, as world markets become
more developed, opportunities will increase for the environmental industry to
assist private firms in merger and acquisition planning and in general
evaluation and management of environmental and public health risks. The Company
believes that its acquisition of TAS will allow it to better pursue these
opportunities.

     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. Recent figures from the Pharmaceutical Research and
Manufacturers of America association (PhRMA), a pharmaceutical industry trade
group, show that research-based pharmaceutical companies invested approximately
$18.9 billion in R&D activities in 1997.

         On average, these companies allocate over 40 percent of their Research
& Development budget to pre-clinical R&D functions. PhRMA estimates that the
average cost of bringing a drug to market exceeds $359 million and takes
approximately 10-15 years. Pre-clinical R&D functions include biological target
identification and validation, screening of chemical compounds 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 chemical 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.

         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.

         PPD Discovery markets its products and services to those research-based
companies looking for outsource research support. The Company believes that this
outsource 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 the pre-clinical research, in which the new drug is tested in vitro
(test tube) and 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 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 does provide full
development services for the clinical stage.

         Prior to commencing human clinical trials in the United States, the
sponsor must file an Investigational New Drug ("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 in other countries or in the United States 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.

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         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:

  (bullet)        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.

  (bullet)        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.

  (bullet)         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.

         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
eighteen 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.

Regulatory Environment

         The market for the services offered by both the Company's CRO
operations and ENVIRON 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 various substances, including pharmaceutical products,
industrial chemicals and agrochemicals. The most significant laws and
regulations concern the safety of pharmaceutical products. The results of
clinical tests conducted upon pharmaceutical products must be submitted to
appropriate government agencies, such as the FDA in the U.S., 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.

         Manufacturers of industrial chemicals and agrochemicals must also
comply with toxicological testing requirements in connection with the pre-market
approval process. In recent years, heightened concern over the presence of
potentially toxic substances in the environment has focused attention on the
need to evaluate the effects of existing and new chemical substances. As a
result, regulations have been enacted in many jurisdictions expanding the
regulatory process for industrial chemical and agrochemical products, including
the Toxic Substances Control Act ("TSCA") and the Federal Insecticide, Fungicide
& Rodenticide Act in the United States ("FIFRA"), and the council Directive
91/414/EEC in Europe.

         The management and remediation of hazardous substances in the
environment are also subject to extensive federal legislation in the U.S.,
including the Comprehensive Environmental Response, Compensation and Liability
Act of 1980 ("CERCLA", commonly known as the "Superfund" legislation) and the
Superfund Amendment and Reauthorization Act of 1986 ("SARA"), which address
problems involving the remediation of past waste disposal practices; the
Resource Conservation and Recovery Act of 1976 ("RCRA") and the Hazardous Solid
Waste Amendments of 1984, which regulate the management of newly created wastes;
the Safe Drinking Water Act of 1974; the Clean Water Act; the Occupational
Safety and Health Act ("OSHA") and the 1990 Clean Air Act Amendments. In
addition, state authorities have enacted significant environmental legislation,
including California's Safe Drinking Water and Toxic Enforcement Act of 1986 and
New Jersey's Industrial Site Recovery Act.


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Trends Affecting the CRO Industry

         In 1997, worldwide expenditures on research and development by
pharmaceutical and biotechnology companies are estimated to have been $40
billion, of which the Company estimates $15 to $20 billion was spent on drug
development activities of the type offered by the CRO industry. The Company
believes that approximately $3.5 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.

         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 science 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.

         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

         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, including the Company's merger with
Applied Bioscience International Inc. ("APBI"), 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

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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 massive 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 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 and (vii)
pursuing opportunities provided by technological advances.

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

         MANAGERIAL AND OPERATIONAL STRENGTH

         The Company is guided by senior management who have spent much of their
careers as 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, 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/AIDS/infectious diseases,
cardiopulmonary diseases, central nervous system, 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 with an
emphasis 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 stage 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.

         Supplemented by centralized PPD corporate level marketing efforts,
ENVIRON conducts separate marketing activities at each of its office locations.
ENVIRON believes that its regional presence enables its professionals to gain a
greater knowledge of regional environmental issues, a better understanding of
regional laws and regulations, and a more constructive working relationship with
regional governmental agency personnel. Because of the technical nature of
ENVIRON's business, most marketing activities at each of ENVIRON's operating
divisions are conducted by technical and scientific personnel.


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         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 communications efforts are advertising
in trade journals, exhibits and participation at scientific conferences,
speakers bureaus, direct mail, sales collateral 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.

         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 the acquisition and 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 (United States,
Canada, South America), Europe, including eastern Europe, South Africa 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.

         ENVIRON's 1997 acquisition of TAS in the United Kingdom and alliance
with Gerling Consulting Group in Cologne, Germany expanded their operations
outside the U.S. ENVIRON will continue to pursue other strategic opportunities,
both within the U.S. and internationally.

         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.

                                       7

<PAGE>


Services Offered

      LIFE SCIENCES GROUP

         PPD Pharmaco has designed its various 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,
Phase II-IV clinical trial management, clinical data management and
biostatistical analysis, treatment Investigational New Drug Applications,
medical writing and regulatory services, and healthcare economics and outcomes
research for its clients. PPD Pharmaco's services can be provided individually
or as an integrated package of services to meet its client's needs. Belmont
provides innovative software development and system integration services and
creates a data link between discovery and development. Intek provides molecular
genotyping, phenotyping and large-scale genomic DNA purification services
through a cGLP compliment reference laboratory for discovery and development
services. During 1997, $187.2 million, or 79.6%, of the Company's net revenue
was generated by the Life Sciences Group.

         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 the industry's largest Phase I provider,
with clinical testing services conducted in its 200-bed unit in Austin, Texas,
its 66-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 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, Texas; Research Triangle
Park, North Carolina and Leicester, England, 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.

         The Company also provides bioavailability and bioequivalence testing
services. This testing generally conducted each time the dosage, form or
formulation of the drug is modified, 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 integrated 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 bioanalytical and product analysis services
through its laboratories in Richmond, Virginia and Middleton, Wisconsin. PPD
Pharmaco's laboratories analyze biological fluid samples from clinical studies,
such as those conducted by PPD Pharmaco's Phase I units, for drug and metabolite
content and concentration. PPD Pharmaco currently has approximately 318
non-proprietary validated assays available for its clients' use in conducting
laboratory analyses, thereby qualifying PPD Pharmaco for a wide range of
assignments.
PPD Pharmaco's laboratories also process fluid samples for pre-clinical studies.

         Product analysis services include dissolution and stability studies,
which are necessary to characterize a dosage form's 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, 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, pharmacogenetics, and
infomatics 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:

<TABLE>
<CAPTION>

      <S>                        <C>
      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     Congestive heart failure, hypertension, global survival trials
      Central nervous system     Schizophrenia, depression, anxiety, obsessive-compulsive disorders,
      disease                    panic disorders
      Dermatology                Wound healing, acne, hair loss
      Food and Nutrition         Fat substitutes, beta carotene, oligofructose, fibers
      Gastroenterology           Duodenal ulcer, gastric ulcer, gastro-esophageal reflux disease,
                                 H. PYLORI, nonsteroidal anti-inflammatory drug-induced ulcers
      Infectious disease         Acute and critical
      Metabolic disease          Diabetes, hormone replacement therapy
      Oncology                   Ovarian and lung cancer
      Pulmonary/Allergy          Asthma, allergic rhinitis, community acquired pneumonia, Acute Respiratory
                                 Distress Syndrome
      Rheumatology               Rheumatoid and osteoarthritis
      Virology                   AIDS, herpes simplex, chronic hepatitis B, chronic hepatitis C
      Women's health             Hormone replacement, oral contraception

</TABLE>

         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 trials 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 is
expected to adopt the ICH's guidelines, and, the European Community has agreed
to conduct all studies in accordance with the recommendations 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.

         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, administration of the
  drug to patients is supervised by physicians, also referred to as
  investigators, at hospitals, clinics or other locations, also referred to as
  investigational sites. The Life Sciences Group recruits investigators who
  contract directly with either PPD Pharmaco or its client. 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 20,000 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 choose the appropriate investigators for a particular study
in an efficient manner.

         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 are 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 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 all 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, patient recruitment is critical to the
Company's success.

         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 acquires data via visits by its field monitors to
investigative sites and by electronic means. Field monitors are equipped with
laptop computers for the purpose of data collection.

         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 58,000 patients.

         CLINICAL DATA MANAGEMENT AND BIOSTATISTICAL ANALYSIS

         PPD Pharmaco's data management and biostatistical analysis operations
are managed by professionals with 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 submission to the FDA, known as
Computer Assisted New Drug Applications) and FDA presentations and defense.

         The Company offers data management and biostatistical analysis services
are both as discrete products 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, Clintrace,
Oracle, BBN Clintrial and other third party software, as specified by clients,
combined with customized programs developed by PPD Pharmaco.

         Drug development time can be reduced by performing data management and
biostatistical analysis activities in parallel with other drug development
activities where possible. For example, data management personnel work with
clinical program managers and field monitors to continuously enter data, program
output tables and listings, and validate

                                   10

<PAGE>


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 services 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 treatment 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 monitoring
the treatment to an integrated service project involving full investigational
site management, data management, biostatistical analysis and report writing.

         MEDICAL WRITING AND REGULATORY SERVICES

         PPD Pharmaco provides report writing and regulatory services to its
clients in a manner designed to complement parallel development processes to
reduce overall development time. Strategic plan and protocol design services
provided at the beginning of a project, combined with clear, concise data
presentation, analysis and discussion at the completion of the project, assist
the client in obtaining regulatory approvals. These 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 AND OUTCOMES 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.

     ENVIRONMENTAL SCIENCES GROUP

         APBI Environmental Sciences Group, or ENVIRON, currently provides
health and environmental sciences and engineering consulting services. During
1997, the Environmental Sciences Group generated 20.3% of the Company's net
revenue.

         ENVIRON is a leading provider of multidisciplinary consulting services
in the chemical risk assessment and risk management field. ENVIRON provides
services primarily to private sector clients facing potentially high liability
as a result of the presence of chemicals in the environment, in drugs and
medical devices, in consumer products and in the workplace. ENVIRON's
engagements typically involve providing creative, multidisciplinary solutions to
complex problems.

         ENVIRON provides services primarily in two areas: (1) life sciences;
and (2) environmental sciences and engineering. ENVIRON's health sciences staff
includes professionals trained in toxicology, epidemiology, chemistry,
biochemistry, microbiology, industrial hygiene, risk assessment and allied
fields. Its environmental sciences and engineering staff includes professionals
trained in hydrogeology; geology; environmental chemistry; environmental,
chemical and civil engineering; ecotoxicology, ecology and natural resources.
Approximately half of ENVIRON's employees have advanced degrees (master's level
or above). Of those with advanced degrees, approximately one-third have attained
their Ph.D.

         ENVIRON offers the following services:

         CHEMICAL RISK ASSESSMENT AND RISK MANAGEMENT

         ENVIRON assesses the potential risk of injury to human health and the
environment associated with industrial chemicals during all stages of
manufacturing use and disposal. It also provides assistance in determining
exposures and the potential health impact of chemicals present in food, consumer
products, pharmaceuticals, medical devices and the workplace.

         The chemical risk assessment services provided by ENVIRON typically
involve two components. ENVIRON analyzes toxicological and biological data to
assess the inherent hazard or toxicological properties of industrial chemicals
and other substances. In addition, ENVIRON assesses the physical-chemical
properties of industrial chemicals and other substances in the media in which
they are found to evaluate the fate and transport of such substances in the
environment

                                       11

<PAGE>



and the potential for exposure. The assessments performed by ENVIRON are
generally used to evaluate the potential for public health risk and ecological
damage. ENVIRON also assists clients in developing workplace standards for
industrial chemicals and prepares assessments of risks resulting from
occupational exposure. In addition, ENVIRON conducts audits to determine
compliance with specific laws regulating chemical releases into air, water and
other environmental media and to obtain permits for manufacturing or processing
facilities.

         ENVIRON provides such services in a variety of project areas, including
complex hazardous waste sites, current and former industrial manufacturing
facilities, leaking underground storage tanks, municipal and hazardous waste
disposal facilities, incinerators, abandoned mine sites, pesticide-contaminated
agricultural land, and large-scale spills and releases. In performing
assessments, ENVIRON also analyzes the potential for exposure at the project
site and the surrounding environment.

         ENVIRONMENTAL LIABILITY ASSESSMENTS

         ENVIRON performs environmental liability assessments of industrial
properties, commercial and residential developments, undeveloped parcels of land
and hazardous waste sites to identify practices that could result in significant
exposure or liability. These services include environmental audits to determine
compliance with current and anticipated governmental regulations and to estimate
the present value of environmental liabilities. Such assessments have been
performed across a broad range of industries, including iron and steel; pulp and
paper; mining, oil and gas; textiles, lumber and wood; plastics; leather; and
electronics.

         SITE INVESTIGATION AND REMEDIATION

         ENVIRON assists clients in determining the nature and extent of
contamination at industrial and hazardous waste sites through the collection and
analysis of soil, water and sediment samples. ENVIRON's services in this area
also include the evaluation and analysis of the cost-effectiveness of various
alternative remediation strategies. ENVIRON also designs the selected remedial
strategy, hires subcontractors as appropriate and provides oversight of the
implementation of the strategy. Such services are often provided in connection
with the negotiation and resolution of disputes that relate to the apportionment
of liability arising under various contracts.

         LITIGATION SUPPORT

         ENVIRON provides expert technical assistance and strategic support to
clients who are or who anticipate becoming involved in litigation relating to
environmental, occupational and product safety issues. These services involve
substantially all of its practice areas. Services provided include reviewing
environmental data and waste handling records, allocating liability among
multiple site owners, developing information on state-of-the-art waste disposal
practices, determining the timing of contaminant release events, evaluating
sampling programs and remedial measures developed for contaminated sites,
reviewing toxicological and epidemiological data associated with the use of
consumer products and determining relationships between exposure and disease or
injury. ENVIRON's senior staff members have extensive experience providing
expert testimony in the areas of toxicology, risk assessment and contaminant
releases.

         PRODUCT SAFETY REGULATION

         ENVIRON provides strategic scientific support and regulatory affairs
guidance in the pre-market approval process for and subsequent use of various
products, including drugs and pharmaceuticals, medical devices, food additives,
consumer products, agricultural chemicals and biotechnology products.

         AIR QUALITY

         ENVIRON offers a full spectrum of air quality services, such as: air
emissions and dispersion modeling from industrial facilities and hazardous waste
sites, including siting studies and air toxics impact evaluations; air pollution
compliance assistance, including compliance auditing, regulatory analysis and
obtaining government permits; ambient and indoor monitoring program design and
implementation; process engineering; emergency release modeling and off-site
consequence analysis; analysis of the potential regional air quality impacts of
alternative control strategies, including advanced vehicles, alternative and
reformulated fuels and other mobile and stationary source control measures and
leak detection and repair services, including monitoring equipment
recommendations, software/data base management system design, program management
consulting and field services.

         OTHER ENVIRONMENTAL SERVICES
         ENVIRON also provides a variety of other services that complement its
primary service areas. Such services include facility siting and permitting,
water quality assessments, waste management, emergency planning and development
and integration of environmental management systems. Although such other
services have historically represented a relatively small percentage of
ENVIRON's net revenue, the Company believes that it will have opportunities to
expand its business in these areas in the future.


                                       12
<PAGE>


         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.

         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 chemical compounds
to the pharmaceutical, biotechnology, agrochemical, and animal health
industries. SARCO's core expertise includes the rapid synthesis of large numbers
of novel molecules 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, USA. 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 SARCO base libraries; chemical compounds designed for
high throughput biological screening, and SARCO Focus Libraries; 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 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,
1997, approximately 83% of the Company's Life Sciences Group's net revenue was
attributable to clinical services and 17.0% to laboratory services. For the year
ended December 31, 1997, net revenue of the Life Sciences Group was derived
approximately as follows:

                                     Percentage of
         Source                        Net Revenue
         ------                        ------------
         Pharmaceutical                     77.9%
         Biotechnology                      11.1
         Government                          3.4
         Other                               7.6

         The Company provided services in 1997 to 24 of the top 25
pharmaceutical companies in the world as ranked by 1996 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 1996 and 1997, no
single client contributed more than 10% of the Company's total net revenue. In
1997, the Company's ten largest clients accounted for approximately 36.6% of the
Company's total net revenue and approximately 28% of the Company's total 1997
net revenue was derived from clients located outside the U.S., in particular in
Europe and Japan.

                                       13

<PAGE>


         ENVIRON's clients come primarily from a wide variety of industrial
companies. A significant portion of these engagements is initiated by lawyers
whose clients are engaged in merger, acquisition or real estate transactions, or
who become involved in or anticipate litigation. ENVIRON also provides services
to investment banks, lenders, insurance firms, trade associations, and to a
lesser extent, state and local government agencies.

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.
Under-pricing 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 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. Backlog does not include
anticipated net revenue for which PPD Pharmaco has begun work but for which PPD
Pharmaco does not have a letter of intent or signed contract, or fee for service
contracts with no specified amount. The order backlog of the Life Sciences Group
for the services described above under written agreements, including signed
letters of intent, was $205.7 million in net revenue at December 31, 1997,
compared to $156.5 million in net revenue at December 31, 1996.

         PPD Pharmaco believes that its backlog as of any date is not
necessarily a meaningful predicator 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 by
regulatory authorities 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.

         ENVIRON's net revenue is not represented by an order backlog, as
ENVIRON's engagements are generally of an indefinite duration in which services
are performed on a time-and-expenses basis. Clients are billed at fixed hourly
rates for each staff member involved in an assignment, rather than on a project
basis.

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
Clintrials Research Inc., Covance, Inc., IBAH, Inc., Parexel International
Corporation and Quintiles Transnational Corporation. PPD Pharmaco also competes
against certain medium-sized companies. Additionally, PPD Pharmaco competes
against the 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


                                       14

<PAGE>



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.

         Belmont'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 Belmont's application development services include major
consulting companies with pharmaceutical industry groups (e.g., Arthur Andersen,
EDS, Coopers and Lybrand) and smaller companies with a pharmaceutical industry
focus (e.g. DataCeutics, Netforce, ISCG).

         ENVIRON has many competitors, ranging from small local firms to large
national firms and more recently, firms in Europe. ENVIRON competes principally
on the basis of reputation, scientific and technical expertise, experience and
qualifications of professional staff, quality of services, ability to handle
complex problems and its risk assessment orientation. A large percentage of
ENVIRON's business is generated by existing or former clients. ENVIRON believes
that pricing is generally not the primary factor in attracting the types of
engagements on which it focuses, which typically involve providing creative,
multidisciplinary solutions and significant value-added services. However,
increased competition could result in price and other forms of competition that
may adversely affect ENVIRON.

         The outsource chemistry research industry consists of several dominate
providers and numerous smaller niche companies. SARCO faces significant
competition from these companies as well as competition from research teams
funded internally at the 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 liability insurance coverage of up
to $5.0 million per claim, with an annual aggregate policy limit of $5.0
million. However, there can be no assurance that liability claims will not
exceed the limits of such coverage or that such insurance will 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 which 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. Although GCP has
not yet been formally adopted by the FDA nor, with certain exceptions, by
similar regulatory authorities in other countries, certain provisions of GCP
have been included in FDA regulations. 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


                                       15

<PAGE>


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 in accordance with ICG
guidelines agreed upon by US, European and Japanese Governments. This enables
our work to be conducted locally, regionally and globally to meet standards
which exceed all current regulatory requirements.

         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.

         The consulting services provided by ENVIRON are not significantly
regulated by any governmental authority at this time. However, ENVIRON's
environmental risk management services derive in large part from the significant
governmental environmental legislation that has been enacted in the past decade.
Recently, the environmental industry has experienced a slowdown in the
enforcement of such government regulation based upon a number of factors,
including available funding. Although the Company believes that the
environmental industry will find continued but more limited opportunities to
grow if the trend towards decreased actual enforcement of such regulations
continues, the business of ENVIRON could be adversely affected.

Intellectual Property

         The Company holds certain trademarks through its Belmont subsidiary
including CLASSIFY TM, RESOLVE TM, CROSS GRAPHS (R), and TABLE TRANS TM. 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, 1997, the Company had approximately 2,470 full-time
equivalent employees, of whom 1,900 were employed in the Life Sciences Group,
350 were employed in the Environmental Sciences Group, 30 were employed in the
Discovery Sciences Group and the remainder were in the Company's corporate
headquarters. Of the Company's employees, approximately 120 hold Ph.D., M.D.,
Pharm.D. or D.V.M. degrees and approximately 350 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 has never
had a work stoppage and 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, there can be no assurance that the Company will be able to
avoid such problems 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 1997, 1996 and 1995.

                                       16

<PAGE>



ITEM 2.           PROPERTIES

         The Company's principal executive offices are located in Wilmington,
North Carolina. In March 1996, the Company entered into a new 10-year
build-to-suit lease for approximately 70,000 square feet in Wilmington, which it
occupied in November 1996. In July 1997, the Company entered into a new ten year
build to suit lease for approximately 100,000 square feet in Morrisville, North
Carolina which is scheduled for completion in the fall of 1998.

         The Company owns and operates a 52-bed Phase I facility in Leicester,
England. The Company also owns a building in Kerswell, Scotland, which it
acquired when it purchased Data Acquisition and Research Limited in December
1996. All other facilities are leased. The Company's operations occupy
approximately 781,000 square feet of space worldwide, including over 78,000
square feet of space located outside of the U.S. 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,
1997 were as follows:


<TABLE>
<CAPTION>

<S>                                                          <C>
LIFE SCIENCES GROUP
         Corporate Office                                     Europe
                  Wilmington, North Carolina                           Brussels, Belgium
         The Americas                                                  Cambridge, England
                  Sao Paulo, Brazil                                    Chelmsford, England
                  La Jolla, California                                 Leicester, England
                  San Bruno, California                                Southampton, England
                  Mississauga, Canada                                  Gentilly, France
                  Chicago, Illinois (2)                                Karlsruhe, Germany
                  Columbia, Maryland                                   Nuremburg, Germany
                  Cambridge, Massachusetts                             Milan, Italy
                  Lawrenceville, New Jersey                            Kersewell, Scotland
                  Morrisville, North Carolina                          Barcelona, Spain
                  Research Triangle Park, North Carolina               Madrid, Spain
                  Austin, Texas (1)                                    Stockholm, Sweden
                  Richmond, Virginia                          Eastern Europe
                  Middleton, Wisconsin                                 Prague, Czech Republic
         Pacific Rim                                                   Warsaw, Poland
                  Melbourne, Australia                        Africa
                                                                       Cape Town, South Africa
                                                                       Johannesburg, South Africa


ENVIRONMENTAL SCIENCES GROUP
         The Americas                                         Europe
                  Emeryville, California                               Liverpool, England
                  Irvine, California                                   London, England
                  Novato, California                                   Malvern, England
                  Princeton, New Jersey                                Edinburgh, Scotland
                  Arlington, Virginia
                  Houston, Texas



DISCOVERY SCIENCES GROUP
         The Americas
                  Menlo Park, California
                  Research Triangle Park, North Carolina


</TABLE>

------

(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) With the sale of CCCR in February 1998, the Company no longer operates in
    Chicago.

                                       17

<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.

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, 1997.

<TABLE>
<CAPTION>


EXECUTIVE OFFICERS

         The executive officers of the Company as of December 31, 1997, were as
follows:

                Name                        Age                                 Position
--------------------------------           ----      ---------------------------------------------------------
<S>                                      <C>        <C>
   Fredric N. Eshelman, Pharm.D.            49       Vice Chairman and Chief Executive Officer

   Thomas D'Alonzo                          54       President and Chief Operating Officer

   Joseph H. Highland                       53       Chief Executive Officer, APBI Environmental Sciences
                                                     Group, Inc. (ENVIRON)

   Rudy C. Howard                           40       Chief Financial Officer, Vice President - Finance and
                                                     Treasurer

   Fred B. Davenport, Jr.                   46       General Counsel, Vice President - Legal and Secretary

</TABLE>


         FREDRIC N. ESHELMAN, PHARM.D. 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.

         JOSEPH H. HIGHLAND co-founded ENVIRON in 1982. He is currently the
Chief Executive Officer of ENVIRON and has served as such since February 1992.
Dr. Highland also served as a director of APBI from 1990 to 1995. Dr. Highland,
who holds a Ph.D. in Biochemistry from the University of Minnesota's School of
Medicine, served as co-director for the Hazardous Waste Research Program at
Princeton University before joining ENVIRON.

         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.

                                       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.
                                     1997                           1996
                      --------------------------------------------------------
                            High               Low           High     Low
                      -------------------------------------------------------
Low
First Quarter(1)      $     30.00     $       18.50    $   37.25    $  22.75
Second Quarter        $     25.125    $       16.00    $   47.25    $  33.25
Third Quarter         $     24.00     $       18.50    $   34.50    $  26.50
Fourth Quarter        $     22.625    $       12.25    $   27.50    $  14.50

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

(1) From January 23, 1996, the effective date of PPD's initial public offering.

         As of February 27, 1998, there were approximately 7,667 record holders
of the Company's Common Stock.

         Since its conversion from an S corporation, 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 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 presented below for the year
ended December 31, 1997 have been derived from the consolidated financial
statements of the Company, which have been audited by Coopers & Lybrand L.L.P.,
independent public accountants. 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.

         On September 26, 1996, a wholly-owned subsidiary of the Company was
merged with and into APBI, pursuant to which APBI became a wholly-owned
subsidiary of the Company. The transaction was accounted for as a pooling of
interests. The Company's financial results for each of the years ended December
31, 1993 through December 31, 1995 have been restated to reflect the transaction
as if it had occurred at the beginning of the periods being presented. The
financial results of PPD for each of the years ended December 31, 1993 through
December 31, 1995 have been audited by Coopers & Lybrand L.L.P., independent
public accountants. The financial results of APBI for each of the years ended
December 31, 1993 through December 31, 1995 have been audited by Arthur Andersen
LLP, independent public accountants. The combination of the selected
consolidated financial data for each of the years ended December 31, 1993
through December 31, 1995, after restatement for the pooling of interests, has
been audited by Coopers & Lybrand L.L.P., independent public accountants.

         The Company's consolidated financial data reflects certain of its
former Environmental Sciences Group divisions as discontinued operations. See
Note 4 of Notes to Consolidated Financial Statements.


                                       19

<PAGE>
<TABLE>
<CAPTION>




                                                                         Year Ended December 31,
                                             ---------------------------------------------------------------------------
                                               1997 (3)        1996 (3)          1995 (3)         1994              1993
                                             -----------      -----------       ----------     -----------      --------
                                                                  (in thousands, except per share data)

Consolidated Statement of Operations Data:
<S>                                               <C>              <C>               <C>             <C>             <C>
Net revenue (7)                                  $   235,272      $   197,796       $  209,778      $  192,105      $   165,815
                                                  -----------      -----------       ----------      ----------      -----------
Operating expenses                                   211,390          182,859          200,022         181,120          169,014
Loss on sale of business, special charges,
  restructuring costs, merger costs, and acquired
  in-process research and development costs            9,670           16,114           24,290               -            9,365
                                                 -----------      -----------       ----------      ----------      -----------
                                                     221,060          198,973          224,312         181,120          178,379
                                                 -----------      -----------       ----------      ----------      -----------
Income (loss) from operations                         14,212           (1,177)         (14,534)         10,985          (12,564)
Other income (expense), net                            1,464            1,804           (2,616)         (2,728)          (1,183)
                                                 -----------      -----------       ----------      ----------      -----------
Income (loss) from continuing operations
  before provision for income taxes                   15,676              627          (17,150)          8,257          (13,747)
                                                                                     -----------      ----------      ----------
Provision for income taxes                             6,074            4,134
                                                 -----------      -----------
Net income (loss)  (6)                          $      9,602       $   (3,507)
                                                 ===========      ============
Weighted average number of shares outstanding:
     Basic                                           22,825           21,168
     Dilutive effect of stock options                    60                -
                                                -----------      -----------
     Diluted                                         22,885           21,168
                                                ===========      ===========
Net income (loss) per share:
     Basic                                   $         0.42        $ (0.17)
                                             ================        =======
     Diluted                                 $         0.42        $ (0.17)
                                             ================        =======
Pro Forma Data (1):
Income (loss) from continuing operations
  before provision for income taxes                                                (17,150)          8,257          (13,747)
Pro forma income tax expense (benefit)                                             (14,359)          3,371           (2,001)
                                                                                -----------     ----------      ------------
Pro forma net income (loss) from
  continuing operations (4)(5)                                                      (2,791)          4,886          (11,746)
Discontinued operations                                                             (1,716)        (12,873)         (12,133)
Extraordinary loss from early
  extinguishment of debt                                                              (897)              -                -
                                                                              -------------     ----------      -----------
Pro forma net loss                                                                $ (5,404)  $      (7,987)        $(23,879)
                                                                              =============  =============      ============
Pro forma basic and diluted weighted average number
  of shares outstanding (2)                                                         18,815          18,671           18,409
                                                                              ============      ==========      ===========
Pro forma basic and diluted net income (loss) per share:
   Continuing                                                                  $      (0.15)   $      0.26      $      (0.64)
   Discontinued                                                                       (0.09)         (0.69)            (0.66)
   Extraordinary                                                                      (0.05)           -                   -
                                                                                ------------   -----------          ---------
Net loss                                                                       $      (0.29)   $     (0.43)     $      (1.30)
                                                                               =============   ============     =============
</TABLE>
<TABLE>
<CAPTION>



                                                                           As of December 31,
                                             ------------------------------------------------------------------------------
                                                 1997            1996             1995            1994                1993
                                             -----------      -----------     -----------      -----------      ----------
                                                                             (in thousands)
Consolidated Balance Sheet Data:
<S>                                          <C>              <C>               <C>            <C>              <C>
Cash and cash equivalents                    $    15,879      $    21,838       $  13,565      $     9,804      $    14,854
Marketable securities                              7,994           14,210             242              203                -
Working capital                                   69,950           66,603          37,320           27,795             (565)
Total assets                                     197,047          181,457         142,661          202,773          195,492
Long-term debt                                       340            1,428           3,471           47,620           15,411
Long-term debt, including current portion          5,246            5,649           5,672           51,170           19,943
Shareholders' equity                             127,605          115,306          77,300           74,198           79,065

</TABLE>
-----------------------------------------------
-------------------------------------------------------------------------------

         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,
         DISCONTINUED OPERATIONS AND EXTRAORDINARY LOSS.


                                       20

<PAGE>



<TABLE>
<CAPTION>
                                                                         Year Ended December 31,
                                                1997(2)         1996(2)        1995(1)(2)           1994(1)        1993(1)
                                              ----------      -----------     -----------------     -------     -----------
                                                                             (in thousands)
Consolidated Statement of Operations Data:
<S>                                            <C>            <C>               <C>            <C>              <C>
Net revenue                                    $ 235,272      $   197,796       $ 171,332      $   145,718      $   122,813
Operating expenses                               211,390          182,859         160,440          137,142          114,487
                                               ----------------------------------------------------------------------------
Income from operations                            23,882           14,937          10,892            8,576            8,326
Other income (expense), net                        1,464            1,804          (2,616)          (2,728)          (1,183)
                                               -----------------------------------------------------------------------------
Income from continuing operations before
   provision for income taxes                     25,346           16,741           8,276            5,848            7,143
Pro forma income tax expense(1)                    9,894            6,680           3,310            2,339            2,857
                                               ----------------------------------------------------------------------------
Pro forma net income                           $  15,452           10,061           4,966            3,509            4,286
                                               ============================================================================
Pro forma weighted average number of
   basic shares outstanding(2)                    22,885           21,319          18,815           18,761           18,409
                                               ============================================================================
Pro forma net income per share                 $    0.68      $      0.47       $    0.26      $      0.19      $      0.23
-----------------------------------------------============================================================================

</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 pro forma data 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, 1993.
(2)  Pro forma weighted average shares outstanding 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 acquisitions of TAS and GSX System in 1997, Trilife, Medisys, Q&Q, DAR
     and EAG in 1996, and Gabbay and CCCR in 1995 were accounted for as purchase
     transactions. The acquisitions of Belmont, SARCO and Intek in 1997 were
     accounted for as pooling transactions, however, no pro forma information is
     presented because the results of operations prior to the date of the
     acquisitions are not material to the Company.
(4)  The pro forma loss from continuing operations for 1993 was affected by (i)
     a charge against operating income of $9,365,000 in connection with
     restructuring APBI's former toxicology services division and planned
     improvements in APBI's corporate management information systems and (ii) an
     increase in reserves for accounts receivable of $5,857,000.
(5)  The pro forma 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
     $19,308,000 charged against operating income, (ii) a special charge against
     operating income of $4,982,000 primarily related to the impairment of
     APBI's available for sale investment (see Note 1 of Notes to Consolidated
     Financial Statements) 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 APBI will not be liable for payment. See Note 3 of Notes to
     Consolidated Financial Statements.
(6)  The net loss for 1996 was affected by the incurrence of $16,114,000 of
     merger costs in connection with the acquisition of APBI. After associated
     tax benefits, the impact on net income of such merger costs was
     $13,568,000.
(7) Net of subcontractor costs.

                                       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; 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 1997, the Company reported net income of $9.6 million, or $0.42
per share, compared to a net loss of $3.5 million, or $0.17 per share, during
1996. Excluding merger and acquisition related costs, the Company's net income
of $15.5 million, or $0.68 per share, was 53.6% higher than net income,
excluding merger and acquisition costs, last year of $10.1 million, or $0.47 per
share.

         In 1997, the Company moved into a new line of business with the
acquisition of SARCO and the GSX System in June. These acquisitions form 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 also acquired the GSX System, a functional genomics platform
technology. The GSX System was purchased for approximately $8.7 million in cash.

         The Company furthered its expansion in its Environmental Sciences Group
through the acquisition of Technical Assessment Systems, Inc. ("TAS") in January
1997. The consideration for TAS consisted of cash of $490,000, a note for
$300,000 and the potential to pay an additional amount depending upon TAS'
profitability for a certain period after the acquisition.

         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.

         In September 1996, a wholly-owned subsidiary of the Company was merged
with and into APBI in a pooling-of-interests transaction. As a result, APBI
became a wholly-owned subsidiary of the Company. Under the terms of the merger
agreement, APBI stockholders received 0.4054 of a share of the Company's Common
Stock for each APBI share, which resulted in the Company issuing 12,063,860
shares of its Common Stock in exchange for all of the outstanding shares of
Common Stock of APBI. The Company's financial results have been restated to
reflect the transaction as if it had occurred at the beginning of the periods
presented.

                                       22

<PAGE>


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 Year Ended December 31,
                                              1997                      1996                      1995
                                     -----------------------   ----------------------    -------------
                                       Amount              %      Amount           %       Amount         %
                                      -------           -----    -------         ----      ------       ----
                                                                   (dollars in thousands)
Net revenue (4):
<S>                                  <C>                <C>    <C>              <C>      <C>             <C>
   Life sciences                     $  187,201         79.6%  $  152,304       77.0%    $  160,495      76.5%
   Environmental sciences                47,785         20.3       45,492       23.0         49,283      23.5
   Discovery sciences                       286          0.1            -          -              -         -
                                     ----------    ---------      -------      ------    ----------     -----
                                        235,272        100.0      197,796      100.0        209,778     100.0
Direct costs:
   Life sciences                         94,909                    79,108                    90,315
   Environmental sciences                33,431                    31,744                    32,442
   Discovery sciences                     1,859                         -                         -
                                     ----------                ----------                ----------
                                        130,199         55.3      110,852       56.0        122,757      58.5
Selling, general, and
  administrative expenses                68,797         29.2       61,571       31.1         64,014      30.5
Depreciation and amortization            12,394          5.3       10,436        5.3         13,251       6.3
Loss on sale of business                      -           -             -         -          19,308       9.2
Acquired in-process research
   and development costs                  9,112          3.9            -         -               -        -
Merger costs and special charges            558          0.2       16,114        8.1          4,982       2.4
                                     ----------    ---------   ----------   ----------   ----------    ------
Operating income (loss) (2)(3)           14,212          6.0       (1,177)      (0.6)       (14,534)     (6.9)
                                     ----------    ---------   ----------   ----------   -----------   -------
Net income (loss)                    $    9,602          4.1%  $   (3,507)      (1.8)%
                                     ==========    =========   ===========  ==========
Pro forma loss from (1):
   Continuing operations                                                                     (2,791)     (1.3)
   Discontinued operations                                                                   (1,716)     (0.8)
   Extraordinary loss                                                                          (897)     (0.4)
                                                                                          ----------   -------
Pro forma net loss                                                                        $   (5,404)    (2.6)%
                                                                                          ===========  ========
</TABLE>
<TABLE>
<CAPTION>


                                                                                Percentage Change
                                                                         For the Year Ended December 31,
                                                                --------------------------------------------------
                                                                1997 vs. 1996                     1996 vs. 1995(5)
                                                                -------------                     ----------------
         Net revenue (4):
          <S>                                                      <C>                                <C>
              Life sciences                                          22.9%                              (5.1)%
              Environmental sciences                                  5.0                               (7.7)
              Discovery sciences(6)                                   N/A                                N/A
                Total net revenue                                    18.9                                (5.7)
         Direct costs:
              Life sciences                                          20.0                              (12.4)
              Environmental sciences                                  5.3                               (2.2)
              Discovery sciences(6)                                   N/A                                N/A
         Selling, general and administrative expenses                11.7                               (3.8)
         Depreciation and amortization                               18.8                              (21.2)
</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 pro forma data 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, 1995.
(2)  The operating loss for 1995 was affected by (i) the sale of APBI's
     toxicology operations which resulted in a pre-tax loss of $19,308,000 and
     (ii) a special charge against operating income of $4,982,000 primarily
     related to the impairment of APBI's available-for-sale investment. See Note
     1 of Notes to Consolidated Financial Statements.
(3)  The operating loss for 1996 was affected by the incurrence of $16,114,000
     of merger costs in connection with the acquisition of APBI.
(4)  Net of subcontractor costs.
(5)  The results from 1995 include the activity of APBI's toxicology operations
     which were sold in November 1995. See Note 3 of Notes to Consolidated
     Financial Statements.
(6) N/A-Change not calculable or meaningful.


                                       23

<PAGE>



         Below is a comparison of 1997 and 1996 operating statements which
reflects only on-going operations and excludes 1997 merger and acquisition
related charges and 1996 merger costs.

                          STATEMENT OF OPERATIONS DATA
     EXCLUDES MERGER COSTS AND ACQUIRED IN-PROCESS RESEARCH AND DEVELOPMENT
                  COSTS IN 1997 AND APBI MERGER COSTS IN 1996.
<TABLE>
<CAPTION>

                                                                             YEAR ENDED
                                                                            DECEMBER 31,
                                                                       1997             1996       PERCENTAGE CHANGE
                                                                       ----             ----       ------------------
                                                                          (dollars in thousands)
Net revenue:
<S>                                                                <C>                 <C>                <C>
  Life sciences                                                    $  187,201          $ 152,304          22.9%
  Environmental sciences                                               47,785             45,492          5.0
  Discovery sciences                                                      286                  -          N/A
                                                                   ----------          ---------
  Total net revenue                                                   235,272            197,796
Direct costs:
  Life sciences                                                    $   94,909         $   79,108          20.0
  Environmental sciences                                               33,431             31,744          5.3
  Discovery sciences                                                    1,859                  -          N/A
                                                                   ----------         ----------
  Total direct costs                                                  130,199            110,852
                                                                   ----------         ----------

Gross margin                                                          105,073             86,944          20.9

Selling, general and administrative expenses                           68,797             61,571          11.7

Depreciation and amortization                                          12,394             10,436          18.8
                                                                   ----------         ----------
Income from operations                                                 23,882             14,937          59.9

Other income (expense), net                                             1,464              1,804         (18.9)
                                                                   ----------         ----------

Income before taxes                                                    25,346             16,741          51.4
Income tax provision                                                    9,894              6,680          48.1
                                                                   ----------         ----------

Net income                                                         $   15,452         $   10,061          53.6%
                                                                   ==========         ==========        =======

Net income per share:
     Basic                                                         $     0.68         $     0.48
                                                                   ==========         ==========
     Diluted                                                       $     0.68         $     0.47
                                                                   ==========         ==========

Weighted average number of common shares outstanding:
     Basic                                                             22,825             21,168
                                                                   ==========         ==========
     Diluted                                                           22,885             21,319
                                                                   ==========         ==========


</TABLE>


                                       24

<PAGE>



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


         Net revenue increased $37.5 million, or 19.0%, to $235.3 million in
1997 from $197.8 million. The Life Sciences Group's operations accounted for
79.6% 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%, 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 North America
clinical development and biostatistics business. The acquisitions of Belmont and
Intek, both completed in 1997, contributed net revenue of $5.7 million for the
year.


         Net revenue from ENVIRON, the Company's Environmental Sciences Group,
representing 20.3% of the Company's net revenue for 1997, was $47.8 million,
compared with $45.4 million in 1996, an increase of 5.0%, or $2.4 million. The
increase in net revenue at ENVIRON was due principally to the 1997 acquisition
of TAS and EAG's increase in net revenue, which contributed net revenue of $6.3
million. The decrease in ENVIRON's core business resulted from the completion of
a significant contract in early 1997.


         Total direct costs increased 17.4% to $130.2 million from $110.9
million last year and declined as a percentage of net revenue to 55.3% from
56.0% last year. 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 labor utilization and a focused effort to control costs across all
business segments. ENVIRON's direct costs as a percentage of related net revenue
increased slightly to 70.0% from 69.8% last year.


         Selling, general and administrative ("SG&A") expenses increased 11.7%
to $68.8 million from $61.6 million in 1996. SG&A expenses from 1997
acquisitions comprise $2.8 million of the increase. The remaining increase of
$4.4 million is primarily attributable to the investment in the Company's
business development and marketing organization and in the area of information
technology. As a percentage of net revenue, SG&A expenses decreased to 29.2%
from 31.1% last year, primarily as a result of the increase in net revenue.


         Total depreciation and amortization expense of $12.4 million was $2.0
million, or 18.8%, 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 one-time merger costs of $0.6 million
in connection with the acquisitions of Belmont, SARCO and Intek. These costs are
primarily current cash expenses, such as legal and accounting fees related to
pooling transactions. During 1996, the Company recorded one-time merger costs of
$16.1 million. These costs are primarily current and future cash expenses, such
as investment banking fees and legal and accounting fees, as well as severance
provisions as a result of the integration of the administrative functions of PPD
and APBI.


         The Company also recorded acquired in-process research and development
costs of $9.1 million in the second quarter of 1997. These costs were charged to
operations upon the acquisition of the GSX System. A valuation was performed by
an independent consultant to determine the fair value of the acquired in-process
research and development. The purchase price in excess of the net assets of the
GSX System was allocated to acquired in-process research and development costs
and was charged to operations upon the acquisition of the GSX System, as the
technology has no alternative future use and the technology has not yet reached
technological feasibility.


         Operating income (loss) improved $15.4 million to an operating income
of $14.2 million for the year ended December 31, 1997, as compared to an
operating loss of $1.2 million for the year 1996. Excluding merger and
acquisition related costs, the Company's operating income of $23.9 million in
1997 was 59.9% higher than operating income (before the impact of merger and
acquisition related costs) of $14.9 million in 1996. As a percentage of net
revenue, the yearly operating income of 6.0% represents a dramatic improvement
from the operating loss of 0.6% of net revenue last year.


         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. 1997 net income per basic
and diluted share of $0.42 compares to 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. This net income per diluted
share of $0.68 compares to $0.47 for 1996 computed on 1.6 million more shares
outstanding for 1997.

                                       25

<PAGE>




YEAR ENDED DECEMBER 31, 1996 VERSUS YEAR ENDED DECEMBER 31, 1995


         Net revenue in 1996 decreased $12.0 million, or 5.7%, to $197.8 million
in 1996 from $209.8 million in 1995. The Life Sciences Group's operations
accounted for 77.0% of the Company's net revenue for 1996. After elimination of
the net revenue from APBI's former toxicology operations, which were sold in
November 1995 ($38.4 million in 1995), 1996 net revenue increased 15.4% as
compared to 1995. Results of operations which exclude the results of the
divested businesses (APBI's former toxicology operations) are considered the
results of the Company's ongoing operations.

         Net revenue for the year ended December 31, 1996 from the Life Sciences
Group's operations of $152.3 million reflects an increase of $30.2 million, or
24.8%, from 1995. The growth in Life Sciences Group operations was due in part
to an increase in the size, scope and number of contracts in the North America
clinical development and biostatistics business. The acquisitions of CCCR and
the Phase I facility in Leicester, England, both completed in the second half of
1995, contributed net revenue of $10.8 million in 1996, representing an increase
of $8.5 million over 1995.

         Net revenue from ENVIRON, which represented 23.0% of the Company's net
revenue for 1996, was $45.4 million, compared with $49.3 million in 1995, a
decrease of 7.7%, or $3.8 million. The Company believes that the decrease in net
revenue at ENVIRON, the sole ongoing operation in the Environmental Sciences
Group, was due principally to an overall weakness in the environmental services
market.

         Total direct costs decreased 9.7% to $110.9 million from $122.8 million
and declined as a percentage of net revenue to 56.0% from 58.5% in 1995. Life
Sciences Group direct costs decreased as a percentage of related net revenue to
51.9% from 56.3%. The decrease in direct costs is principally due to the
divestiture of APBI's toxicology business in the fourth quarter of 1995. During
1995, the worldwide toxicology business reported direct costs of $27.5 million,
or 71.5% of related net revenue. ENVIRON's direct costs as a percentage of
related net revenue increased to 69.8% from 65.8% last year. The increase in
direct costs as a percentage of related net revenue is attributable to lower
consultant utilization. ENVIRON's 1996 consultant utilization was 71.0% compared
to 76.0% during the prior year.

         SG&A expenses decreased 3.8% to $61.6 million from $64.0 million in
1995. As a percentage of net revenue, SG&A expenses increased to 31.1% in 1996
from 30.5% in 1995. After factoring out the SG&A expenses associated with the
divested toxicology business ($7.6 million in 1995), SG&A expenses increased
approximately 9.2%, or $5.2 million, for 1996 as compared to 1995. SG&A expenses
from CCCR and the Leicester Phase I laboratory comprised $2.0 million of the
increase, and the Company incurred incremental rent expense of $1.2 million
associated with the sale-leaseback of its real estate in Austin, Texas
(partially offset by lower interest expense). The remaining increase of $2.0
million is primarily attributable to the investment in the Company's business
development and marketing organization and in the area of information
technology, as well as higher litigation costs incurred associated with
ENVIRON's air quality practice. As a percentage of ongoing net revenue, SG&A
expenses decreased to 31.1% from 32.9% last year.

         Total depreciation and amortization expense of $10.4 million in 1996
was $2.8 million, or 21.2%, lower than in 1995. After adjusting out the
depreciation for the divested toxicology business ($4.5 million in 1995), total
depreciation and amortization increased $1.7 million, or 19.0%, versus 1995. The
increase was related to the Company's growth as well as the ongoing capital
investment in the Company's business.

         The Company recorded one-time merger costs of $16.9 million in the
third quarter of 1996. These costs are primarily current and future cash
expenses, such as investment banking fees and legal and accounting fees, as well
as severance provisions as a result of the integration of the administrative
functions of PPD and APBI. During the fourth quarter of 1996, approximately $0.8
million of these costs were reversed, primarily relating to severance costs that
were avoided and reductions in net losses on leases for duplicate facilities.

         In the fourth quarter of 1995, APBI recorded a charge of $19.3 million
in 1995 relating to the book loss on the sale of the toxicology business. Of
that amount, $17.0 million represents a non-cash write-off of the net assets of
the divested businesses in excess of the proceeds received. The remaining $2.3
million consists of $1.2 million of transaction costs, $1.3 million of severance
costs and relocation costs associated with moving the European headquarters from
Suffolk, England, to Cambridge, England and $0.6 million to be incurred in
connection with changing the name of Pharmaco to Pharmaco International Inc.,
net of a $0.8 million gain recorded as a result of the termination of the
Company's defined benefit pension plan.

         APBI also recorded special charges of $5.0 million in the fourth
quarter of 1995, including a $3.4 million non-cash expense to write down to
market APBI's EnSys investment and the write-off of other non-productive assets.
In addition, APBI recorded severance charges totaling $1.2 million in the
quarter relating to the downsizing of its corporate overhead structure. The
remaining $0.4 million relates primarily to accrued lease loss reserves related
to under-utilization of the Richmond laboratory facility.


                                       26

<PAGE>



         Operating loss improved $13.3 million to an operating loss of $1.2
million for the year ended December 31, 1996, as compared to an operating loss
of $14.5 million for 1995. As a percentage of net revenue, the yearly operating
loss of 0.6% represents a dramatic improvement from the operating loss of 6.9%
of net revenue last year.


         Other income (expense) improved by $4.4 million, increasing to $1.8
million in income for the year as compared to $2.6 million in expense last year.
The favorable change is attributable primarily to funds received in connection
with the PPD initial public offering and the significant change in the Company's
debt structure this year versus last year. See "Liquidity and Capital
Resources."


         The net loss of $3.5 million in 1996 represents an improvement of $1.9
million from 1995. The 1996 net loss per basic and diluted share of $0.17
compares to pro forma net loss per basic and diluted share of $0.29 in 1995.
Excluding the results of the divested businesses and the impact of the merger
costs and special charges on both years, the Company's net income of $10.1
million was 102.6% higher than 1995's pro forma net income of $5.0 million. This
net income per share of $0.47 compares to $0.26 for 1995 computed on 2.4 million
more shares outstanding for 1996.


LIQUIDITY AND CAPITAL RESOURCES


         As of December 31, 1997, the Company had $15.9 million of cash and cash
equivalents on hand and $8.0 million invested in marketable securities. The
Company has historically funded its operations and growth, including
acquisitions, with cash flow from operations and borrowings. In January 1996,
PPD completed an initial public offering of its common stock. Proceeds of the
offering, after expenses, were approximately $37.2 million and a portion thereof
was used to repay a $5.5 million loan.


         For the year ended December 31, 1997, the Company experienced a net
increase in cash from operating activities of $11.1 million. 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), 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 $13.6 million and
the $8.1 million net cash paid for acquisitions 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 stockholders of Belmont.


         As of December 31, 1996, the Company had $21.8 million of cash and cash
equivalents on hand and $14.2 million invested in marketable securities. The
Company has historically funded its operations and growth, including
acquisitions, with cash flow from operations and borrowings. In January 1996,
PPD completed an initial public offering of its common stock. Proceeds of the
offering, after expenses, were approximately $37.2 million and a portion thereof
was used to repay a $5.5 million loan.


         For the year ended December 31, 1996, the Company experienced a net
increase in cash from operating activities of $0.3 million. Capital expenditures
totaled $11.2 million. Net proceeds from the Company's initial public offering,
combined with proceeds from stock option exercises, totaled $42.9 million. The
Company used $5.9 million in cash to pay dividends declared in connection with
the Company's revocation of its S corporation election, effective January 1,
1996, and used $13.8 million of cash to increase its holding of marketable
securities.


         In June 1997, 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 0.75% 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,
1997, the Company had no amounts outstanding under this facility.


         In August 1997, the Company negotiated 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,
1997, the Company had $3.3 million outstanding under this facility.


                                       27

<PAGE>



         The Company expects to continue expanding its operations through
internal growth and strategic acquisitions. The Company expects such activities
will be funded from existing cash and marketable securities, cash flow from
operations and borrowings under its credit facilities. The Company believes that
such sources of cash will be sufficient to fund the Company's current operations
for at least the next 12 months. The Company is currently evaluating a number of
acquisition and other growth opportunities which may require additional external
financing, and the Company may from time to time seek to obtain funds from
public or private issuances of equity or debt securities.


YEAR 2000 IMPACT


         The Company has accessed the impact Year 2000 could have on its
operations and does not anticipate that the Year 2000 will materially impact the
Company's information systems, business, and ability to operate in a
well-controlled environment.

EXCHANGE RATE FLUCTUATIONS AND EXCHANGE CONTROLS

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

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

         The Company currently participates in only a small number of
transactions involving multiple currencies. In most of those situations,
contractual provisions either limit or reduce the translation risk. Financial
statement translation has not, to date, been material to the Company's balance
sheet. The reasons for this are that the majority of international operations
are located in the United Kingdom, which traditionally has had a relatively
stable currency, and that international operations have not accounted for a
significant portion of total operations (less than 15%). It is anticipated that
those conditions will persist for at least the following year.

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

POTENTIAL VOLATILITY OF QUARTERLY OPERATING RESULTS AND STOCK PRICE

         The Company's quarterly operating results are subject to volatility due
to such factors as the commencement, completion or cancellation of large
contracts, progress of ongoing contracts, acquisitions, the timing of start-up
expenses for new offices, management of growth, and changes in the mix of
services. Since a large percentage of the Company's operating costs are
relatively fixed, variations in the timing and progress of large contracts can
materially affect quarterly results. To the extent the Company's international
business increases, exchange rate fluctuations may also influence these results.
The Company believes that comparisons of its quarterly financial results are not
necessarily meaningful and should not be relied upon as an indication of future
performance. However, fluctuations in quarterly results or other factors beyond
the Company's control, such as changes in earnings estimates by analysts, market
conditions in the CRO, environmental, pharmaceutical and biotechnology
industries and general economic conditions, could affect the market price of the
Common Stock in a manner unrelated to the longer-term operating performance of
the Company.


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.

                                       28

<PAGE>


                                    PART III

         Certain information required by Part III is omitted from this report,
because the Registrant will file a definitive proxy statement for its 1998
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 Concerning the Board of Directors and Its Committees,"
"Other Information - Executive Compensation," "--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.

            The information required by Item 13 of Form 10-K is incorporated by
reference to the information under the heading "Other Information - Certain
Transactions" in the Proxy Statement.



                                       29

<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
                  14c below.
         (b)  Reports on Form 8-K.  None.
         (c)  Exhibits

<TABLE>
<CAPTION>


 EXHIBIT NO.                                         DESCRIPTION
 -----------                                         -----------
<S>               <C>
  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.
  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, 1995, 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.
  10.32**         --Lease  Agreement,  dated as of February 22, 1995, by and between  Perimeter Park West Associates
                      Limited Partnership and the Registrant.
  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.
  10.49**         --First  Amendment to Lease  Agreement,  dated October 25, 1995,  with respect to Lease  Agreement
                      dated  February 22, 1993, by and between the  Registrant  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.
  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.
  10.73*          --Change of Control  Agreement  between  Applied  Bioscience  International  Inc.  and  Stephen L.
                      Waechter,  dated as of June 18, 1996,  incorporated  by reference to Exhibit  10.46 to Applied
                      Bioscience  International  Inc.'s Amended Quarterly Report on Form 10-Q/A for the period ended
                      June 30, 1996.

                                       30

<PAGE>
<CAPTION>


<S>               <C>
  10.74*          --Change of Control Agreement between Applied  Bioscience  International  Inc. and Carol P. Hanna,
                      dated as of June 18, 1996,  incorporated  by reference to Exhibit 10.47 to Applied  Bioscience
                      International  Inc.'s  Amended  Quarterly  Report on Form 10-Q/A for the period ended June 30,
                      1996.
  10.75*          --Form of Agreement, dated as of June 20, 1996, by and
                      between Applied Bioscience International Inc. and each of
                      Joseph H. Highland, Robert M. Wenger, Robert H. Harris and
                      Joseph V. Rodricks, incorporated by reference to Exhibit
                      10.62 to the Registrant's Quarterly Report on Form 10-Q
                      for the period ended September 30, 1996.
  10.76*          --Agreement,  dated as of September 6, 1996, by and between Applied Bioscience  International Inc.
                      and John H. Timoney,  incorporated by reference to Exhibit 10.63 to the Registrant's Quarterly
                      Report on Form 10-Q for the period ended September 30, 1996.
  10.77*          --Agreement,  dated as of September 25, 1996, by and between Applied Bioscience International Inc.
                      and  Kenneth  H.  Harper,  incorporated  by  reference  to Exhibit  10.64 to the  Registrant's
                      Quarterly Report on Form 10-Q for the period ended September 30, 1996.
  10.78*          --Severance Compensation Agreement, dated as of September
                      25, 1996, by and between Applied Bioscience International
                      Inc. and John D. Bryer, incorporated by reference to
                      Exhibit 10.65 to the Registrant's Quarterly Report on Form
                      10-Q for the period ended September 30, 1996.
  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.
  10.82*          --Employment  Agreement,  dated as of September  25, 1996, by and between  Pharmaceutical  Product
                      Development, Inc. and Joshua S. Baker.
  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.

                                       31

<PAGE>
<CAPTION>
<S>                <C>
                      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.
  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.
  21              --Subsidiaries of the Registrant.
  23.1            --Consent of Coopers & Lybrand L.L.P.
  23.2            --Consent of Arthur Andersen LLP.
  27              --Financial Data Schedule (for SEC use only).
  99              --Report of Arthur Andersen LLP.
</TABLE>

*        Previously filed.
**       Incorporated by reference to the Registrant's Registration Statement on
         Form S-1, as amended (File No. 33-98996).



                                       32

<PAGE>


            PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
                 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
                          FINANCIAL STATEMENT SCHEDULE

<TABLE>
<CAPTION>


                                                                                                            Page


<S>                                                                                                            <C>
     Report of Independent Accountants                                                                       F-2

     Consolidated Statements of Operations for the Years Ended
           December 31, 1997, 1996 and 1995                                                                  F-3

     Consolidated Balance Sheets as of December 31, 1997 and 1996                                            F-4

     Consolidated Statements of Shareholders' Equity for the Years
           Ended December 31, 1997, 1996 and 1995                                                            F-5

     Consolidated Statements of Cash Flows for the Years Ended
           December 31, 1997, 1996 and 1995                                                                  F-6

     Notes to Consolidated Financial Statements                                                              F-7

     Report of Independent Accountants on Supplemental Schedule                                             F-29

     Consolidated Financial Statement Schedule

           Schedule II - Valuation and Qualifying Accounts                                                  F-30

</TABLE>


                                                        F-1


<PAGE>


                        REPORT OF INDEPENDENT ACCOUNTANTS



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


We have audited the accompanying consolidated balance sheets of Pharmaceutical
Product Development, Inc. and its subsidiaries as of December 31, 1997 and 1996,
and the related consolidated statements of operations, shareholders' equity and
cash flows for the years then ended. 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 in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Pharmaceutical
Product Development, Inc. and its subsidiaries as of December 31, 1997 and 1996,
and the results of their operations and their cash flows for the years then
ended in conformity with generally accepted accounting principles.

We previously audited and reported on the combined statements of operations,
shareholders' equity and cash flows of Pharmaceutical Product Development, Inc.,
its affiliates and its consolidated subsidiaries for the year ended December 31,
1995, prior to their restatement for the 1996 pooling of interests. The
contribution of Pharmaceutical Product Development, Inc., its affiliates and its
consolidated subsidiaries to net revenue represented 17 percent of the restated
total for 1995. The contribution (in thousands) of Pharmaceutical Product
Development, Inc., its affiliates and its consolidated subsidiaries represented
$2,537 of net income compared to a restated consolidated net loss of $5,404 in
1995. Separate financial statements of the other company included in the 1995
restated consolidated statements of operations, shareholders' equity and cash
flows were audited and reported on separately by other auditors. We also audited
the combination of the accompanying consolidated statements of operations,
shareholders' equity and cash flows for the year ended December 31, 1995, after
restatement for the 1996 pooling of interests; in our opinion, such consolidated
statements have been properly combined on the basis described in Note 2 of notes
to consolidated financial statements.


COOPERS & LYBRAND L.L.P.

Raleigh, North Carolina
February 5, 1998, except as to the information
presented in Note 20 for which the date is
February 27, 1998.


                                      F-2

<PAGE>




            PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
              FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>


                                                                         1997           1996            1995
                                                                      ----------     ----------     --------
<S>                                                                       <C>            <C>            <C>
Life sciences revenues, net of subcontractor costs of $69,094
   $47,933 and $52,066, respectively                                  $  187,201     $  152,304     $  160,495
Environmental sciences revenues, net of subcontractor costs
   of $6,408, $4,752 and $7,230, respectively                             47,785         45,492         49,283
Discovery sciences revenues, net of subcontractor costs
    of $45 in 1997                                                           286              -              -
                                                                      ----------     ----------     ----------
       Net revenue                                                       235,272        197,796        209,778
                                                                      ----------     ----------     ----------
Direct costs - Life sciences                                              94,909         79,108         90,315
Direct costs - Environmental sciences                                     33,431         31,744         32,442
Direct costs - Discovery sciences                                          1,859              -              -
Selling, general and administrative expenses                              68,797         61,571         64,014
Depreciation and amortization                                             12,394         10,436         13,251
Loss on sale of business                                                       -              -         19,308
Merger costs and special charges                                             558         16,114          4,982
Acquired in-process research and development costs                         9,112              -              -
                                                                      ----------     ----------     ----------
                                                                         221,060        198,973        224,312
                                                                      ----------     ----------     ----------
       Operating income (loss)                                            14,212         (1,177)       (14,534)
Interest:
   Expense                                                                  (478)          (420)        (3,304)
   Income                                                                  1,342          1,919            263
Other income (expense), net                                                  600            305            425
                                                                      ----------     ----------     ----------
       Income (loss) from continuing operations before provision
        for income taxes                                                  15,676            627        (17,150)
                                                                                                    -----------
Provision for income taxes                                                 6,074          4,134
                                                                      ----------     ----------
       Net income (loss)                                              $    9,602     $   (3,507)
                                                                      ==========     ==========
Weighted average number of common shares outstanding:
       Basic                                                              22,825         21,168
       Dilutive effect of stock options                                       60              -
                                                                      ----------     ----------
       Diluted                                                            22,885         21,168
                                                                      ==========     ==========
Net income (loss) per share:
       Basic                                                          $    0.42      $    (0.17)
                                                                      =========      ===========
       Diluted                                                        $    0.42      $     (0.17)
                                                                      =========      ===========

Pro Forma Data (Note 1):
Loss from continuing operations before provision for
   income taxes                                                                                        (17,150)
Pro forma benefit for income taxes                                                                     (14,359)
                                                                                                    -----------
       Pro forma loss from continuing operations                                                        (2,791)

Loss from discontinued operations:
  Estimated loss on disposal of discontinued operations, net of
   income tax benefit of $2,036                                                                         (1,716)
                                                                                                    ----------
   Pro forma net loss before extraordinary item                                                         (4,507)
Extraordinary loss on early extinguishment of debt, net of
  income tax benefit of $475                                                                              (897)
                                                                                                    -----------
       Pro forma net loss                                                                           $   (5,404)
                                                                                                    ==========
Pro forma basic and diluted weighted average number of common shares outstanding                        18,815
                                                                                                    ==========
Pro forma basic and diluted loss per common share:
   Loss  from continuing operations                                                                 $    (0.15)
   Loss from discontinued operations                                                                     (0.09)
   Extraordinary loss                                                                                    (0.05)
                                                                                                    -----------
Pro forma loss per common share                                                                     $    (0.29)
                                                                                                    ===========

</TABLE>


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



                                      F-3

<PAGE>



            PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                        AS OF DECEMBER 31, 1997 AND 1996
                        (IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>



                                                         ASSETS

                                                                                        1997            1996
                                                                                     ----------     --------
<S>                                                                                  <C>            <C>
Current assets
     Cash and cash equivalents                                                       $   15,879     $   21,838
     Marketable securities                                                                7,994         14,210
     Accounts receivable and unbilled services, net                                     101,554         76,237
     Investigator advances                                                                1,870          5,280
     Prepaid expenses and other current assets                                            7,227          5,752
     Deferred tax asset                                                                   1,973          4,955
                                                                                     ----------     ----------
         Total current assets                                                           136,497        128,272

Property and equipment, net                                                              34,902         31,479
Goodwill, net                                                                            18,026         18,397
Other assets                                                                              7,622          3,309
                                                                                     ----------     ----------

         Total assets                                                                $  197,047     $  181,457
                                                                                     ==========     ==========

                                          LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities
     Current maturities of long-term debt                                            $    4,906     $    4,221
     Accounts payable                                                                     6,249          7,051
     Payables to investigators                                                            4,138          5,429
     Other accrued expenses                                                              23,532         26,263
     Unearned income                                                                     27,722         18,705
                                                                                     ----------     ----------
         Total current liabilities                                                       66,547         61,669

Long-term debt, less current maturities                                                     340          1,428
Deferred rent and other                                                                   2,555          3,054
                                                                                     ----------     ----------

         Total liabilities                                                               69,442         66,151
                                                                                     ----------     ----------

 Commitments and contingencies (Notes 10 and 14)

Shareholders' equity
     Common stock, $0.10 par value, 95,000,000 shares authorized; 22,949,000 and
         21,624,000 shares issued and outstanding,
         respectively                                                                     2,295          2,163
     Paid-in capital                                                                    115,680        112,606
     Retained earnings (accumulated deficit)                                             10,112           (363)
     Unrealized gain on investments, net                                                    168            232
     Cumulative translation adjustment                                                     (650)           668
                                                                                     ----------     ----------
         Total shareholders' equity                                                     127,605        115,306
                                                                                     ----------      ---------

         Total liabilities and shareholders' equity                                  $ 197,047     $   181,457
                                                                                     ==========    ===========
</TABLE>


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


                                      F-4


<PAGE>





            PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
              FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
                                 (IN THOUSANDS)





<TABLE>
<CAPTION>
                                                    COMMON                  RETAINED      UNREALIZED
                                         COMMON      STOCK                  EARNINGS      GAIN (LOSS)    CUMULATIVE
                                          STOCK       PAR     PAID-IN     (ACCUMULATED         ON        TRANSLATION      UNEARNED
                                         SHARES      VALUE    CAPITAL       DEFICIT)      INVESTMENTS     ADJUSTMENT    COMPENSATION
                                         ------      -----    -------       --------      -----------     ----------    ------------
<S>                                       <C>     <C>         <C>         <C>              <C>            <C>           <C>
Balance, December 31, 1994                18,334  $ 1,834     $59,666     $   15,951       $    (747)     $ (1,561)     $   (1,001)
  Change in unrealized loss on
    investments                                                                                  753
  Amortization of unearned
    compensation                                                                                                               539
  Transfer of minority interest to
    affiliated group                           2                  168
  Issuance of 72 common shares                72        7         708
  Issuance of 257 common shares in
    connection with an acquisition
    accounted for under the purchase
    method                                   257       26       5,020           (977)
  Income tax benefit from exercise
    of stock options and unearned
    compensation amortization                                      53
  Sale of business                                                                                           1,699
  Translation adjustments                                                                                     (563)
  Net loss                                                                    (3,630)
  Dividends                                                                     (723)
  Other                                       12        3          86                                                          (11)
                                        -------- --------   ---------    -----------      ----------      --------     -----------
Balance, December 31, 1995                18,677    1,870      65,701         10,621               6          (425)           (473)
  Public offering, net of cash
    offering costs                         2,300      230      36,952
  Shareholder S corp. distributions                             1,595         (7,532)
  Unrealized gain on investments                                                                 226
  Issuance of 242 common shares              242       24         622
  Stock issued for exercise of 365
    options                                  365       37       5,058
  Income tax benefit from exercise
    of stock options and unearned
    compensation amortization                                   1,990
  Translation adjustments                                                                                    1,093
  Net loss                                                                    (3,507)
  Other                                       40        2         688             55                                           473
                                        -------- --------   ---------    -----------      ----------      --------     -----------
Balance, December 31, 1996                21,624    2,163     112,606           (363)            232           668               -
 Unrealized loss on investments, net                                                             (61)
 Issuance of 1,165 common shares in
    connection with acquisitions           1,165      115          89          1,304
 Issuance of 142 common shares               142       16       2,199
 Income tax benefit from exercise of
    stock options                                                 510
 Translation adjustments                                                                                    (1,318)
 Net income                                                                    9,602
 Distribution to shareholders                                                   (431)
 Proceeds of Section 16(b) transaction,
    net of related tax provision of $155                          276
 Other                                        18        1                                         (3)
                                        -------- --------   ---------    -----------      ----------      --------     -----------
Balance, December 31, 1997                22,949  $ 2,295    $115,680        $10,112        $    168     $    (650)       $      -
                                        ======== ========   =========    ===========      ==========      =========    ===========
</TABLE>

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

                                       F-5

<PAGE>

            PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
              FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                           1997           1996           1995
                                                                       ------------   ---------     ---------
<S>                                                                    <C>           <C>            <C>
Cash flows from operating activities:
    Net income (loss)                                                  $   9,602     $   (3,507)    $   (3,630)
    Adjustments to reconcile net income (loss) to net cash provided by
      operating activities:
      Depreciation and amortization                                       12,394         10,436         13,251
      Purchased in-process research and development                        9,112              -              -
      Deferred income taxes                                                 (910)         1,375        (18,204)
      Stock compensation amortization                                          -            668            539
      Loss on sale of toxicology operations                                    -             -          16,991
      Provision for loss on disposal of discontinued operations                -             -           3,752
      (Gain) loss on disposition of property and equipment                    32              6         (2,741)
      (Gain) loss on sale of investments                                       3             (8)             -
      Impairment of investment in EnSys                                        -             -           2,638
      Early extinguishment of debt                                             -             -             955
      Change in assets and liabilities:
         Accounts receivable and unbilled services, net                  (24,470)        (2,043)           108
         Prepaid expenses and other current assets                         2,073         (4,317)         2,076
         Current income taxes                                              3,406          1,354          1,472
         Other assets                                                        842          1,068         (1,968)
         Assets and liabilities of discontinued operations, net                -              -         (1,593)
         Accounts payable and accrued liabilities                         (9,627)        (6,872)         9,301
         Unearned income                                                   8,740          2,569         (7,011)
         Other                                                               (58)          (411)           (13)
                                                                       ----------    -----------    -----------
                Net cash provided by operating activities                 11,139            318         15,923
                                                                       ---------     ----------     ----------
Cash flows from investing activities:
      Purchases of property and equipment                                (13,599)       (11,176)       (10,117)
      Proceeds from sale of toxicology operations                              -              -         32,500
      Proceeds from sale of property and equipment                           174             74         14,158
      Proceeds (purchase) of marketable securities, net                    6,268        (13,799)           (14)
      Sale of investments                                                      -            244               -
      Purchase of investments                                             (1,500)             -               -
      Net cash paid for acquisitions                                      (8,121)        (3,867)          (741)
                                                                       ----------    ----------     ----------
                Net cash (used in) provided by investing activities      (16,778)       (28,524)        35,786
                                                                       ----------    ----------     ----------
Cash flows from financing activities:
      Short-term bank (repayments) borrowings, net                             -              -         (1,687)
      Line of credit (repayments) borrowings, net                              -            669        (12,892)
      Proceeds from long-term debt                                           138            167              -
      Principal repayments on long-term debt                              (1,355)        (2,415)       (32,897)
      Proceeds of Section 16(b) transaction                                  431              -              -
      Cash dividends paid                                                      -         (5,937)          (723)
      Distribution to shareholders                                          (431)             -              -
      Proceeds from issuance of common stock                               2,215         42,902            761
                                                                       ---------     ----------     ----------
                Net cash provided by (used in) financing activities          998         35,386        (47,438)
                                                                       ---------     ----------     -----------

Effect of exchange rate changes on cash                                   (1,318)         1,093           (510)
                                                                       ----------    ----------     ----------
Net increase (decrease) in cash and cash equivalents                      (5,959)         8,273          3,761
Cash and cash equivalents, beginning of the year                          21,838        13,565           9,804
                                                                       ---------     ---------      ----------
Cash and cash equivalents, end of the year                             $  15,879     $   21,838     $   13,565
                                                                       =========     ==========     ==========
</TABLE>

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

                                       F-6



<PAGE>


            PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.       SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES:

NATURE OF BUSINESS
         Pharmaceutical Product Development, Inc. and its subsidiaries ("PPD"),
collectively (the "Company"), provide a broad range of research and consulting
services in three business segments: life sciences, environmental sciences and
discovery sciences. 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.
Environmental sciences services include assessment and management of chemical
and environmental health risk, site investigation and remediation planning and
litigation support. Discovery sciences services include target identification
and validation, compound creation, screening and compound selection. Such
services are provided through all three segments under contract to clients in
the pharmaceutical, general chemical, agrochemical, biotechnology and other
industries. The environmental sciences segment also markets services to clients
in the industrial, manufacturing and oil and gas industries. The Company's life
sciences services, which represented 79.6% of the Company's business in 1997
based on net revenue, are marketed primarily in the United States and Europe.
The Company's remaining 1997 net revenue was derived from its environmental
sciences segment (20.3%) which is primarily domestic and its discovery segment
(0.1%) which is entirely domestic.

PRINCIPLES OF CONSOLIDATION

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

MERGER COSTS AND SPECIAL CHARGES

         During 1997, the Company recorded one-time merger cost of $0.6 million
in connection with the acquisitions of Belmont Research, Inc., SARCO, Inc., and
Intek Labs, Inc. These costs are primarily current cash expenses, such as legal
and accounting fees related to pooling transactions.

         In connection with the acquisition of Applied Bioscience International
Inc. ("APBI"), 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 of $16.1 million in 1996. Included in
these costs were transaction costs of $7.1 million, related primarily to
investment banking, legal and accounting fees. In addition, the Company recorded
$9.0 million in accruals for severance, lease termination and certain other
costs. Of the amounts accrued, $3.2 million is for severance payments for
approximately 40 individuals consisting mainly of administrative personnel.
Approximately $0.1 million and $7.5 million of merger and reorganization costs
were accrued as of December 31, 1997 and 1996, respectively, and included in
other accrued expenses.

         In the fourth quarter of 1995, the Company recorded special charges of
$5.0 million, primarily related to the impairment of certain investments and
assets and the decision to reduce costs and improve efficiencies. These charges
included approximately $3.4 million associated with the impairment of the
Company's available-for-sale investment (see Note 8) and other assets, $1.2
million related primarily to severance costs associated with the Company's
efforts to reduce future costs and $0.4 million related to accrued lease losses
and other miscellaneous costs.

ACQUIRED IN-PROCESS RESEARCH AND DEVELOPMENT COSTS

         The purchase price in excess of the net assets of the GSX System was
allocated to acquired in-process research and development costs and was charged
to operations upon the acquisition of the GSX System, as the technology has no
alternative future use and the technology has not yet reached technological
feasibility.



                                      F-7


<PAGE>


            PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


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

REVENUE RECOGNITION

         The Company records revenues from fixed-price contracts extending over
more than one accounting period on a percentage-of-completion basis. Revenues
from time-and-material contracts are recognized as billable rates multiplied by
hours delivered, plus pass-through expenses incurred. Pass-through expenses
generally include subcontractor costs which consist of investigator fees, travel
and certain other contract costs that are reimbursed by the client.
Accordingly, such subcontractor costs are deducted in determining net revenues.

         If it is determined that a loss will result from the performance of a
contract, the entire amount of the estimated loss is charged against income in
the period in which the 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, with
respect to contracts of significant size, the Company attempts to negotiate the
payment of an early termination fee.

CASH AND CASH EQUIVALENTS

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

         Supplemental cash flow information and non-cash investing activities
were as follows (in thousands):

                                            YEAR ENDED DECEMBER 31,
                                       -------------------------------
                                         1997        1996       1995
                                       --------    --------    -------
     Cash paid (received):
         Interest                      $    354    $    326    $  3,707
                                       ========    ========    ========
         Income taxes, net             $  2,583    $  1,594    $ (2,299)
                                       ========    ========    ========

         The non-cash assets and liabilities acquired, including the acquisition
of Technical Assessment Systems, Inc.; Belmont Research, Inc.; SARCO, Inc.;
Intek Labs, Inc.; and the GSX System in 1997 and Environmental Assessment Group,
Ltd.; Data Acquisition and Research (DAR) Limited; Medisys S.L.; Trilife GmbH;
and Q&Q Suporte A Pesquisa Clinica Ltda. in 1996 and Gabbay Limited and the
Chicago Center for Clinical Research in 1995 (see Note 2) and the Phase I
clinical center received as consideration for the sale of the toxicology
operations in 1995 (see Note 3) were as follows (in thousands):

                                                     YEAR ENDED DECEMBER 31,
                                                ------------------------------
                                                  1997       1996         1995
                                                --------   --------    -------
     Acquisitions:
         Fair value of assets acquired          $  2,795   $  4,841    $  7,633
         Liabilities assumed                       3,346      5,242       3,416

     Non-cash consideration received:
         Fair value of assets acquired          $      -   $      -    $  5,098
         Liabilities assumed                           -          -         598


                                      F-8

<PAGE>

            PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


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

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 as a
separate component of shareholders' equity. The Company intends to hold these
securities for an indefinite period of time. Gains and losses on sales of
investment securities, computed based on specific identification of adjusted
cost of each security, are included in other income at the time of the sales.
(See Notes 5 and 8.)

INVESTIGATOR PAYMENTS
         Investigator payments 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. Billings and payments
are based on predetermined contractual agreements which may differ from the
accrual of the expense. 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. Contracted physician costs are
included as a reduction to revenues in the consolidated statements of
operations.


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 50 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.

         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" ("SFAS 121").
Accordingly, when indicators of impairment are present, the Company evaluates
the carrying value of property, plant and equipment and intangibles in relation
to the operating performance and estimates of future discounted cash flows of
the underlying business.


GOODWILL
         The excess of the purchase price of the businesses acquired over the
fair value of net tangible assets and identifiable intangibles 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, 1997 and 1996, accumulated
amortization was $4,383,000 and $3,036,000, respectively. The amortization
charges for each of the three years ended December 31, 1997, 1996 and 1995 were
$1,401,000, $950,000 and $715,000, respectively. The Company evaluates
impairment of goodwill based on whether it is probable that undiscounted future
cash flows from operations are expected to be less than the asset's carrying
value.


OTHER ASSETS
         Other intangible assets, which are included in other assets, are being
amortized over periods of three to five years. (See Note 8.)


                                      F-9
<PAGE>


            PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


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

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

         The financial statements of the Company for periods prior to its
initial public offering in January 1996 ("the IPO") do not include a provision
for income taxes, because the taxable income or loss of the Company through
December 31, 1995 (excluding the results of APBI - see Note 2) was included in
the income tax returns of the individual shareholders under the S corporation
election. For informational purposes, the 1995 statement of operations includes
a pro forma income tax provision related to the net loss for financial reporting
purposes, which combines income taxes on PPD's results, excluding APBI, using
statutory federal and state rates that would have resulted if the Company had
filed corporate tax returns during these periods and APBI's previously reported
provision for income taxes.

         In January 1996, prior to the effectiveness of the IPO, the Company
elected to no longer be treated as an S corporation for tax purposes.
Accordingly, the Company is now subject to federal and state income taxes and
recognizes deferred taxes in accordance with Statement of Financial Accounting
Standards No. 109 ("SFAS No. 109"), "Accounting for Income Taxes." SFAS No. 109
requires companies subject to income taxes to adjust their deferred tax assets
and liabilities based on temporary differences between financial statement and
tax basis of assets and liabilities using enacted tax rates in effect in the
years in which the differences are expected to reverse.

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 year-end
rate of exchange. Income and expenses are translated at the average rates of
exchange prevailing during the year. Gains or losses from translating foreign
currency financial statements are accumulated in a separate component of
shareholders' equity. 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.

PER SHARE INFORMATION

         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 common stock equivalents at year end.

NEW ACCOUNTING PRONOUNCEMENTS

         The Company adopted Statement of Financial Accounting Standards No.
128, "Earnings Per Share" ("SFAS No. 128"), on December 31, 1997. SFAS No. 128
requires the Company to change its method of computing, presenting and
disclosing earnings per share information. Accordingly, all prior period data
presented has been restated to conform to the provisions of SFAS No. 128.

         The Company will adopt Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income" ("SFAS No. 130"), for the year ending
December 31, 1998. SFAS No. 130 requires the Company to display an amount
representing total comprehensive income for the period in a financial statement
which is displayed with the same prominence as other financial statements. Upon
adoption, all prior period data presented will be restated to conform to the
provisions of SFAS No. 130. The Company does not expect this new pronouncement
to have a significant impact on the financial statements.


                                      F-10
<PAGE>

            PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


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

         The Company will adopt Statement of Financial Accounting Standards No.
131, "Disclosures about Segments of an Enterprise and Related Information"
("SFAS No. 131"), for the year ending December 31, 1998. SFAS No. 131 requires
the Company to report certain information about operating segments in complete
sets of financial statements and in condensed financial statements of interim
period issued to shareholders. It also establishes standards for related
disclosures about products and services, geographic areas and major customers.
The Company does not expect this new pronouncement to have a significant impact
on the financial statements.
         The Company will adopt Statement of Financial Accounting Standards No.
132, "Employers' Disclosures about Pensions and Other Postretirement Benefits"
("SFAS No. 132"), for the year ending December 31, 1998. SFAS No. 132
standardizes the disclosure requirements for pensions and other postretirement
benefits to the extent practicable, requires additional information and changes
in the benefit obligations and fair values of plan assets that will facilitate
financial analysis, and eliminates certain disclosures that are no longer
useful. The Company does not expect this new pronouncement to have a significant
impact on the financial statements.

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
1997 presentation.


2.       ACQUISITIONS:

POOLINGS

         In March 1997, the Company acquired Belmont Research, Inc. ("Belmont").
The consideration for Belmont consisted of 502,384 shares of the Company's
common stock plus options to purchase approximately 115,000 shares of Company
common stock. In June 1997, the Company acquired SARCO, Inc. ("SARCO"). The
consideration for SARCO consisted of 263,158 shares of the Company's common
stock. In November 1997, the Company acquired Intek Labs, Inc. ("Intek"). The
consideration for Intek consisted of 399,999 shares of the Company's common
stock. All three of these acquisitions were accounted for as pooling of
interests transactions. Pro forma information is not presented as the results of
operations 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 12,063,860 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 stock for the value of the options, or substituted
options to acquire Company common stock. As a result of the APBI option holders'
choices, 202,967 additional shares of Company common stock were issued, and
options to purchase 600,513 shares of Company common stock were issued.


                                      F-11
<PAGE>

            PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2.       ACQUISITIONS (CONTINUED):

         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 1995 financial statements have been
restated to give effect to the combination. Net revenue and net income (loss) as
previously reported for 1995 and for the six months ended June 30, 1996, and as
restated for the pooling of interests follow (in thousands):


<TABLE>
<CAPTION>
                                                   PPD             APBI           ADJUSTMENT     RESTATED
                                                   ---             ----           ----------     --------
<S>                                             <C>             <C>               <C>           <C>
     Year ended December 31, 1995

        Net revenue                             $ 38,263        $  183,253        $  (11,738)   $  209,778

        Pro forma income (loss) from
        continuing operations                   $  2,537        $   (5,328)       $        -    $   (2,791)

        Loss from discontinued operations
        and extraordinary items                        -            (2,613)                -        (2,613)
                                                --------        ----------        ----------    ----------

        Pro forma net income (loss)             $  2,537        $   (7,941)       $        -    $   (5,404)
                                                --------        ----------        ----------    ----------

     Six months ended June 30, 1996

        Net revenue                             $ 25,041        $   77,011        $   (5,506)   $   96,546

        Net income                              $  2,126        $    2,444        $        -    $    4,570
</TABLE>

         Prior to the merger, APBI reported certain items as direct expenses,
while PPD reported those items as a deduction to arrive at net revenue. APBI's
results prior to the pooling have been restated to be presented on a basis
consistent with PPD's results. The impact of the restatement on APBI's net
revenue is presented above in the column labeled "Adjustment."

PURCHASES:

         In a January 1997 transaction, the Company acquired Technical
Assessment Systems, Inc. for $490,000 cash, a note for approximately $300,000
and the potential to earn an additional amount depending on their profitability
for a certain period after the acquisition. In connection with the acquisition,
the Company recorded $1,070,000 in goodwill. In June 1997, the Company acquired
the GSX System, a functional genomics platform technology. The GSX System was
purchased for approximately $8.7 million in cash. Liabilities assumed in this
transaction were $832,000. Pro forma information is not presented as the 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 acquisition of Trilife Gesellschaft Fur
Medizinische Entwicklung Verwaltungs GmbH ("Trilife") in Germany, Medisys S.L.
("Medisys") in Spain and Q&Q Suporte A Pesquisa Clinica Ltda. ("Q&Q") in Brazil.
The consideration for Trilife consisted of approximately $567,000 paid at
closing. In addition, the Company may pay up to $135,000 as additional purchase
price, dependent upon the performance of Trilife for a certain period after the
acquisition. The consideration for Medisys consisted of $400,000 paid at
closing, plus an additional $300,000 due on each of the first and second
anniversaries of the acquisition. The consideration for Q&Q consisted of
$500,000 paid at closing, plus an additional $100,000 due on each of the first
three anniversaries. The Company also acquired Data Acquisition and Research
(DAR) Limited ("DAR") in Scotland in 1996, which allowed it to expand its
biostatistics and data analysis capabilities in Europe. The consideration for
DAR consisted of cash paid at closing of $992,000, plus an additional $348,000
to be paid in 10 installments between June 1997 and December 2001. The Company's
Environmental Sciences Group also expanded its operations in 1996 with the
acquisition of Environmental Assessment Group Limited ("EAG") in England. The
consideration for EAG consisted of $1.9 million cash, a note for approximately
$350,000 and the potential to earn up to an additional $500,000 depending on the
profits of EAG during the two years after the acquisition. In connection with
these acquisitions, the Company recorded $6,278,000 in goodwill. Pro forma
information is not presented as the results of operations prior to the dates of
the acquisitions are not material individually or collectively to the Company.


                                      F-12
<PAGE>

            PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2.       ACQUISITIONS (CONTINUED):

         On August 1, 1995, PPD and PPD-Europe (an S corporation formed in
connection with this transaction), completed the acquisition of Gabbay Group
Limited for $306,000 in cash and $241,000 in assumed debt. Gabbay Group Limited,
a clinical research organization, is located in Southampton, England. The
purchase price resulted in goodwill of $444,000. Pro forma information is not
presented as the results of operations prior to the date of the acquisition are
not material to the Company.

         On August 18, 1995, the Company, through its subsidiary Clinix
International Inc., acquired the business and assets of the Chicago Center for
Clinical Research ("CCCR"), a nationally recognized organization conducting
clinical trials in pharmaceuticals, food and nutrition. The consideration
consisted of 634,188 shares of APBI's common stock valued at $4,043,000,
together with the assumption or retirement of substantially all of CCCR's
outstanding indebtedness and other related liabilities. As a result of this
transaction, the Company recorded $4,517,000 in goodwill. Pro forma information
is not presented, as the results of operations prior to the date of acquisition
are not material to the Company.


3.       SALE OF BUSINESS:
         On November 21, 1995, the Company sold its toxicology laboratories
located in New Jersey and Suffolk, England, to Huntingdon International Holdings
plc ("Huntingdon"). In connection with the sale of the New Jersey toxicology
laboratory, which operated as a division of PPD Pharmaco (formerly Pharmaco LSR
International Inc., "Pharmaco"), a wholly-owned subsidiary of the Company,
Huntingdon acquired substantially all of the assets of such laboratory and
assumed substantially all related liabilities. In connection with the sale of
the toxicology laboratory located in Suffolk, England, Huntingdon acquired all
of the capital stock of Pharmaco LSR Ltd., a wholly-owned subsidiary of the
Company. The Company received as consideration cash proceeds of $32,500,000,
plus an additional $6,000,000 for an equal amount of cash conveyed to Huntingdon
as part of the sale. The consideration also included the Company's acquisition
of Huntingdon's Phase I clinical center located in Leicester, England, at an
agreed upon value of $4,500,000.

         As a result of the disposition, the Company recorded a pre-tax loss on
sale of business of $19,308,000 which is reflected in the accompanying
consolidated statement of operations for the year ended December 31, 1995. The
loss reflected the net book value of the net assets sold in excess of
consideration received of $16,991,000, $1,178,000 of transaction costs,
$1,338,000 of severance and relocation costs, and $581,000 of other costs
primarily related to the required name change of the remaining business, net of
a $780,000 gain recorded as a result of the settlement of the Company's U.K.
pension plan. (See Note 13.)

         The results of operations (excluding the effect of the loss on the sale
of the business) for the year ended December 31, 1995 included the following for
the disposed business (in thousands):

                                 1995
                                 ----
         Net revenues          $  38,446
         Operating loss           (1,136)

4.       DISCONTINUED OPERATIONS:
         During the fourth quarter of 1995, PACE Incorporated ("PACE") sold
substantially all of its laboratories in a series of transactions. Net proceeds
from such transactions were used to retire PACE's outstanding bank loan and to
partially repay certain other secured indebtedness. Effective December 29, 1995,
the Company's voting interest was reduced to below 20%, and the Company changed
its accounting for the investment from the equity method to the cost method in
accordance with Accounting Principles Board Opinion No. 18, "The Equity Method
of Accounting for Investments in Common Stock." At that time, the Company wrote
off its remaining investment in PACE of approximately $3,600,000, and accrued
its estimated exposure for guarantees on leases. PACE was involuntarily placed
in bankruptcy under Chapter 7 of the Bankruptcy Code during 1996. As a result of
a settlement reached with the bankruptcy trustee in December 1997, the Company
expects repayment of approximately $300,000 related to funds loaned to PACE and
written off in the fourth quarter of 1995.



                                      F-13
<PAGE>


            PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

5.       MARKETABLE SECURITIES:

         The estimated market value and aggregate cost of current marketable
securities were as follows (in thousands):

                                             DECEMBER 31,
                                        ----------------------
                                          1997         1996
                                        ---------    ---------
         Estimated market value         $   7,994    $  14,210
         Aggregate cost                     8,000       14,210
                                        ---------    ---------
         Gross unrealized loss          $      (6)   $       -
                                        ==========   =========

         Marketable securities consist of debt securities issued by the U.S.
Treasury in 1997 and 1996. These securities are classified as available-for-sale
and reported in the balance sheet at fair value. The U.S. Treasury note held at
December 31, 1997 matured February 2, 1998.

6.       ACCOUNTS RECEIVABLE AND UNBILLED SERVICES:

         Accounts receivable and unbilled services consisted of the following
(in thousands):

                                                       DECEMBER 31,
                                                    -----------------
                                                    1997         1996
                                                    ----         ----
         Trade:
               Billed                             $  55,257    $  45,419
               Unbilled                              46,730       30,404
               Reserve for doubtful accounts         (1,515)      (1,511)
                                                  ----------   ---------
                                                    100,472       74,312
         Officers and employees                         386          363
         Other                                          696        1,562
                                                  ---------    ---------
                                                  $ 101,554    $  76,237
                                                  =========    =========

7.       PROPERTY AND EQUIPMENT:

         Property and equipment, stated at cost, consisted of the following (in
thousands):

<TABLE>
<CAPTION>
                                                                  DECEMBER 31,
                                                               -----------------
                                                               1997         1996
                                                               ----         ----
<S>                                                          <C>          <C>
         Land                                                $     517    $     593
         Buildings and leasehold improvements                   13,291       13,049
         Construction in progress and asset deposits               620          167
         Furniture and equipment                                33,066       28,062
         Computer equipment and software                        36,466       27,868
                                                             ---------    ---------
                                                                83,960       69,739
         Less - Accumulated depreciation and amortization       49,058       38,260
                                                             ---------    ---------
                                                             $  34,902    $  31,479
                                                             =========    =========
</TABLE>


         The annual depreciation and amortization charges on property and
equipment for each of the three years ended December 31, were (in thousands):



                  1995                  $12,015
                  1996                    9,399
                  1997                   10,830

                                      F-14

<PAGE>


            PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

8.       OTHER ASSETS:
         Other assets consisted of the following (in thousands):

<TABLE>
<CAPTION>
                                                                  DECEMBER 31,
                                                               ------------------
                                                               1997          1996
                                                             --------     -------
<S>                                                          <C>          <C>
         Investment in DAS                                   $  1,500     $      -
         Investment in SDI                                      1,161        1,240
         Long-term deferred tax asset                           3,742          963
         Intangible and other assets, net of accumulated
           amortization of $1,040 and $1,024, respectively      1,219        1,106
                                                             --------       ------
                                                             $  7,622     $  3,309
                                                             ========     ========
</TABLE>

         The annual amortization charges on intangible assets for each of the
three years ended December 31, 1997, 1996 and 1995 were $163,000, $87,000 and
$602,000, respectively.

         The Company owns 600,000 shares (approximately 8.0%) of Digital Arts
and Sciences ("DAS") Series D preferred stock as of December 31, 1997. The
Company's investment in DAS is valued at cost, which approximates fair market
value.

         The Company owns 714,600 and 729,600 shares of Strategic Diagnostics
Inc. ("SDI"), formerly EnSys Environmental Products Inc. ("EnSys") common stock
as of December 31, 1997 and 1996, respectively. Warrants to acquire up to an
additional 866,667 shares of EnSys common stock at $7.50 per share expired in
October 1996. The trading price per share was $2.25 and $2.00 as of December 31,
1997 and 1996, respectively. The Company owned approximately 5.5% of the SDI
common stock at December 31, 1997.

         The Company's investment in SDI was carried at its fair value in 1996.
However, during 1997 the Company sold options to various other companies which
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 the lower of market or $1.625 per share
($1.625 at December 31, 1997). In 1996, the difference between the fair value
and the carrying value of $232,000 is reported as a separate component of
shareholders' equity. In 1997, $174,000 is reported as a separate component of
shareholders' equity to represent the difference between option value and the
prior year's carrying value. In 1995, the difference between the fair value and
the carrying value of $2,638,000 was reported as a loss in the consolidated
statement of operations as the decline was considered other than temporary.

9.       OTHER ACCRUED EXPENSES:
         Other accrued expenses consisted of the following (in thousands):


<TABLE>
<CAPTION>
                                                                    DECEMBER 31,
                                                                 -----------------
                                                                 1997         1996
                                                                 ----         ----
<S>                                                           <C>          <C>
         Accrued salaries, wages, benefits and related costs  $  15,626    $  10,976
         Accrued merger costs                                       117        7,513
         Other                                                    7,789        7,774
                                                              ---------    ---------
                                                              $  23,532    $  26,263
                                                              =========    =========
</TABLE>

                                      F-15

<PAGE>

            PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


10.      LONG-TERM DEBT AND LEASE OBLIGATIONS:

         Long-term debt consisted of the following (in thousands):


                                                              DECEMBER 31,
                                                         --------------------
                                                           1997        1996
                                                         --------     -------
         LIBOR (5.9% at December 31, 1997) plus 0.70%
           unsecured line of credit due March 3, 1998    $  3,300     $  3,300

         Equipment leases                                     721          689

         Various notes at interest rates up to 9.75%        1,225        1,660
                                                         --------     --------

                                                            5,246        5,649
         Less current maturities                           (4,906)      (4,221)
                                                         ---------    --------

                                                         $    340     $  1,428
                                                         ========     ========

         In June 1997, the Company obtained a $50.0 million revolving credit
facility with First Union National Bank which accrues interest on amounts
borrowed at a floating rate currently equal to the LIBOR Rate plus 0.75% 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, 1997, the Company has no amounts outstanding under this
facility.

         In August 1997, the Company negotiated a new credit facility for $50.0
million with Wachovia Bank, N.A. which accrues interest on amounts borrowed at a
floating rate currently equal to the LIBOR Rate 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, 1997, the Company had $3.3 million outstanding under this
facility.
         For the years subsequent to December 31, 1997, annual maturities of
long-term debt outstanding are (in thousands):

                           1998          $  4,906
                           1999               205
                           2000                81
                           2001                54
                                         --------
                                         $  5,246
                                         ========
OPERATING LEASES
         The Company is obligated under noncancellable leases expiring at
various dates through 2010 relating to its operating facilities and certain
equipment. Rental expense for all operating leases, net of sublease income, was
$13,492,000, $10,334,000 and $8,200,000 for the years ended December 31, 1997,
1996 and 1995, respectively.

         The Company completed a sale-leaseback transaction involving owned real
estate in Austin, Texas, on November 13, 1995. Total gross proceeds in the
transaction were $12,000,000 resulting in a pre-tax gain of approximately
$2,100,000. The gain, which has been deferred, is classified as deferred rent
and other in the accompanying consolidated balance sheet and is being amortized
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 in 1992 and prior years 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.


                                      F-16
<PAGE>

            PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

         Future minimum payments for all operating lease obligations for years
subsequent to December 31, 1997 are as follows (in thousands):

                              1998                  $  13,983
                              1999                     11,583
                              2000                      9,577
                              2001                      8,784
                              2002                      8,312
                              2003 and thereafter      34,004
                                                    ---------
                                                    $  86,243
                                                    =========
11.      STOCK PLANS:
STOCK INCENTIVE PROGRAM

         The Company has a stock option plan (the "Plan") under which the
Company may grant options to its employees and directors for up to 2,500,000
shares of common stock. Under the Plan, 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.

         On January 1, 1996, the Company adopted 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 ("APB No. 25"), "Accounting for Stock
Issued to Employees" and related interpretations in accounting for the Plan.
Accordingly, no compensation cost has been recognized for options granted under
the Plan. Had compensation cost for the Company's Plan been determined based on
the fair value at the grant dates for awards under the Plan consistent with the
method of SFAS No. 123, the Company's net income (loss) and basic and diluted
net income (loss) per share would have been decreased (increased) to the pro
forma amounts indicated below.


<TABLE>
<CAPTION>
                                            1997                        1996                       1995
                                    -----------------------   -----------------------   -------------------------
                                        AS                        AS                           AS
                                     REPORTED    PRO FORMA     REPORTED    PRO FORMA        REPORTED    PRO FORMA
                                     --------    ---------     --------    ---------        --------    ---------
<S>                                  <C>          <C>          <C>        <C>               <C>         <C>
Net income (loss) (in thousands)     $ 9,602      $  7,730     $(3,507)   $   (7,670)       $(5,404)    $ (5,637)
Basic and diluted net income
 (loss) per share                    $  0.42      $  0.34      $ (0.17)   $    (0.36)       $ (0.29)    $  (0.30)
</TABLE>

         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 1997, 1996 and 1995: expected volatility of
58.7%, 49.9% and 49.9%, respectively, risk-free interest of 6.0%, 6.25% and
6.25%, respectively, and expected lives of five years. The weighted average fair
value of options granted during 1997, 1996 and 1995 was $9.48, $11.48 and $6.55
per share, respectively.

         A summary of the status of the Company's Plan as of December 31, 1997,
1996 and 1995, and changes during the years ending on those dates, is presented
below:

<TABLE>
<CAPTION>
                                              1997                        1996                        1995
                                    -----------------------   -------------------------    --------------------------
                                                   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    1,241,142      $ 22.28      1,180,809      $  16.29     1,240,682     $ 17.07
Granted                              459,740         15.45      1,056,539         22.57       191,837       12.38
Exercised                           (157,857)        14.74       (858,800)        15.10       (63,547)       9.82
Forfeited                           (105,959)        24.63       (137,406)        17.96      (188,163)      19.63
                                    ---------                    --------                    --------
Outstanding at end of year          1,437,066      $ 20.71      1,241,142      $  22.28     1,180,809     $ 16.29
                                    =========      =======      =========      ========     =========     =======
Options exercisable at year-end      799,361       $ 20.77        771,069      $  19.85       766,895     $ 17.31
                                    ========       =======      =========      ========     =========     =======
</TABLE>


                                      F-17
<PAGE>

            PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

11.      STOCK PLANS (CONTINUED):

         The following table summarizes information about the Plan's stock
options at December 31, 1997:

<TABLE>
<CAPTION>
                                                  OPTIONS OUTSTANDING                       OPTIONS EXERCISABLE
                                   -----------------------------------------------      ---------------------------
                                     NUMBER       WEIGHTED-AVERAGE     WEIGHTED           NUMBER       WEIGHTED
                  RANGE OF         OUTSTANDING        REMAINING         AVERAGE         EXERCISABLE     AVERAGE
               EXERCISE PRICES     AT 12/31/97    CONTRACTUAL LIFE  EXERCISE PRICE      AT 12/31/97  EXERCISE PRICE
               ---------------     -----------    ----------------  --------------      -----------  --------------
<S>                                 <C>             <C>                <C>              <C>            <C>
                $ 1.71-$ 10.00        28,264          5.1 years          $ 6.23           25,832        $  5.93

               $ 10.01-$ 20.00       706,296          7.8 years         $ 15.65          434,041        $ 16.21

               $ 20.01-$ 30.00       622,046          8.7 years         $ 25.14          259,028        $ 25.16

               $ 30.01-$ 40.00        74,668          3.8 years         $ 35.59           74,668        $ 35.59

               $ 40.01-$ 40.55         5,792          4.2 years         $ 40.55            5,792        $ 40.55
                                    --------                                            --------
                                   1,437,066                                             799,361
                                   =========                                            ========
</TABLE>

OTHER STOCK PROGRAMS

         On August 15, 1995, APBI granted a total of 60,000 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 on July 5,
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 related to these RSUs of $534,000 and $66,000
has been recorded in the accompanying statement of operations for the years
ended December 31, 1996 and 1995, respectively.

         On September 19, 1995, APBI entered into a Separation Agreement with a
former senior executive officer of APBI. In connection therewith, APBI canceled
the former executive's unexercised options granted under APBI's stock option
plan and provided the officer with options granted outside of APBI's plan to
purchase up to 147,428 shares of APBI's common stock. Of the options granted,
92,761 were fully vested at the grant date. The remaining options vest at
various dates through September 13, 1997, and expire on the earlier of February
11, 2001, or the day immediately following any period of 20 consecutive trading
days in which the last sale for shares of the Company's common stock for each of
such trading days equaled or exceeded $49.33, as adjusted, per share. The
options were granted at the exercise prices established at the original option
grant dates and vary from $13.88 to $39.16, as adjusted. At the grant date of
the new options, 102,000 of the options were priced below fair market value.
Accordingly, in 1995, the Company recorded compensation expense of $112,000 for
the difference between the fair market value and the exercise price. These
options to acquire shares of APBI stock were converted into options to acquire
Company stock, in connection with the merger. The terms and conditions of the
options remained the same, except that the number of options and their exercise
price were adjusted in accordance with the exchange ratio provided for in the
merger agreement.

SAVINGS RELATED STOCK OPTION PLAN

         The Company has a 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. Those
employees electing the five-year savings period may also elect to leave the
savings in their accounts for another two years to accrue the additional bonuses
and forfeit the option to purchase the shares. 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 at the time of the merger with APBI were converted in
accordance with the exchange ratio provided for in the merger agreement.


                                      F-18

<PAGE>

            PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


11.      STOCK PLANS (CONTINUED):
         In connection with the sale of the toxicology operations, options
equivalent in value to the savings balance in the terminated employees' accounts
became immediately exercisable. Options granted in excess of the savings balance
were forfeited. The exercise period for the vested options extended through
April 1996.

         At December 31, 1997, there were 1,029 options outstanding at an
average exercise price of $13.72. Of those, 667 options were exercisable at
December 31, 1997, at an average exercise price of $13.75. These options are
included in the table above that summarizes total options outstanding at
December 31, 1997.

EMPLOYEE STOCK PURCHASE PLAN

         The Board of Directors has reserved 500,000 shares of the Company's
common stock for issuance under the Employee Stock Purchase Plan (the "ESPP").
The plan will have 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. An eligible employee may also make contributions outside
elected payroll deductions, provided that no eligible employee can purchase
common stock of the Company under the ESPP in excess of $25,000 in any calendar
year. 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,
whether through elected payroll deductions or outside of elected payroll
deductions, are tax deductible to the employees. At the end of an Offering
Period, the total payroll deductions and other contributions 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.

         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
both participation in and contributions to the ESPP are determined by the
eligible employee, 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, 1997, $991,000 had been contributed to the ESPP. Shares
were not issued on December 31, 1997 since the market had to be closed before a
purchase price could be determined. On January 2, 1998, 75,508 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 $196,000, and is reflected in the pro forma net income and basic
and diluted net income per share for 1997 as disclosed above.

         The ESPP was amended to limit additional cash contributions to $5,000
for the Offering period commencing January 1, 1998 and eliminate additional cash
contributions during the Offering Period commencing July 1, 1998 and thereafter.
Stock available for purchase during the Offering Period commencing January 1,
1998, will be limited to a total of 150,000 shares.


                                      F-19

<PAGE>

            PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


12.      INCOME TAXES:
     The components of income (loss) before provision for income taxes were as
follows (in thousands):


<TABLE>
<CAPTION>
                                                          YEAR ENDED DECEMBER 31,
                                                   --------------------------------
                                                     1997         1996         1995
                                                   -------     ----------    ------
<S>                                                <C>         <C>           <C>
         Domestic                                  $16,907     $    1,228    $ (16,778)
         Foreign                                    (1,231)          (601)        (372)
                                                   --------    ----------    ----------
         Income (loss) from continuing operations   15,676            627      (17,150)
         Loss from discontinued operations               -              -       (3,752)
         Extraordinary loss                              -              -       (1,372)
                                                   -------     ----------    ----------
               Total                               $15,676     $      627    $ (22,274)
                                                   =======     ==========    =========
</TABLE>

     The components of the provision (benefit) for income taxes were as follows
(in thousands):


<TABLE>
<CAPTION>
                                                                   YEAR ENDED DECEMBER 31,
                                                            --------------------------------
                                                              1997         1996         1995
                                                            -------     ----------    ------
<S>                                                         <C>         <C>            <C>
         State income taxes:
              Current                                       $   313     $      330     $    (63)
              Deferred                                          (97)            90         (166)
         Federal income taxes:
              Current                                         5,305          2,130       (1,021)
              Deferred                                          115          1,285       (4,716)
         Foreign income taxes:
              Current                                           438            299          109
              Deferred                                           -               -      (12,788)
                                                            ------      ----------     ---------
         Provision (benefit) for income taxes               $ 6,074     $    4,134      (18,645)
                                                            =======     ==========
         PPD's pro forma income tax provision (See Note 1)                                1,775
                                                                                       --------
            Pro forma benefit for income taxes                                        $ (16,870)
                                                                                      ==========
</TABLE>

     The income tax provision (benefit) is included in the financial statements
as follows (in thousands):



                                              YEAR ENDED DECEMBER 31,
                                       ------------------------------------
                                         1997         1996         1995
                                       -------     ----------    ----------

         Continuing operations         $ 6,074     $    4,134     $(14,359)
         Discontinued operations             -              -       (2,036)
         Extraordinary loss                  -              -         (475)
                                       -------     ----------     ---------
               Total                   $ 6,074     $    4,134     $(16,870)
                                       =======     ==========     =========


                                      F-20

<PAGE>
            PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

12.      INCOME TAXES (CONTINUED):

         The 1996 current federal and state income tax expense primarily relates
to costs associated with the acquisition of APBI which are not deductible for
federal and state income tax purposes. The 1996 deferred federal and state
income tax expense relates to the utilization of net operating losses and tax
credits generated in prior years. In 1995, federal and state income tax benefits
were recorded which related to the federal and state income tax losses and
credits available for carryforward, discontinued operations reserves and
restructuring reserves established for financial reporting purposes which were
not currently deductible for income tax purposes.

         The 1997 and 1996 current foreign income tax expense represents the
foreign income tax liabilities associated with the Company's foreign operations.
In 1995, a foreign deferred income tax benefit was recorded to reflect the
reversal of previously recorded foreign deferred income tax expense associated
with the United Kingdom ("U.K.") toxicology operations which were sold during
1995.

         Taxes computed at the statutory federal income tax rate are reconciled
to the provision (benefit) for income taxes as follows (in thousands):

<TABLE>
<CAPTION>
                                                                              YEAR ENDED DECEMBER 31,
                                                                      ------------------------------------
                                                                        1997          1996         1995
                                                                      --------     ---------     ---------
<S>                                                                   <C>          <C>           <C>
         Effective tax rate                                             38.7%         660.2%         83.7%
                                                                      ========     =========     =========
         United States federal statutory rate                         $  5,487     $      213    $  (7,574)
         Differential on rates applied to foreign earnings                   -            (72)          30
         State taxes (net of federal benefit)                              237            277           47
         Write-down of investment in PACE Incorporated
           and EnSys                                                        -               -          (40)
         Sale of toxicology operations                                      -               -      (10,370)
         Allowance for limitation of foreign tax losses                    533            299          841
         Merger costs not deductible for income tax purposes                 -          2,751            -
         Goodwill and other items not deductible for income
             tax purposes                                                  449            435            -
         Other                                                            (371)           231          196
         Benefit of federal statutory rate reduction from 35% to 34%      (100)             -            -
         Deferred taxes set up for S to C conversion on
            acquisitions                                                  (161)             -            -
         Taxes on PPD's subchapter S earnings paid by former
            S shareholders                                                   -              -       (1,775)
                                                                      --------     ----------    ---------
         Provision (benefit) for income taxes                         $  6,074     $    4,134    $ (18,645)
                                                                      ========     ==========    ==========
</TABLE>


         During 1997, the Company began recording deferred taxes at a 35%
federal rate due to expected levels of income in the future. During 1996,
significant costs were incurred related to the acquisition of APBI which were
not deductible for income tax purposes. Accordingly, no tax benefit was recorded
on these expenses. As a result of the 1995 sale of the Company's toxicology
operations, the Company will not be liable for the payment of certain tax
liabilities recorded in prior years. These previously recorded liabilities were
reversed in 1995.



                                      F-21

<PAGE>

            PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

12.      INCOME TAXES (CONTINUED):

     Components of the net current deferred tax asset were as follows (in
thousands):


<TABLE>
<CAPTION>
                                                                       DECEMBER 31,
                                                                    ------------------
                                                                    1997          1996
                                                                  --------     -------
<S>                                                               <C>          <C>
         Future benefit of foreign net operating losses           $     96     $     92
         Allowance for doubtful accounts                               787          733
         Accruals                                                    1,090        3,263
         Future benefit of U.S. and state net operating losses           -        1,051
         Other                                                           -         (184)
                                                                  --------     ---------
         Net current deferred tax asset                           $  1,973     $  4,955
                                                                  ========     ========
</TABLE>



     Components of the net long-term deferred tax asset, included in other
assets, were as follows (in thousands):



                                                            DECEMBER 31,
                                                        ----------------
                                                        1997        1996
                                                        ----        ----
         Depreciation and amortization                 $ 2,721    $    (836)
         Deferred rent                                   1,068        1,228
         Future benefit of U.S. tax credits                  -          391
         Other                                             (47)         179
                                                       --------   ---------
         Net long-term deferred tax asset              $ 3,742    $     962
                                                       =======    =========


         The cumulative amount of undistributed earnings of foreign subsidiaries
for which the Company has not provided U.S. income taxes at December 31, 1997
was $805,000. 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

         Prior to the merger, PPD maintained the PPD 401(k) Retirement Savings
Plan (the "PPD 401(k) Plan") under which all U.S. employees of PPD were eligible
to participate. PPD matched 50% of an employee's savings up to 5% of pay.
Employer matching contributions vested ratably over a period of six years. APBI
maintained the Applied Bioscience International Inc. 401(k) Retirement Savings
Plan (the "APBI 401(k) Plan"), under which all U.S. employees were eligible to
participate from their date of employment. APBI matched 50% of an employee's
savings up to 6% of pay. All participants were 100% vested in Company
contributions. Effective January 1, 1997, the two 401(k) plans have been merged
into one plan. Under the new plan, the Company will match 50% of an employee's
savings up to 6% of pay, and employer matching contributions will vest ratably
over a four-year period.

         Company contributions for all employees for the three years ended
December 31, 1997, 1996 and 1995 were $1,945,000, $1,483,000 and $1,628,000,
respectively.


                                      F-22
<PAGE>


            PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

13.      EMPLOYEE SAVINGS AND PENSION PLANS (CONTINUED):

PENSION PLANS

         Pension costs and related disclosures are determined under the
provisions of Statement of Financial Accounting Standards No. 87, "Employers'
Accounting for Pensions," and Statement of Financial Accounting Standards No.
88, "Employers' Accounting for Settlements and Curtailments of Defined Benefit
Pension Plans and for Termination Benefits."

         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 this plan are based primarily on
years of service and average pay at retirement. Plan assets consist principally
of investments managed in a mixed fund. The sale of the toxicology business
discussed in Note 3 resulted in the termination of employment for the majority
of United Kingdom employees who participated in the U.K. Plan. The projected
settlement gain of $780,000 was reflected as a reduction of the loss on the sale
of business in the accompanying consolidated statement of operations for the
year ended December 31, 1995.

     Pension costs for the United Kingdom plan included the following components
(in thousands):


                                                   YEAR ENDED DECEMBER 31,
                                            ----------------------------------
                                              1997          1996          1995
                                            ---------     --------     -------

         Service cost-benefits earned
           during the year                  $   738       $    553     $  1,311
         Interest cost on projected
           benefit obligation                   631            394        1,361
         Actual return on plan assets          (954)          (500)      (1,566)
         Net amortization and deferral          (13)            (9)         (38)
                                            --------      --------     --------
         Net pension cost                   $   402       $    438     $  1,068
                                            =======       ========     ========



     The funded status of the defined benefit plan was as follows (in
thousands):

<TABLE>
<CAPTION>
                                                                 DECEMBER 31,
                                                           ----------------------
                                                             1997         1996
                                                           ---------    ---------
<S>                                                        <C>          <C>
         Actuarial present value of benefit obligations:
              Vested benefit obligation                    $  (8,034)   $  (5,033)
                                                           =========    =========
              Accumulated benefit obligation               $  (8,214)   $  (5,249)
                                                           =========    =========
         Projected benefit obligation                      $  (8,528)   $  (5,459)
         Plan assets at fair value                            10,932        6,497
                                                           ---------    ---------
         Plan assets in excess of projected
           benefit obligation                                  2,404        1,038
         Remaining unrecognized net asset arising
           from initial application of SFAS 87                   (98)         (67)
         Unrecognized net loss from past experience
           different from that assumed and effects of
           changes in assumptions                               (406)         558
                                                           ----------   ---------
         Prepaid pension cost                              $   1,900    $   1,529
                                                           =========    =========

</TABLE>

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

                                                     1997         1996
                                                     ----         ----
         Discount rate                                8.5%        8.5%
         Rate of compensation increase                6.0%        6.5%
         Long-term rate of return on plan assets      9.5%        8.5%

                                      F-23
<PAGE>

            PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


13.      EMPLOYEE SAVINGS AND PENSION PLANS (CONTINUED):

         The Company maintains 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 division
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, 1997, 1996 and 1995 was $638,000, $620,000 and $645,000,
respectively. As of December 31, 1997 and 1996, accrued pension was $701,000 and
$648,000, 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 1997, 1996 and 1995 were $35,000, $39,000 and $44,000,
respectively.


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, 1997, this
coverage included two policies. One policy is for the Life and Discovery
Sciences Groups and one is for the Environmental Sciences Group. Both policies
included a $500,000 self-insured retention per claim.

         In July 1997, the Company entered into a new 10 year build-to-suit
lease for approximately 100,000 square feet in Morrisville, North Carolina which
is scheduled for completion in the fall of 1998.

         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
presently 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.


15.      RELATED PARTY TRANSACTIONS:
         The Company is related through common ownership with E.M. Associates,
Inc. which provides investigative review board services to the Company. The
Company had transactions with E.M. Associates, Inc. of $37,200, $65,900 and
$102,000 in expenses for the years ended December 31, 1997, 1996 and 1995,
respectively.

         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 years ended December 31, 1996 and 1995,
totaled $402,300 and $341,000, respectively.

         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 and for APBI's sale of its
toxicology laboratories in 1995. For those investment banking services, Lehman
Brothers earned $3,058,718 and $500,000 in 1996 and 1995, respectively.



                                      F-24


<PAGE>


            PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


15.      RELATED PARTY TRANSACTIONS (CONTINUED):
         The Company paid legal fees in 1996 of approximately $333,000 to a firm
which had a partner who became General Counsel of the Company in 1996. At the
time he became the Company's General Counsel he 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 $1,500,000 at December
31, 1997. The Company's investment in DAS is valued based on the cost method and
does not exceed estimated net realizable value.

INVESTMENT IN SDI

         The Company's investment in SDI is recorded at $1,161,200 and
$1,240,300 compared to the market price of $1,607,900 and $1,459,200 as quoted
on the National Market System of the National Association of Securities Dealers
Automated Quotation System at December 31, 1997 and 1996. In 1997, this
investment was not valued at the market price due to the options outstanding at
the exercise price of $1.625 for all shares which the Company owns. In 1996, the
market price was discounted $218,900 representing the relatively illiquid nature
of the investment.

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 most 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.


                                      F-25
<PAGE>


            PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

17.      BUSINESS SEGMENT DATA:

         The Company operates in three business segments - life sciences,
environmental sciences and discovery sciences.

         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 1997 and 1996 of $9.7 million and $16.1
million, respectively, were not allocated to the Company's business segments and
are shown separately for purposes of business segment analysis. Loss from
operations, depreciation and amortization, identifiable assets and capital
expenditures by principal business segment were as follows (in thousands):

<TABLE>
<CAPTION>
                                                                                 DECEMBER 31,
                                                                   ---------------------------------------
                                                                       1997          1996          1995
                                                                   ----------     ----------    ----------
<S>                                                                <C>            <C>           <C>
         Income (loss) from operations:
                Life sciences                                      $   19,902     $    9,580    $  (18,657)
                Environmental sciences                                  6,305          5,357         4,123
                Discovery sciences                                     (2,325)             -             -
                Merger costs and acquired in-process
                   research and development costs                      (9,670)       (16,114)            -
                                                                   -----------    -----------   ----------
                Operating income (loss)                            $   14,212     $   (1,177)   $  (14,534)
                                                                   ==========     ===========   ===========
         Depreciation and amortization:
                Life sciences                                      $   10,651     $    8,766    $   11,601
                Environmental sciences                                  1,514          1,670         1,650
                Discovery sciences                                        229              -             -
                                                                   ----------     ----------    ----------
                Total                                              $   12,394     $   10,436    $   13,251
                                                                   ==========     ==========    ==========
         Identifiable assets:
                Life sciences                                      $  165,855     $  159,394    $  117,292
                Environmental sciences                                 29,727         22,063        25,369
                Discovery sciences                                      1,465              -             -
                                                                   ----------     ----------    ----------
                Total                                              $  197,047     $  181,457    $  142,661
                                                                   ==========     ==========    ==========
         Capital expenditures:
                Life sciences                                      $   11,589     $    9,895    $    8,853
                Environmental sciences                                  1,515          1,281         1,264
                Discovery sciences                                        495              -             -
                                                                   ----------     ----------    ----------
                Total                                              $   13,599     $   11,176    $   10,117
                                                                   ==========     ==========    ==========
</TABLE>

                                      F-26

<PAGE>

            PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


18.      OPERATIONS BY GEOGRAPHIC AREA:
         The following table presents information about the Company's operations
by geographic area (in thousands):

<TABLE>
<CAPTION>
                                                                     DECEMBER 31,
                                                       ------------------------------------
                                                           1997          1996        1995
                                                       ----------     ----------    -------
<S>                                                    <C>            <C>           <C>
         Net revenue:
                United States                          $  204,921     $  175,173    $  170,465
                U.K.                                       20,269         15,542        31,141
              * Other                                      10,082          7,081         8,172
                                                       ----------     ----------    ----------
                Total                                  $  235,272     $  197,796    $  209,778
                                                       ==========     ==========    ==========

         Operating income (loss):
                United States                          $   24,617     $   14,731    $  (14,834)
                U.K.                                          119           (837)        1,556
              * Other                                        (854)         1,043        (1,256)
                Merger costs and acquired in-process
                   research and development costs          (9,670)       (16,114)            -
                                                       -----------    -----------   ----------
                Operating income (loss)                $   14,212     $   (1,177)   $  (14,534)
                                                       ==========     ==========    ===========

         Identifiable assets:
                United States                          $  157,543     $  142,464    $  118,310
                U.K.                                       27,063         27,657        12,579
              * Other                                      12,441         11,336        11,772
                                                       ----------     ----------    ----------
                Total                                  $  197,047     $  181,457    $  142,661
                                                       ==========     ==========    ==========
</TABLE>

              * Principally consists of revenue from 11 countries, seven of
which are located in Europe.


19.      QUARTERLY FINANCIAL DATA (UNAUDITED):
         (IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                1997                         FIRST         SECOND           THIRD           FOURTH              TOTAL
-------------------------------------     ---------       --------       ----------      ----------         ---------
<S>                                       <C>             <C>            <C>             <C>                <C>
Net revenue                               $  57,678       $  60,065      $   58,325      $   59,204         $  235,272
Operating income (loss)                       5,266         (2,588)           6,568           4,966             14,212
Net income (loss)                             3,343         (1,346)           4,141           3,464              9,602
Net income (loss) per common share:
         Basic                            $    0.15       $  (0.06)      $     0.18      $     0.15         $     0.42
         Diluted                          $    0.15       $  (0.06)      $     0.18      $     0.15         $     0.42



                1996
------------------------------------
Net revenue                               $  47,075       $ 49,471       $   49,503      $   51,747         $  197,796
Operating income (loss)                       3,214          3,713          (13,987)          5,883             (1,177)
Net income (loss)                             2,147          2,424          (11,957)          3,879             (3,507)

Net income (loss) per common share:
         Basic                            $    0.10       $   0.11       $    (0.56)     $     0.18         $    (0.17)
         Diluted                          $    0.10       $   0.11       $    (0.56)     $     0.18         $    (0.17)

</TABLE>


                                      F-27

<PAGE>


         PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


20.      SUBSEQUENT EVENT:

         On February 27, 1998, the Company, through its subsidiary Clinix
International Inc., sold the business and assets of the Chicago Center for
Clinical Research ("CCCR"). The selling price was approximately $7.6 million in
the form of cash and a promissory note payable over five years. The sale
resulted in a gain of approximately $1.0 million which will be included in
operations during the first quarter of 1998. As part of the sales agreement, the
Company will continue to provide clinical and administrative services over the
next several quarters.


                                      F-28


<PAGE>




REPORT OF INDEPENDENT ACCOUNTANTS ON SUPPLEMENTAL SCHEDULE



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


Our report on the consolidated financial statements of Pharmaceutical Product
Development, Inc. and its subsidiaries is included on page F-2 of this Form
10-K. In connection with our audits of such financial statements, we have also
audited the 1997 and 1996 information included in the related financial
statement schedule listed on page F-30 of this Form 10-K.

In our opinion, this financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly, in all
material respects, the information required to be included therein.





COOPERS & LYBRAND L.L.P.

Raleigh, North Carolina
February 5, 1998


                                      F-29

<PAGE>


            PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
                 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>


                                                             ADDITIONS
                                                              CHARGED                          OTHER
                                             BALANCE AT         TO                            CHANGES        BALANCE
                                              BEGINNING      COSTS AND                          ADD         AT END OF
DESCRIPTION                                   OF PERIOD       EXPENSES      DEDUCTIONS        (DEDUCT)       PERIOD
-----------                                   ---------       --------      ----------        --------       ------

<S>                                            <C>            <C>           <C>               <C>            <C>
For the year ended December 31, 1997
     Reserve for doubtful accounts             $ 1,511        $    647      $    (740)        $  97          $  1,515
                                               =======        ========      ==========        =====          ========

For the year ended December 31, 1996
     Reserve for doubtful accounts             $ 3,319        $  1,715      $  (3,497)        $ (26)         $  1,511
                                               =======        ========      =========         =====          ========

For the year ended December 31, 1995
     Reserve for doubtful accounts             $ 3,773        $  1,689      $  (2,113)        $ (30)         $  3,319
                                               =======        ========      =========         ======         ========


                                      F-30

<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 27, 1998              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>
<TABLE>
<CAPTION>
<S>                                             <C>                                           <C>
       /s/ Fredric N. Eshelman, Pharm.D.        Director and Chief Executive Officer          March 27, 1998
       -----------------------------------       (Principal Executive Officer)
       Fredric N. Eshelman, Pharm.D.

       /s/ Rudy C. Howard                       Chief Financial Officer, Vice President of    March 27, 1998
       -----------------------------------        Finance and Treasurer (Principal Financial
       Rudy C. Howard                             Officer)


       /s/ Linda Baddour                        Chief Accounting Officer and Executive        March 27, 1998
       ---------------------------               Director, Finance  (Principal Accounting
       Linda Baddour                             Officer)


       /s/ Ernest Mario, Ph.D.                  Director                                      March 27, 1998
       ------------------------------------
       Ernest Mario, Ph.D.

       /s/ Stuart Bondurant, M.D.               Director                                      March 27, 1998
       ---------------------------
       Stuart Bondurant, M.D.

       /s/ Kirby L. Cramer                      Director                                      March 27, 1998
       ------------------------------------
       Kirby L. Cramer

       /s/ Thomas D'Alonzo                      Director                                      March 27, 1998
       ------------------------------------
       Thomas D'Alonzo

       /s/ Frederick Frank                      Director                                      March 27, 1998
       ------------------------------------
       Frederick Frank

       /s/ Frank E. Loy                         Director                                      March 27, 1998
       ------------------------------------
       Frank E. Loy

       /s/ John A. McNeill, Jr.                 Director                                      March 27, 1998
       ------------------------------------
       John A. McNeill, Jr.

</TABLE>

                                       S-1