<PAGE>

                      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, 1999

                                      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)

<TABLE>
<S>                                                    <C>
               North Carolina                                    56-1640186
(State or other jurisdiction of incorporation          (IRS Employer Identification No.)
              or organization)
</TABLE>

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


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

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

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

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

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes   X        No ________
                                       -----

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

The aggregate market value of the common stock held by non-affiliates of the
registrant was $338,153,375 as of February 16, 2000, 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 might 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 24,737,721 as of February 16, 2000.

                      DOCUMENTS INCORPORATED BY REFERENCE

The Company's definitive Proxy Statement for its 2000 Annual Meeting of
Stockholders (certain parts as indicated herein Part III).
<PAGE>

                                    PART I

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

Item 1.   Business

Company Overview
----------------

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

  Life Sciences Group

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

     PPD Development provides its clients 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 those products.  In addition, PPD
Development's integrated services offer its clients a variable cost alternative
to the fixed costs associated with internal drug development.  PPD Development's
professional CRO services include Phase I clinical testing, laboratory services,
patient and investigator recruitment, Phase II-IV clinical trial monitoring and
management, clinical data management and biostatistical analysis, regulatory
consulting and submissions, medical writing, pharmacovigilance, and healthcare
economics and outcomes research.  The Company believes that it is one of a few
CROs in the world capable of providing such a broad range of global clinical
development services.

     PPD Informatics became a division of the Company through the Company's
acquisition of Belmont Research, Inc. in March 1997.  PPD Informatics' clients
include international and domestic pharmaceutical and biotechnology companies,
and government agencies, including the FDA.  PPD Informatics develops
specialized software products to support different aspects of the pharmaceutical
research and development process, including drug discovery, clinical trials and
regulatory review.  Current PPD Informatics software products include:
TableTrans(R), which automates data transformation; CrossGraphs(R), which
provides graphical displays of complex research data; Resolve(TM), which manages
data queries to investigator sites; and Classify(TM), which manages global
coding capabilities.

     PPD ATP became a division of the Company through the acquisition of ATP,
Inc. in March 1999. PPD ATP manages telephone inquiries from consumers and
healthcare providers by utilizing on-line, licensed pharmacists, other
healthcare professionals and other customer assistance specialists who are
available 24 hours a
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day, 365 days a year. In addition to telephone inquiries and responses, PPD ATP
also receives medical information inquiries from consumers and healthcare
providers via text-based and electronic formats and provides responses via these
same communication vehicles. PPD ATP creates and implements customized inbound
and outbound telecommunication programs for pharmaceutical manufacturers, chain
drug stores, managed care organizations and other corporations with healthcare
enhancing objectives.

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

  Discovery Sciences Group

     PPD Discovery, Inc. was established in June 1997 when the Company acquired
SARCO, Inc., a combinational chemistry company, and the GSX System, a functional
genomics platform technology.  PPD Discovery focuses on the discovery research
segment of the pharmaceutical research and development outsourcing market.  In
May 1998, the Company created PPD GenuPro, Inc., a wholly owned subsidiary,
which holds licenses to a number of compounds in the genitourinary field.  PPD
GenuPro manages and performs the discovery research and development of these
compounds and will then license these compounds to pharmaceutical or
biotechnology companies.  In May 1999, the Company formed PPD Virtual, a
subsidiary of the Company.  PPD Virtual provides consultant and management
services for product portfolio management, strategic development and commercial
product assessment.  At this time, PPD GenuPro was realigned as a division of
PPD Virtual.

  Environmental Sciences Group

     Prior to selling its environmental sciences segment on January 31, 1999,
the Company also provided environmental sciences services.  Environmental
sciences services included assessment and management of chemical and
environmental health risk, site investigation and remediation planning and
litigation support.  In addition to the industries mentioned above, the
environmental sciences segment also marketed services to clients in the
industrial, manufacturing and oil and gas industries.  The environmental
sciences segment marketed its services primarily in the United States and
Europe.  The results of operations of the environmental sciences segment for the
periods prior to its disposition are presented as discontinued operations in the
Company's financial statements.

Industry Overview
-----------------

  Life Sciences Group

     The CRO industry provides independent product development services to the
pharmaceutical and biotechnology industries and derives substantially all of its
revenue from the drug 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.  The
Company provides all of these services in accordance with applicable government
regulations covering clinical trials and the drug approval process in the
jurisdictions where the services are provided, including the regulations of the
United States Food and Drug Administration ("FDA"), the European Medicines
Evaluation Agency ("EMEA") and other regulatory authorities.

     The healthcare industry is subject to changing political, economic and
regulatory influences that may affect the pharmaceutical and biotechnology
industries.  Implementation of government healthcare reform may adversely affect
research and development expenditures by pharmaceutical and biotechnology
companies, which could

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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 used internal programming resources
to produce much of the software used in their drug discovery, clinical
development and regulatory compliance processes.  Now these companies also seek
external sources, including the Company's PPD Informatics division, to meet
these automation needs both through custom application development and through
customization of commercial packaged software. We believe that our range of
technical experience in clinical research systems positions us well to provide
these services.

  Discovery Sciences Group

     Drugs are chemical compounds that interact with biological targets in the
body.  Discovering and developing new drugs is an extremely expensive and time-
consuming process.  Pharmaceutical Research and Manufacturers of American
Association (PhRMA) estimates that the average cost of bringing a drug to market
exceeds $359 million and takes approximately 10-15 years.  Recent figures from
the PhRMA, Center for Medicines Research and Company's estimates indicate that
global research-based pharmaceutical and biotechnology companies invested
approximately $44 billion in R&D activities in 1999.  On average, these
companies allocate over 40% of their R&D budget to pre-clinical R&D functions.
Pre-clinical R&D functions include identification and validation of biological
targets, screening to identify lead compounds, chemical optimization of those
leads, toxicology and safety testing in animals, and formulation and stability
testing for the new experimental drug.

     PPD Discovery includes a chemical and preclinical technology company that
provides lead generation, lead prioritization and lead optimization services,
and computational and preclinical development resources to the pharmaceutical,
biotechnology, agrochemical and animal health industries.

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

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

The Drug Development Process
----------------------------

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

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

     Prior to commencing human clinical trials in the United States, the sponsor
must file an IND application with the FDA.  In order to receive IND status, the
sponsor of the new drug must provide available manufacturing data, pre-clinical
data, information about any use of the drug in humans for other purposes and a
detailed plan for the proposed clinical trials.  The design of these trials,
also referred to as the study protocols, is essential to the

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success of the drug development effort, because the protocols must correctly
anticipate the nature of the data to be generated and results that the FDA will
require before approving the drug. In the absence of any FDA comments within 30
days after the IND filing, human clinical trials may begin.

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

     .    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.

     .    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.

     .    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 18
months.  Drugs that successfully complete this review may be marketed in the
United States, subject to any conditions imposed by the FDA.

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

Regulatory Environment
----------------------

     The market for the services offered by the Company's CRO operations has
developed as a result of significant laws and regulations governing the
development and testing of certain drugs and chemicals as well as the impact of
chemicals on the environment.  Many countries require safety testing prior to
obtaining governmental approval to market pharmaceutical products.  The results
of clinical tests conducted upon pharmaceutical products must be submitted to
appropriate government agencies, such as the FDA in the United States, the EMEA
and national regulatory agencies in Europe, and the Ministry of Health and
Welfare in Japan, as part of the relevant pre-market approval process in
individual countries.  The Company's business depends on its ability to comply
with these strict and ever-changing laws and regulations.

Trends Affecting the CRO Industry
---------------------------------

     In 1999, worldwide expenditures on research and development by
pharmaceutical and biotechnology companies are estimated to have been $44
billion, of which the Company estimates $10 to $12 billion was spent on drug
development activities which were outsourced.  The Company believes that
approximately $5.5 billion of such spending was on preclinical/laboratory and
clinical development.

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

     Biotechnology Industry Growth

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

     Need for International Support

     More pharmaceutical and biotechnology companies are attempting simultaneous
filings of registration packages in several major jurisdictions rather than
following the past practice of sequential filings.  The studies to support such
registration packages might 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.

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     Consolidation in the CRO Industry

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

Company Strategy
----------------

     The Company's fundamental strategy is to distinguish its services on the
basis of superior performance to maximize its clients' return on their R&D
investments.  We strive to deliver efficient and innovative services that
accelerate the rate of new product development.  The Company intends to continue
to expand the depth and breadth of its services by (1) capitalizing on its
managerial and operational strengths, (2) focusing on hiring and training its
staff, (3) focusing on its marketing initiatives, (4) developing its services in
healthcare economics and communications consulting, (5) pursuing strategic
acquisitions to enhance discovery and development services, (6) expanding
geographically, (7) pursuing opportunities provided by technological advances,
and (8) expanding on its vertical expertise in five core therapeutic areas.

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

     Managerial and Operational Strength

     The Company is guided by senior management who have spent much of their
careers as research or development experts within major pharmaceutical companies
and who have a record of success bringing drugs to market both nationally and
internationally.  PPD Development 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 Development
emphasizes efficiencies in each phase of clinical trials initiation and
management, data acquisition, data management and analysis, and report writing
and filing, in order to reduce the time and cost of obtaining regulatory
approval for its clients' products.  As a means of differentiating itself from
its competitors, PPD Development emphasizes therapeutic area specialization, in
particular in the areas of virology/infectious diseases, cardiopulmonary
diseases, neuropyschiatric disorders, oncology and immunology.

     Hiring and Training

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

     Global Strategic Marketing Initiatives

     PPD Development focuses its integrated marketing and sales efforts on
companies within the pharmaceutical industry with product development and
clinical needs in the service segments and therapeutic areas in which the
Company specializes.  The sales staff concentrates on making direct contact with
assigned clients and represent PPD's capabilities across all PPD service
segments.  PPD Development's business development personnel consult with
potential clients early in the project consideration stage in order to determine
their requirements.  The business development representative along with the
appropriate operational personnel then invest significant time to determine the
optimal means to design and execute the potential client's product development
or clinical program

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requirements. PPD Development's recommendations to the potential client with
respect to study design and implementation are an integral part of PPD
Development's bid proposal process and are an important aspect of the integrated
services PPD Development offers. PPD Development believes its preliminary
efforts relating to the evaluation of a proposed clinical protocol and
implementation plan enhances the opportunity for accelerated initiation and
overall success of the clinical trial after the contract has been awarded to PPD
Development.

     We market discovery services through centralized PPD corporate marketing
efforts to supplement localized marketing by scientists to scientists, with
support from appropriate outside consultants and internal PPD consultative
specialists.  We market the functional genomics technology (GSX) primarily to
large pharmaceutical companies, while combinatorial chemistry is directed more
toward biotechnology and virtual companies.

     The Company encourages and sponsors the participation of its personnel in a
variety of scientific endeavors, including the presentation of papers by its
professional staff at national and international professional trade association
meetings and major conferences, and the publication of scientific articles in
respected medical and pharmaceutical journals.  The Company believes such
activities advance and promote its reputation for professional excellence.  The
Company's core marketing and corporate communications plans include advertising
in trade journals, participation at scientific conferences, speakers' bureau,
direct mail/e-mail, presentation and detailing materials, educational symposia
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 Development offers programs integrating such analysis in clinical
development programs to support regulatory approval, as well as pricing,
marketing and reimbursement strategies.  While PPD Development's current focus
in this area is on its traditional client base within the pharmaceutical and
biotechnology industries, with respect to both drugs under development and
products already on the market PPD Development expects to extend such services
to payors and providers as well.

     Acquisitions

     The Company intends to 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 include complementary client lists, ability to
increase market share within and across clients, complementary therapeutic area
and service segment strengths, strategic geographic capabilities and particular
process expertise.

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

     Geographical Expansion

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

     Technological Advances

     PPD Development believes that optimizing the use of information technology
can accelerate the drug development process and yield valuable marketing
information.  PPD Development has broad experience in the use of information
technology in clinical trial management and offers a wide range of technology-
based services.

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Services offered include initial market research and study design, accelerated
patient recruitment, remote monitoring and data acquisition, ongoing study
management, data analysis, outcomes research, patient and disease management,
and the submission of electronic New Drug Applications. The Company utilizes a
mixture of commercially available third-party systems and selected internally
developed software to offer its clients advanced technology for expediting the
drug development process.

Services Offered
----------------

   Life Sciences Group

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

     Phase I Clinical Testing

     After an Investigational New Drug Application has been filed with the FDA,
human testing of a new drug can begin.  The drug is typically first administered
to healthy volunteers to determine the drug's basic safety data based on
tolerance, absorption, metabolism, excretion and other pharmacological actions.
Later, special studies are conducted in volunteers and special patient
populations to further define the drug's overall pharmacological profile.  The
Company believes that PPD Development is one of the industry's largest Phase I
providers, with clinical testing services conducted in its 220-bed unit in
Austin, Texas, its 70-bed unit located near Research Triangle Park, North
Carolina and its 50-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 might involve the elderly, women or patients with specific diagnoses,
such as renal failure or asymptomatic HIV disease.  The Austin, Texas site also
has a Dental Research Center to evaluate the safety and effectiveness of new
analgesic compounds used in molar extractions.  Supporting the Phase I
operations in Austin is an in-house clinical laboratory.  The laboratory
performs analytical assays on volunteer specimens to ensure that each subject
qualifies for the study and is not adversely affected by a drug.  The fact that
the laboratory is housed in the same physical facility as the volunteers
guarantees fast response times to unexpected outcomes.  The unit is accredited
by the College of American Pathologists.  It also provides services to function
as a central laboratory for Phase II-IV studies.  Instruction manuals and
specimen collection kits are mailed to investigative sites, which then return
samples to the laboratory for processing and report generation.

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

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

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

     Laboratory Services

     PPD Development provides bioanalytical, product analysis and biodiscovery
services through its Good Laboratory Practice (GLP)-certified laboratories in
Richmond, Virginia and Middleton, Wisconsin.  PPD

                                       8
<PAGE>

Development's laboratories analyze biological fluid samples from animal and
human clinical studies. The latter includes those conducted by PPD Development's
Phase I units for drug and metabolite content and concentration. PPD Development
currently has over 850 validated assays available for its clients' use in
conducting laboratory analyses, qualifying PPD Development for a wide range of
assignments. PPD Development's laboratories also process fluid samples for pre-
clinical studies.

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

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

     PPD Development 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.

     Phase II-IV Clinical Trial Management

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

   AIDS                       Primary disease and treatment/prophylaxis of
                              opportunistic infections

   Analgesia                  Acute and chronic pain modeling

   Biotechnology              Growth hormone, multiple sclerosis, sepsis, wound
                              healing

   Cardiovascular disease     Hypertension, angina pectoris

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

   Dermatology                Wound healing, acne, hair loss, psoriasis

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

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

   Metabolic disease          Diabetes, hormone replacement therapy

   Oncology                   Prostate, colorectal, breast and lung cancer

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

   Rheumatology               Rheumatoid and osteoarthritis

   Virology                   Herpes simplex, hepatitis B, chronic hepatitis C

   Women's health             Osteoporosis, oral contraception

     Clients' needs are served by conducting clinical trials through a dedicated
project team. A project manager supervises all aspects of the conduct of the
clinical trial, while PPD Development'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 Development can
manage every aspect of the clinical trial in Phases II through IV of the

                                       9
<PAGE>

drug development process. Services offered include 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 Development monitors its clinical trials in compliance with government
regulations.  PPD Development 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
Development SOPs are in compliance with Good Clinical Practice ("GCP")
requirements and the International Conference on Harmonization ("ICH")
standards. The FDA has adopted the ICH's standards, and, the European Community
has agreed to conduct all studies in accordance with the standards from ICH,
which sets global clinical study standards based on GCP.  Data generated during
clinical trials are compiled, analyzed, interpreted and submitted in report form
to the FDA or other relevant regulatory agencies for purposes of obtaining
regulatory approval.  The Company provides expert consulting on conducting
clinical trials for simultaneous regulatory submissions to multiple countries.

     PPD Development 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 Development serves its clients in the critical area of study design by
applying its 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.

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

     Investigator Recruitment

     During clinical trials, physicians (also referred to as investigators) at
hospitals, clinics or other locations (also referred to as investigational
sites) supervise administration of the drug to patients.  PPD Development
recruits investigators who contract directly with either the Company or its
client.  For large scale Phase IV trials, we use our Telecommunications Center
(TCC) for investigator recruitment.  The TCC integrates telephones, relational
databases, computerized scripts and customized tracking software for
investigator recruitment, and centralized management of large scale Phase IV
trials.  During 1999 the TCC staff recruited and obtained investigative review
board approval for over 5,000 sites in three months. 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 Development maintains and constantly expands and refines its
computerized database of over 24,000 investigators.  Information regarding PPD
Development's experience with these investigators, including factors relevant to
rapid study initiation, are contained in the database.  This information allows
project managers to efficiently choose the appropriate investigators for a
particular study.

     Study Monitoring

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

                                       10
<PAGE>

     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 Development focuses at an early stage on identifying
and quickly completing the critical rate-limiting steps of screening and
selecting qualified investigators, processing pre-study regulatory paperwork,
obtaining investigative review board approvals and scheduling investigational
site initiation visits.  Drugs under study cannot be released to the
investigational sites, and thus the study cannot begin, until these activities
have been completed.

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

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

     PPD Development has monitored many clinical trials, including a number of
very large studies.  For example, PPD Development 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 500 investigational sites and total
enrollment of approximately 88,000 patients.  PPD Development has monitored
49,000 patients in 251 protocols since the beginning of the project in 1990.
There has also been over 2,300 pharmacy, regulatory and operational audits at
the sites.

     Clinical Data Management and Biostatistical Analysis

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

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

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

     Treatment Investigational New Drug Application

     A treatment Investigational New Drug Application includes a procedure to
allow patients to receive a new drug not yet approved for a serious or immediate
life-threatening disease, such as AIDS or multiple sclerosis, for which no
comparable or satisfactory therapy is available.  This treatment is provided
during the clinical trial phase

                                      11
<PAGE>

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 Development's involvement in a treatment IND
application might range from simply monitoring the treatment to providing an
integrated set of services involving full investigational site management, data
management, biostatistical analysis and report writing.

     Medical Writing and Regulatory Services

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

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

     Drug and Medical Information

     PPD ATP is a drug and medical information company located in RTP, North
Carolina.  PPD ATP provides custom-designed pharmaceutical and medical
information programs in support of post-marketed pharmaceutical products.  PPD
ATP services include but are not limited to clinical consultations with
pharmacists, nurses, veterinarians and other customer assistance specialists
delivered to consumers and healthcare professionals via telephone, text-based or
electronic communication formats.

     Healthcare Economics, Outcomes and Marketing Research

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

     Discovery Sciences Group

     PPD Discovery consists of a chemical technology and preclinical development
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.

     PPD Discovery includes a chemical and preclinical technology company that
provides lead generation, lead prioritization and lead optimization services,
and computational and preclinical development resources to the pharmaceutical,
biotechnology, agrochemical and animal health industries.  PPD Discovery has
developed synthesis protocols to produce numerous small-molecule combinatorial
libraries in the 5,000 to 10,000 component range.

                                       12
<PAGE>

PPD Discovery has developed the SAR-System(TM) software package to efficiently
manage library design, compound tracking (plate maps), ID assignment and ISIS
database interface. While focusing on enhancing lead compound activity, PPD
Discovery also emphasizes simultaneous improvement of physicochemcial and
pharmacokinetic parameters of lead compound(s). PPD Discovery offers drug
metabolism assays using LC/MS/MS technology, cytochrome P450 enzyme assays for
characterization of in vitro metabolic profiles and stability, and full service
in vivo pharmacokinetic ("PK") screening of single or multiple New Chemical
Entities ("NCEs") for the investigation of metabolism and preclinical PK in
animal models. PPD Discovery also works with sponsors to create customized
preclinical development plans which include screening studies to identify lead
compounds or compound families as well as studies necessary for a successful
IND.

     PPD Discovery's chemical and preclincial technology is located in
Middleton, Wisconsin and at a new, 61,000 square foot research facility in North
Carolina. PPD Discovery's research facilities are fully equipped to perform
solid and solution-phase combinatorial chemistry, custom synthesis, solution-
phase medicinal chemistry, and in vitro and in vivo preclinical assays.  PPD
Discovery maintains full analytical and computational capabilities in support of
its combinatorial, medicinal chemistry, and preclinical technology activities.

     Products include base libraries, which are chemical compounds designed for
high throughput biological screening: focus libraries, which are custom designed
chemical libraries provided exclusively to a client: and preclinical in vitro an
in vivo assay technology.  Services include research collaborations and
partnerships with research-based discovery companies.  These collaborations and
partnerships are typically structured for a fixed period of time or around
discrete client projects.  PPD Discovery's preclincial services department also
offers consulting in the area of preclinical product development.  PPD Discovery
works with clients to create custom preclincial development plans, which include
screening studies to identify lead compounds or compound families necessary for
a successful IND.

Clients and Marketing
---------------------

     The Company's Life Sciences Group provides services primarily to
pharmaceutical and biotechnology companies.  For the year ended December 31,
1999, approximately 85.5% of the Company's Life Sciences Group's net revenue was
attributable to clinical services and 14.5% to laboratory services.  For the
year ended December 31, 1999, net revenue of the Life Sciences Group was derived
approximately as follows:

<TABLE>
<CAPTION>
                                                                 Percentage of
     Source                                                       Net Revenue
     ------                                                      --------------
     <S>                                                         <C>
     Pharmaceutical                                                  84.55%
     Biotechnology                                                    8.05
     Government                                                       1.76
     Other                                                            5.64
</TABLE>

     During 1999, the Company provided services to 42 of the top 50
pharmaceutical companies in the world as ranked by 1998 healthcare research and
development spending.

     The Company provides services to the pharmaceutical and biotechnology
industries and its revenue is highly dependent on expenditures on research and
development by clients in these industries.  Accordingly, the Company's
operations could be materially and adversely affected by the current trend
toward consolidation in these industries, general economic downturns 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 1999 and
1998, no single client contributed more than 10% of the Company's total net
revenue.  In 1999, the Company's ten largest clients accounted for approximately
41.8% of the Company's total net revenue and approximately 15.2% of the
Company's total 1999 net revenue was derived from clients located outside the
U.S., in particular in Europe and Japan.

                                       13
<PAGE>

Contractual Arrangements
------------------------

     Many of PPD Development's contracts are fixed price, with some variable
components, and range in duration from a few months to several years.  In other
contracts, PPD Development 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 Development
bears the risk of cost overruns, but benefits if costs are lower than
anticipated.  Underpricing of such contracts or significant cost overruns could
have a material adverse effect on the Company.  Most of PPD Development'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 decision to terminate the development of
the product or end the study.  Contracts might 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
-------

     Our backlog consists of anticipated net revenue from letters of intent,
verbal commitments and contracts that have not been completed.  Net revenue is
defined as professional fee income (gross revenue) less reimbursed costs,
consisting principally of investigator fees and travel.  Once contracted work
begins, net revenue is recognized over the life of the contract.  In some cases,
PPD Development begins work for a client before a contract is signed.  The
backlog of the Life Sciences Group for the services described above under
written agreements, including signed letters of intent, was $353.8 million in
net revenue at December 31, 1999, compared to $291.7 million in net revenue at
December 31, 1998.

     PPD Development believes that its backlog as of any date is not necessarily
a meaningful predictor of future results, because backlog can be affected by a
number of factors, including the size and duration of contracts, many of which
are performed over several years.  Additionally, contracts generally are subject
to early termination by the client or delay for many reasons, including
unexpected test results.  Also, the scope of a contract can change during the
course of a study.  PPD Development might not be able to fully realize its
entire backlog as net revenue.

Competition
-----------

     The CRO industry consists of several hundred small, limited-service
providers, several medium-sized CROs and a few full-service global drug
development companies.  The CRO industry is consolidating and, in recent years,
a few large, full-service competitors have emerged.  This trend of industry
consolidation will likely result in greater competition among the larger CROs
for clients and acquisition candidates.  PPD Development's large competitors
include Covance, Inc., Kendle International, Inc., Parexel International
Corporation, ICON, Phoenix International and Quintiles Transnational
Corporation.  PPD Development also competes against some medium-sized companies,
and 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
with specialty focuses, such as those therapeutically aligned, may compete
aggressively against larger CROs for clients.  Increased competition might lead
to price and other forms of competition that may adversely affect PPD
Development's operating results.

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

     PPD Informatics has agreements with several of the major software vendors
in pharmaceutical applications (for example, Domain Pharma and Oracle).
Competitors for PPD Informatic's consulting services include major

                                       14
<PAGE>

consulting companies with pharmaceutical industry groups (for example, Andersen
Consulting, CSC and EDS) and smaller companies with a pharmaceutical industry
focus (for example, DataCeutics, Netforce and ISCG). Competitors for PPD
Informatic's software products include larger software vendors such as SAS, but
primarily are smaller, specialized software companies.

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

     PPD Discovery 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, PPD Discovery'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.  This 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
indemnification vary from client to client and from trial to trial.  Although
most of PPD Development'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 might refuse, or not have the
financial ability, to fulfill its indemnification obligations.  The Company
could be materially and adversely affected if it were required to pay damages or
incur defense costs in connection with a claim that is beyond the scope of an
indemnity provision or beyond the scope or level of insurance coverage or where
the indemnifying party does not fulfill its indemnification obligations.  Until
September 1996, the Company did not maintain liability insurance with respect to
these risks.  The Company currently maintains professional liability insurance
coverage of up to $10.0 million per claim, with an annual aggregate policy limit
of $10.0 million.  Liability claims might exceed the limits of such coverage and
such insurance might not continue to be available on commercially reasonable
terms or at all.

Government Regulation
---------------------

     The laboratory services performed by PPD Development 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 Development
has established quality assurance controls at its laboratory facilities to
monitor ongoing compliance with GLP and GMP regulations by auditing test data
and conducting regular inspections of testing procedures.

     The industry standard for the conduct of clinical research and development
studies is embodied in the ICH regulations for GCP.  As a matter of practice,
the FDA and many other regulatory authorities require that test results
submitted to such authorities be based on studies conducted in accordance with
GCP.  These regulations include (1) complying with regulations governing the
selection of qualified investigators, (2) obtaining specific written commitments
from the investigators, (3) verifying that informed consent is obtained from
patients, (4) monitoring the validity and accuracy of data, (5) verifying drug
or device accountability, and (6) instructing investigators to maintain records
and reports.  For specified periods PPD Development must also maintain reports
for each study for

                                       15
<PAGE>

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

     PPD Development'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 Development 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 Development or its clients based upon a material violation by the Company of
GCP, GLP or GMP requirements could materially and adversely affect the Company.

Intellectual Property
---------------------

     The Company has rights in trademarks, such as a design of PPD, The Power of
Selection(TM), Classify, Resolve(TM), Cross Graphs(R), TableTrans(R), First
Pass(TM), and others. In addition, the Company owns, co-owns or has licensed the
rights to eight issued U.S., eight issued foreign; 22 pending U.S., and 36
pending foreign patents.

     PPD Discovery has filed of over 20 patents for genes useful for drug
development, chemical compositions useful as therapeutics, and other drug
development related technology. In addition, PPD Discovery has expanded its
propriety rights by acquiring licenses to technology instrumental for drug
discovery and development. PPD Discovery holds licensing privileges related to
GSX technology and to bacterial assays for human cytochrome P450 metabolism.

     PPD Development 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, 1999, the Company had approximately 3,400 full-time
equivalent employees, of whom 3,150 were employed in the Life Sciences Group, 40
were employed in the Discovery Sciences Group and the remainder was in the
Company's corporate headquarters. Of the Company's employees, approximately 140
hold Ph.D., M.D., Pharm.D. or D.V.M. degrees and approximately 420 hold other
masters or other postgraduate degrees. None of the Company's employees are
subject to a collective bargaining agreement. The Company believes that its
relations with its employees are good.

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

Foreign and Domestic Operations
-------------------------------

     Note 17 of Notes to Consolidated Financial Statements presents information
about the Company's operations by geographic area for each of fiscal years 1999,
1998 and 1997.

                                       16
<PAGE>

Item 2.  Properties

     The Company's principal executive offices are located in Wilmington, North
Carolina. In December 1998, the Company entered into a new 15-year build-to-suit
lease for an approximately 61,000 square foot facility in Research Triangle
Park, North Carolina that was completed in January 2000.

     The Company owns and operates a 52-bed Phase I facility in Leicester,
England.  The Company owns a building in Kersewell, Scotland, which it acquired
when it purchased Data Acquisition and Research Limited in December 1996.  The
Company also owns two buildings in Durham, North Carolina, which the Company
acquired when it purchased ATP in March 1999.  All other facilities are leased.
The Company's operations currently occupy approximately 883,000 square feet of
space worldwide, including over 143,000 square feet of space located outside of
the United States.  The Company believes that its facilities have adequate
capacity to handle significant additional business growth.  The locations of the
Company's operating facilities as of December 31, 1999 were as follows:


Life Sciences Group
     The Americas                                 Europe
     ------------                                 ------
          Sao Paulo, Brazil                          Brussels, Belgium
          La Jolla, California                       Cambridge, England
          San Bruno, California                      Chelmsford, England
          Mississauga, Canada                        Leicester, England
          Overland Park, Kansas                      Southampton, England
          Columbia, Maryland                         Charenton-Le-Pont, France
          Cambridge, Massachusetts                   Karlsruhe, Germany
          Lawrenceville, New Jersey                  Nuremberg, Germany
          Durham, North Carolina                     Tel Aviv, Israel
          Morrisville, North Carolina                Milan, Italy
          Research Triangle Park, North Carolina     Kersewell, Scotland
          Wilmington, North Carolina                 Barcelona, Spain
          Blue Bell, Pennsylvania                    Madrid, Spain
          Austin, Texas (1)                          Stockholm, Sweden
          Richmond, Virginia
          Middleton, Wisconsin

     Pacific Rim                                  Eastern Europe
     -----------                                  --------------
          Melbourne, Australia                       Prague, Czech Republic
                                                     Budapest, Hungary
                                                     Warsaw, Poland


     Asia                                         Africa
     ----                                         ------
          Tokyo, Japan                               Johannesburg, South Africa
          Bangkok, Thailand


Discovery Sciences Group
     The Americas
     ------------
          Menlo Park, California
          Morrisville, North Carolina
          Research Triangle Park, North Carolina


_________
(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.

                                       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
in any interim or annual period.

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

     No matter was submitted to a vote of security holders during the fourth
quarter of the fiscal year ended December 31, 1999.


Executive Officers
------------------

     The executive officers of the Company as of February 16, 2000, were as
follows:

<TABLE>
<CAPTION>
          Name                 Age                             Position
-------------------------      ---       --------------------------------------------------------------
<S>                            <C>       <C>
 Fredric N. Eshelman           51        Vice Chairman and Chief Executive Officer

 Fred B. Davenport, Jr.        48        General Counsel, Vice President - Legal and Secretary

 Paul S. Covington             43        Senior Vice President of Medical Affairs, Chief Safety Officer

 Linda Baddour                 41        Interim Chief Financial Officer and Chief Accounting Officer
</TABLE>

     Fredric N. Eshelman has served as Chief Executive Officer and as a director
of the Company since July 1990.  Dr. Eshelman founded the Company's predecessor
in 1985.  Prior to rejoining the Company in 1990, Dr. Eshelman served as Senior
Vice President, Development and as a director of Glaxo Inc., a subsidiary of
Glaxo Holdings plc.

     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.

     Paul S. Covington is Senior Vice President of Medical Affairs and Chief
Safety Officer. Dr. Covington joined the Company in September 1991. He is Board
Certified in Internal Medicine and Licensed in North Carolina and Alabama. Prior
to joining the Company, Dr. Covington was in private practice in Clanton,
Alabama from 1985 to 1990 where he served as Chief of Staff and head of Critical
Care and Cardiopulmonary for the local hospital. From 1991 to 1992, he was
Medical Director for the Birmingham site of Future Healthcare Research Centers.

     Linda Baddour is Interim Chief Financial Officer and Chief Accounting
Officer. Prior to her employment by the Company in December 1995, Ms. Baddour
was the Controller for Cooperative Bank for Savings Inc. from 1980 to 1995. Ms.
Baddour is a Certified Public Accountant and received her Masters in Business
Administration from the University of North Carolina at Wilmington.

                                       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.

<TABLE>
<CAPTION>
                                         1999                   1998
                                 ------------------------------------------
                                   High         Low       High       Low
                                 ------------------------------------------
<S>                              <C>            <C>       <C>       <C>
First Quarter                    $ 38.50        $27.00    $24.25    $13.00
Second Quarter                   $ 34.25        $21.75    $25.88    $18.50
Third Quarter                    $ 29.00        $11.56    $29.38    $18.63
Fourth Quarter                   $ 15.25        $ 8.56    $30.69    $20.00
</TABLE>

     As of February 16, 2000, there were approximately 10,600 holders of the
Company's Common Stock.

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

Item 6.   Selected Consolidated Financial Data

     The selected consolidated financial data set forth below for the Company as
of December 31, 1999 and 1998 and for each of the three years in the period
ended December 31, 1999 are derived from the audited consolidated financial
statements included elsewhere herein. The selected financial data set forth
below for the Company as of December 31, 1997, 1996 and 1995 and for each of the
two years in the period ended December 31, 1996 are derived from the financial
statements of the Company not included elsewhere herein. The data presented
below should be read in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and with the Company's
consolidated financial statements and related notes thereto included elsewhere
in this Report.

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

                                       19
<PAGE>

<TABLE>
<CAPTION>
                                                                       Years Ended December 31,
                                                     ------------------------------------------------------------
                                                       1999       1998         1997       1996 (3)     1995(1)(2)
                                                     --------   --------    ---------   ----------    -----------
                                                                   (in thousands, except per share data)
<S>                                                  <C>        <C>         <C>         <C>           <C>

Net revenue (4)                                      $302,530   $235,553    $187,487    $152,304      $160,495
                                                     --------   --------    --------    --------      --------

Operating expenses                                    265,604    211,349     170,468     143,459       157,837
Loss on sale of business, special charges,
  restructuring costs, merger costs, and acquired
  in-process research and development costs               218      3,163       9,670      14,773        24,290
                                                     --------   --------    --------    --------      --------
                                                      265,822    214,512     180,138     158,232       182,127
                                                     --------   --------    --------    --------      --------
Income (loss) from operations                          36,708     21,041       7,349      (5,928)      (21,632)
Other income (expense), net                             4,337      3,562       1,464       1,804        (2,616)
                                                     --------   --------    --------    --------      --------
Income (loss) from continuing operations
  before provision for income taxes                    41,045     24,603       8,813      (4,124)      (24,248)
Provision (benefit) for income taxes                   12,154      9,448       3,363       2,257       (17,163)
Income (loss) from operations of discontinued
  environmental sciences segment, net (5)                (395)     4,614       4,152       2,874         2,578
Extraordinary loss from early
  extinguishment of debt                                    -          -           -           -          (897)
                                                     --------   --------    --------    --------      --------
Net income (loss)                                    $ 28,496   $ 19,769    $  9,602    $ (3,507)     $ (5,404)
                                                     ========   ========    ========    ========      ========
Income (loss) from continuing operations
  per share:
     Basic                                           $   1.18    $  0.65    $   0.24    $  (0.30)     $  (0.38)
                                                     ========    =======    ========    ========      ========
     Diluted                                         $   1.16    $  0.65    $   0.24    $  (0.30)     $  (0.38)
                                                     ========    =======    ========    ========      ========

Income (loss) from discontinued operations
  per share:
     Basic                                           $  (0.02)  $   0.20    $   0.18    $   0.13      $   0.14
                                                     ========   ========    ========    ========      ========
     Diluted                                         $  (0.01)  $   0.20    $   0.18    $   0.13      $   0.14
                                                     ========   ========    ========    ========      ========

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

Net income (loss) per share:
     Basic                                           $   1.16   $   0.85    $   0.42    $  (0.17)     $  (0.29)
                                                     ========   ========    ========    ========      ========
     Diluted                                         $   1.15   $   0.85    $   0.42    $  (0.17)     $  (0.29)
                                                     ========   ========    ========    ========      ========

Weighted average number of shares outstanding:
     Basic                                             24,566     23,186      22,825      21,168        18,815
     Dilutive effect of stock options                     287        169          60           -             -
                                                     --------   --------    --------    --------      --------
     Diluted                                           24,853     23,355      22,885      21,168        18,815
                                                     ========   ========    ========    ========      ========
</TABLE>

<TABLE>
<CAPTION>
                                                            As of December 31,
                                             --------------------------------------------------
                                               1999      1998       1997       1996     1995
                                             --------  --------  ----------  --------  --------
                                                              (in thousands)
<S>                                          <C>       <C>       <C>         <C>       <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents                    $ 61,251  $ 34,083  $   15,879  $ 21,838  $ 13,565
Marketable securities                               -         -       7,994    14,210       242
Working capital                               106,759    93,917      69,950    66,603    37,320
Total assets                                  288,703   236,582     197,047   181,457   142,661
Long-term debt                                    359       161         340     1,428     3,471
Long-term debt, including current portion         570     3,741       5,246     5,649     5,672
Shareholders' equity                          192,464   155,410     127,605   115,306    77,300
</TABLE>

                                       20
<PAGE>

     Selected Financial Data, excluding results of operations of toxicology
operations (sold 11/95), loss on sale of business, special charges,
restructuring charges, merger costs, acquired in-process research and
development costs, gain on sale of CCCR, discontinued operations, non-recurring
tax benefits and extraordinary loss.

<TABLE>
<CAPTION>
                                                               Years Ended December 31,
                                             -------------------------------------------------------------
                                                1999         1998        1997        1996      1995(1) (2)
                                             ----------    ---------   ---------   ---------  ------------
                                                         (in thousands, except per share data)
<S>                                          <C>           <C>         <C>         <C>        <C>
Net revenue (4)
Operating expenses                            $ 302,530    $ 235,553   $ 187,487   $ 152,304   $ 122,049
                                                265,604      211,349     170,468     143,459     118,255
Income from operations                        ---------    ---------   ---------   ---------   ---------
Other income (expense), net                      36,926       24,204      17,019       8,845       3,794
                                                  4,437        2,490       1,464       1,804      (2,616)
Income from continuing operations before      ---------    ---------   ---------   ---------   ---------
   provision for income taxes
Provision for income taxes                       41,363       26,694      18,483      10,649       1,178
                                                 16,049       10,274       7,215       4,249         471
Net income                                    ---------    ---------   ---------   ---------   ---------
                                              $  25,314    $  16,420   $  11,268   $   6,400   $     707
Weighted average number of                    =========    =========   =========   =========   =========
   diluted shares outstanding
                                                 24,853       23,355      22,885      21,319      18,815
Net income per share                          =========    =========   =========   =========   =========
                                              $    1.02    $    0.70   $    0.49   $    0.30   $    0.04
                                              =========    =========   =========   =========   =========
</TABLE>

________________________________________
(1)  Following termination of its status as an S corporation prior to completion
     of its initial public offering in January 1996, PPD became subject to
     federal and state income taxes. The income tax data for the year ended
     December 31, 1995 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 loss from continuing operations for 1995 was affected by (i) the sale
     of APBI's toxicology business, which resulted in a pre-tax loss of $19.3
     million charged against operating income, (ii) a special charge against
     operating income of $5.0 million primarily related to the impairment of
     APBI's available for sale investments and (iii) an increase in APBI's tax
     benefit as a result of the reversal of certain tax liabilities recorded in
     prior years for which it was determined that APBI would not be liable for
     payment.

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

(4)  Revenues are presented net of subcontractor costs. See accompanying
     consolidated statements of operations.

(5)  The discontinued operations include the Company's environmental sciences
     segment sold in January 1999 and the write off of its remaining investment
     in PACE Incorporated during the fourth quarter of 1995. All periods
     presented have been restated to exclude the results of operations of both
     of the above businesses.

                                       21
<PAGE>

Item 7.  Management's Discussion and Analysis of Financial Condition and Results
         of Operations

Overview

     During 1999, the Company reported net income of $28.5 million, or $1.15 per
diluted share, compared to net income of $19.8 million, or $0.85 per diluted
share, during 1998.  Excluding non-recurring tax benefit and merger and
acquisition costs, the Company's adjusted net income of $25.3 million was 54.2%
higher than prior year adjusted net income, excluding merger and acquisition
costs and gain on sale of business, of $16.4 million.

     In March 1999, the Company acquired ATP, Inc. ("PPD ATP"), a health
information services company.  PPD ATP provides customized inbound and outbound
telecommunications programs targeting consumers and healthcare providers.  The
Company acquired all of the outstanding stock of PPD ATP in exchange for
approximately 876,000 shares of the Company's common stock.  This acquisition
was accounted for as a pooling of interests transaction.  Results of operations
for PPD ATP are included in the consolidated results of operations of the
Company beginning January 1, 1999.  Results of operations of the Company for the
periods prior to January 1, 1999 were not restated because PPD ATP's results of
operations for periods prior to January 1, 1999 were not material to the
Company's operating results for these periods.

     In February 1999, the Company formed a joint venture, PPGx, with Axys
Pharmaceuticals, Inc. to pursue the business of pharmacogenomics.  The Company
contributed $1.5 million in cash, the stock of its Intek subsidiary, and the
rights to a software license, for an 18.2% ownership interest in PPGx.  The
Company is accounting for the investment in PPGx under the cost method.  As of
December 31, 1999, the investment in PPGx was valued at $4.2 million and was
recorded in "Other Assets, net" on our balance sheet.  The Company acts as
guarantor on a $8.0 million revolving credit facility for PPGx.  The Company has
exclusive marketing rights to PPGx pharmacogenomics products and services and an
option to increase its ownership share in PPGx.

     Effective January 31, 1999, the Company sold its environmental sciences
segment to Environ Holdings, Inc., a new company formed by the management of the
environmental sciences segment.  The Company received cash of $1.2 million, a
note receivable in the amount of $7.0 million (for which payment was received in
the first quarter of 1999) and a note receivable in the amount of $18.0 million,
which is due over a 12-year period.  The Company has received all principal and
interest payments due on the ENVIRON note receivable through January 2000.  The
Company did not recognize a gain or loss as a result of the sale because the
sales price was equal to the book value of the net assets sold.  The Company
also entered into a three-year consulting agreement to provide certain
consulting services to Environ Holdings for a fee of $0.5 million per year.

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

     In February 1998, the Company, through its subsidiary Clinix International
Inc., sold substantially all of the assets of the Chicago Center for Clinical
Research ("CCCR").  The sales price was approximately $7.8 million in the form
of $5.3 million in cash and a promissory note for $2.5 million, which was to be
received over the five year period following the date of sale of CCCR.  The sale
resulted in a gain of approximately $1.1 million, which was recognized as other
income during the first quarter of 1998.  The Company has received all principal
and interest payments on the note receivable for the sale of CCCR, which were
due through January 2000.  As part of the sales agreement, the Company continued
to provide CCCR with certain clinical and administrative services for an agreed
upon amount through the first quarter of 1999.

                                       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:

              Percentage of Net Revenue from Continuing Operations

<TABLE>
<CAPTION>
                                             For the Years Ended December 31,
                                     1999              1998                   1997
                                   --------          --------           ---------------
                                    Amount     %      Amount      %      Amount     %
                                   --------  -----   --------   -----   --------  -----
                                                  (dollars in thousands)
<S>                                <C>       <C>     <C>        <C>     <C>       <C>
Net revenue (1):
  Life sciences                    $299,769   99.1%  $234,626    99.6%  $187,201   99.8%
  Discovery sciences                  2,761    0.9        927     0.4        286    0.2
                                   --------  -----   --------   -----   --------  -----
                                    302,530  100.0    235,553   100.0    187,487  100.0
Direct costs:
  Life sciences                     147,439           117,625             94,909
  Discovery sciences                  7,719             3,623              1,859
                                   --------          --------           --------
                                    155,158   51.3    121,248    51.5     96,768   51.6
Selling, general and
 administrative expenses             95,604   31.6     77,784    33.0     62,820   33.5
Depreciation and amortization        14,842    4.9     12,317     5.2     10,880    5.8
Acquired in-process research
  and development costs                   -      -      3,163     1.3      9,112    4.9
Merger costs                            218    0.1          -       -        558    0.3
                                   --------  -----   --------   -----   --------  -----
Operating income                   $ 36,708   12.1%  $ 21,041     8.9%  $  7,349    3.9%
                                   ========  =====   ========   =====   ========  =====
</TABLE>

<TABLE>
<CAPTION>
                                                                 Percentage Change
                                                           For the Years Ended December 31,
                                                       ---------------------------------------
                                                        1999 vs. 1998            1998 vs. 1997
                                                       --------------            -------------
   <S>                                                 <C>                       <C>
   Net revenue:
    Life sciences                                          27.8%                     25.3%
    Discovery sciences                                    197.8                     224.1
     Total net revenue                                     28.4                      25.6
   Direct costs:
    Life sciences                                          25.3                      23.9
    Discovery sciences                                    113.1                      94.9
   Selling, general and administrative expenses            22.9                      23.8
   Depreciation and amortization                           20.5                      13.2
</TABLE>

______________________
(1)  Net of subcontractor costs.



                                       23
<PAGE>
Year Ended December 31, 1999 Versus Year Ended December 31, 1998

     Net revenue increased $67.0 million, or 28.4%, to $302.5 million in 1999
from $235.6 million last year.  The Life Sciences Group's operations accounted
for 99.1% of the Company's net revenue for 1999.  The Life Sciences Group
generated net revenue of $299.8 million, an increase of $65.1 million, or 27.8%,
from last year.  The growth in the Life Sciences Group operations was primarily
attributable to an increase in the size, scope and number of contracts in the
global CRO Phase II-IV division.  International net revenues increased $7.8
million to $44.8 million in 1999 from $36.3 million in 1998, which contributed
to the increase in net revenue by the Life Sciences Group during 1999.  PPD ATP,
which was acquired in March 1999, contributed $14.3 million to the increase in
net revenue by the Life Sciences Group during 1999.

     The Discovery Sciences Group generated net revenue of $2.8 million, an
increase of $1.8 million, or 197.8%, from last year.  The growth in the
Discovery Sciences operations was primarily attributable to an increase in the
number of contracts in the combinatorial chemistry division.  In addition, the
functional genomics division earned $0.9 million in revenues in 1999 from a
joint development and license agreement (signed during the fourth quarter of
1998, which extends through the second quarter of 2000).  We expect net revenue
to increase in the Discovery Sciences operations during 2000 due to agreements
signed in January 2000.

     Total direct costs increased 28.0% to $155.2 million in 1999 from $121.2
million last year and remained relatively constant as a percentage of net
revenue at 51.3% for the current year as compared to 51.5% last year.  The Life
Sciences direct costs increased to $147.4 million in 1999 as compared to $117.6
million in 1998.  The increased direct cost dollars resulted primarily from
increased personnel costs due to the increase in the size and number of
contracts in the Global CRO Phase II-IV division.  In addition, PPD ATP
contributed $7.0 million to the increase in the direct costs of the Life
Sciences Group during 1999.  The Life Sciences Group direct costs decreased as a
percentage of related net revenue to 49.2% from 50.1%.  This decrease is
principally due to the mix of levels of personnel involved in the contracts
performed, certain fixed costs being allocated over higher revenues and a
focused effort to control the increase in direct costs, as revenues increased.
The Discovery Sciences Group direct costs increased to $7.7 million in 1999 as
compared to $3.6 million in 1998.  This increase was primarily due to $3.5
million in additional costs for a Phase II trial associated with GenuPro in
1999.

     Selling, general and administrative ("SG&A") expenses increased 22.9% to
$95.6 million in 1999 from $77.8 million last year.  The increase is primarily
attributable to an investment in additional administrative personnel to support
the Company's expanding operations.  As a percentage of net revenue, SG&A
expenses decreased to 31.6% in 1999 from 33.0% last year.

     Total depreciation and amortization expense increased $2.5 million, or
20.5%, to $14.8 million from $12.3 million last year.  The increase was related
to the depreciation of the increased investment in property and equipment due
primarily to the acquisition of PPD ATP in March 1999 and the Company's growth.
The Company's capital expenditures were $23.2 million in 1999.  Expanded
capabilities in the Company's labs accounted for approximately 40.3% of this
capital investment, while the enhancement and expansion of information
technology capacities accounted for approximately 28.9% of this capital
investment.  The remaining capital expenditures were predominately incurred in
connection with the expansion of existing operations and the opening of new
offices.

     During the first quarter of 1999, the Company recorded merger costs of $0.2
million in connection with the acquisition of PPD ATP.  These costs were
primarily cash expenses, such as legal and accounting fees, related to this
transaction.

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

     Operating income increased $15.7 million to $36.7 million in 1999, as
compared to $21.0 million last year.  Excluding gain on sale of CCCR, merger
costs, and non-recurring tax benefits, the Company's adjusted operating income
of $36.9 million in 1999 was 52.6% higher than adjusted operating income of
$24.2 million last year.  As a percentage of net revenue, operating income of
12.1% in 1999 represents an improvement from 8.9% of net revenue last year.
These increases were primarily due to the Company's focus on controlling the
increase in both direct and administrative costs, as revenues increased.

     Net interest and other income increased $0.8 million, or 21.8% to $4.3
million for the year ended December 31, 1999 from $3.6 million last year.
Excluding the gain related to the sale of CCCR, net interest and

                                       24
<PAGE>

other income of $4.4 million in 1999 was $1.9 million higher than last year. The
increase was primarily the result of the increase in interest income of $2.0
million partially offset by $0.1 million in net interest expense related to an
investment transaction entered into in the fourth quarter of 1999. The Company
recognized $1.6 million in interest income related to the notes receivable from
CCCR and Environ Holdings. The Company expects to recognize an additional $1.6
million during 2000 from these notes.

     The Company recorded a loss from discontinued operations, net of income tax
expense, related to its environmental sciences segment, of $0.4 million in 1999,
as compared to income of $4.6 million in 1998.  The environmental sciences
segment was sold on January 31, 1999.

     The provision for income taxes increased $2.7 million, or 28.6%, to $12.2
million in 1999, as compared to $9.5 million last year.  The Company's effective
income tax rate decreased to 29.6% in 1999 from 38.4% last year primarily due to
an investment transaction entered into in the fourth quarter of 1999, which
created a significant capital gain.  The Company will offset this capital gain
with a capital loss carryforward, which had previously been fully reserved.  As
a result of the reversal of the valuation allowance on this capital loss
carryforward, the Company has recognized a tax benefit of approximately $3.8
million.

     Net income of $28.5 million in 1999 represents an increase of $8.7 million
over $19.8 million last year.  Net income per diluted share of $1.15 for 1999
compares to $0.85 in 1998.  Excluding the impact of the discontinued operations
in both years, the non-recurring tax benefits and merger charges in 1999 and the
gain on sale of CCCR and acquisition-related charges in 1998, the Company's 1999
net income of $25.3 million is 54.2% higher than net income of $16.4 million for
1998.

Year Ended December 31, 1998 Versus Year Ended December 31, 1997

     Net revenue increased $48.1 million, or 25.6%, to $235.6 million in 1998
from $187.5 million in 1997.  The Life Sciences Group's operations accounted for
99.6% of the Company's net revenue for 1998.  The Life Sciences Group generated
net revenue of $234.6 million, up $47.4 million, or 25.3%, from 1997.  The
growth in the Life Sciences Group operations was primarily attributable to an
increase in the size, scope and number of contracts in the global CRO Phase II-
IV division.  The Discovery Sciences Group generated net revenue of $0.9
million, up $0.6 million, or 224.1%, from 1997.  The growth in the Discovery
Sciences operations was primarily attributable to an increase in the number of
contracts in the combinatorial chemistry division.

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

     Selling, general and administrative ("SG&A") expenses increased 23.8% to
$77.8 million in 1998 from $62.8 million in 1997.  The increase is primarily
attributable to the investment in additional selling and administrative
personnel to support the Company's expanding operations.  As a percentage of net
revenue, SG&A expenses decreased slightly to 33.0% in 1998 from 33.5% in 1997.

     Total depreciation and amortization expense increased $1.4 million, or
13.2%, to $12.3 million in 1998 from $10.9 million in 1997.  The increase was
related to the Company's growth as well as the ongoing capital investment in the
Company's business.  The Company's capital expenditures (excluding the
environmental sciences segment) were $17.6 million in 1998.  Computer equipment
and software accounted for approximately 47% of this capital investment, while
expanded capabilities in the Company's labs and Discovery Sciences Group
accounted for approximately 12%.

     Acquired in-process research and development decreased $5.9 million, or
65.3%, to $3.2 million in 1998 from $9.1 million in 1997.  The 1999 acquired in-
process research and development charge resulted from the purchase of a license
to six genitourinary compounds from Eli Lilly & Co. during the second quarter of
1998.  The Company immediately expensed the costs of the acquisition of these
compounds because the compounds were in the initial phase of development and had
no alternative future use.  This compares to an acquired in-process research and
development charge of $9.1 million recognized in 1997 related to the acquisition
of the GSX System.

                                       25
<PAGE>

     Operating income increased $13.7 million, or 186.3%, to $21.0 million in
1998, from $7.3 million in 1997.  Excluding gain on sale of CCCR and merger
costs, the Company's adjusted operating income of $24.2 million in 1998 was
42.2% higher than adjusted operating income of $17.0 million in 1997.  As a
percentage of net revenue, operating income of 8.9% in 1998 represents a
dramatic improvement from 3.9% of net revenue in 1997.

     Net interest and other income increased $2.1 million to $3.6 million in
1998 from $1.5 million in 1997.  Excluding the gain related to the sale of CCCR,
net interest and other income of $2.5 million in 1998 was $1.0 million higher
than in 1997.  The increase was primarily the result of the covenant not to
compete payments of $0.7 million resulting from the sale of CCCR in the first
quarter of 1998.  The Company expects to receive an additional $0.1 million
related to the non-compete agreement in the first quarter of 1999.

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

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

Liquidity and Capital Resources

     As of December 31, 1999, the Company had $61.2 million of cash and cash
equivalents on hand.  The Company has historically funded its operations and
growth, including acquisitions, with cash flow from operations, borrowings and
through the use of the Company's stock.

     For the year ended December 31, 1999, the Company experienced a net
increase in cash flow from operating activities to $50.6 million as compared to
$23.6 million last year.  The increase in cash flow from operations is primarily
due to an increase in the Company's net revenues and an increase in operating
margins as a percentage of net revenues.  For the 1999 period, net income of
$28.5 million, depreciation and amortization of $15.0 million and the net
decrease of $7.1 million in other assets and liabilities (which includes a $15.7
million increase in unearned income due to various contracts achieving billing
milestones partially offset by a $6.0 million increase in accounts receivable)
resulted in this increase in cash flow from operating activities.  The number of
days revenue outstanding in accounts receivable and unbilled services, net of
unearned income, were 64.0 and 75.1 days (excluding operations and related
balance sheet accounts of the discontinued division at December 31, 1998) as of
December 31, 1999 and December 31, 1998, respectively.  This decrease is a
result of a focused effort by management on improving the accounts receivable
collection process.

     For the year ended December 31, 1999, the Company's investing activities
used $22.0 million in cash.  Capital expenditures of $23.3 million and the
investment in PPGx of $3.5 million were partially offset by net cash received in
the sale of ENVIRON of $3.4 million, $0.7 million in cash received with the
acquisition of PPD ATP and $0.5 million received from the repayment of a note
receivable.

     For the year ended December 31, 1999, the Company's financing activities
provided $0.8 million in cash, as net proceeds from stock option exercises of
$6.2 million and the proceeds from long-term debt of $0.9 million related
primarily to PPD ATP's building loan were partially offset by $6.4 million in
net repayments of long-term debt.

     Working capital as of December 31, 1999 was $106.8 million compared to
$93.9 million at December 31, 1998.  Excluding the environmental sciences
segment from the balance sheet as of December 31, 1998, the adjusted working
capital would have been $75.7 million.  The increase in working capital as
compared to adjusted working capital was due primarily to the increase in cash
and cash equivalents of $27.2 million in 1999.

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

                                       26
<PAGE>

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

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

     In June 1998, the Company obtained a $50.0 million revolving credit
facility with First Union National Bank.  Interest accrues on amounts borrowed
at a floating rate currently equal to LIBOR plus 0.625% per year.  Indebtedness
under the line is unsecured and subject to certain covenants relating to
financial ratios and tangible net worth.  The unused portion of the loan is
available to provide working capital and for general corporate purposes.  As of
December 31, 1999, the Company had $5.7 million reserved under this facility in
the form of a letter of credit.  This credit facility expires in June 2000, at
which time any outstanding balance is due.

     In August 1999, the Company renegotiated a credit facility for $50.0
million with Wachovia Bank, N.A.  Interest accrues on amounts borrowed at a
floating rate currently equal to LIBOR plus 0.625% per year.  Indebtedness under
the line is unsecured and subject to certain covenants relating to financial
ratios and tangible net worth. This credit facility expires in August 2000, at
which time any outstanding balance is due.  There is no amount outstanding under
this credit facility at December 31, 1999.

     In the fourth quarter of 1999, the Company entered into a short sale and
repurchase of U.S. Treasury bonds with a face value of $520 million based on
management's expectations that interest rates would rise between the date the
transaction was entered into and its maturity date of May 15, 2000.  The Company
is required to record these financial instruments at their net fair value on
each reporting date, with any changes in the fair value recorded as either
interest income or interest expense. The Company made a margin deposit of $2.6
million related to this transaction.  The Company recognized a loss of
approximately $0.1 million on this transaction in 1999.  The last interest
redetermination date on this transaction was on January 5, 2000.  The Company
was not required to recognize any additional loss on this transaction at the
interest redetermination date and no longer has any exposure for changes in
interest rates between January 5, 2000 and the maturity date of May 15, 2000.

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

Year 2000 Compliance

     The Year 2000 issue was the result of computer programs having been written
using two digits, rather than four, to define the applicable year.  As a result,
computer systems and/or software used by many companies in a very wide variety
of applications could experience operating difficulties unless they were
modified or upgraded to adequately process information involving, related to or
dependent upon the four digit field.

     The Company recognized the need to ensure its operations would not be
adversely impacted by Year 2000 failures and had established an internal review
team to address the Year 2000 issue that encompassed operating and
administrative areas of the Company.  During the first quarter of 1997, a team
of experienced information technology staff was assigned to work with Company
personnel to identify and resolve significant Year 2000 issues in a timely
manner.  In addition, executive management regularly monitored the status of the
Company's Year 2000 remediation plans.  The process included an inventory and
assessment of affected equipment and software, development of remediation plans,
execution of those plans and testing of all technology affected by this issue.
In addition, the Company assessed the Year 2000 issue with significant suppliers
and clients.

     At December 31, 1999, the assessment process was 100% complete worldwide
for all equipment (including computer hardware and software technology) used
internally by the Company.  Remediation and testing was 100% complete for
critical systems and for non-critical systems.  All systems, regardless of
whether they required remediation, were tested to ensure Year 2000 compliance.
The Company assessed its significant suppliers in North

                                       27
<PAGE>

America and Europe to determine the extent to which the Company could be
vulnerable to third party failure to remediate Year 2000 compliance problems.
The Company communicated regularly with key suppliers and clients and responded
promptly to all requests for information regarding Year 2000 compliance.
Business contingency plans were developed to minimize the impact of outages
across our locations worldwide. In addition, a plan was developed to handle
yearend activities to ensure all critical functions were verified and
operational prior to start of business in the new year. Although there can be no
assurance, based on current information available, management believes that it
will be able to perform all services and provide all products it currently
offers without any material adverse effects arising from failure to remediate
deficiencies arising from Year 2000.

     External and internal costs specifically associated with applying vendor
upgrades, testing and modifying internal use software for Year 2000 compliance
are expensed as incurred.  The Company pays for Year 2000 expenses with cash
from operating activities.  The percentage of the Company's information
technology budget used for remediation was approximately 11% in 1998 and 5% in
1999.  As of December 31, 1999, the Company had spent approximately $1.75
million on Year 2000 compliance.  Of the total amount that the Company spent,
$1.25 million was attributable to internal labor costs for assessment and
testing.  Although internal resources have been dedicated to Year 2000 efforts,
work has been spread across all areas and there has been no material delay in
any major projects.

     At year end all systems were backed up and verified to be operational prior
to the resumption of business after the new year.  Only minor Year 2000 issues
were encountered which resulted in an insignificant amount of cost to the
Company.  These issues did not have an impact on the business and all issues
were resolved within the first week.  The Company has also not experienced any
third party supplier issues.  The Company remains alert to potential Year 2000
related issues that may occur in the future, but believes that there will be no
material impact on operations, liquidity or financial condition.

Exchange Rate Fluctuations and Exchange Controls

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

     Contracts between the Company's United Kingdom subsidiaries and their
clients are generally denominated in pounds sterling, United States dollar or
Euros. 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 rates between the pound
sterling and the dollar will affect the translation of such subsidiaries'
financial results into dollars for purposes of reporting the Company's
consolidated financial results, and also affect the amounts in dollars actually
received by the Company from such subsidiaries.

     The Company currently participates in transactions involving multiple
currencies, but these form only a small percentage of the Company's total
transactions.  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 international
operations have not accounted for a significant portion of total operations
(approximately 15% in 1999).  It is anticipated that those conditions will
persist at least through December 31, 2000.

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

                                       28
<PAGE>

Potential Volatility of Quarterly Operating Results and Stock Price

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

Item 7A.  Quantitative and Qualitative Disclosures about Market Risk

     The Company is exposed to foreign currency risk by virtue of its
international operations.  The Company conducts business in several foreign
countries and approximately 15%, 15% and 13% of the Company's net revenues for
the years ended December 31, 1999, 1998 and 1997, respectively, were derived
from the Company's operations outside the United States.  Funds generated by
each subsidiary of the Company are generally reinvested in the country where
they are earned.  The operations in the United Kingdom have generated more than
37% of the Company's revenue from foreign operations during 1999.  Accordingly,
some exposure exists to potentially adverse movements in the pound sterling and
other foreign currencies.  The United Kingdom has traditionally had a relatively
stable currency.  It is anticipated that those conditions will persist for at
least through December 31, 2000.

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

     The Company is exposed to changes in interest rates on its cash
equivalents, short-term investments, the short sale and repurchase of U.S.
Treasury Bonds and amounts outstanding under note payable and lines of credit.
The Company's cash and cash equivalents and short-term investments are invested
in financial instruments with interest rates based on financial market
conditions.

Item 8. Financial Statements and Supplementary Data

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


Item 9. Changes in and Disagreements with Accountants on Accounting and
        Financial Disclosure

     None.

                                       29
<PAGE>

                                   PART III

     Certain information required by Part III is omitted from this report,
because the Registrant intends to file a definitive proxy statement for its 2000
Annual Meeting of Stockholders to be held on May 16, 2000 (the "Proxy
Statement") within 120 days after the end of its fiscal year pursuant to
Regulation 14A promulgated under the Securities Exchange Act of 1934, as
amended, and the information included therein is incorporated herein by
reference to the extent provided below.

Item 10.  Directors and Executive Officers of the Registrant

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

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

Item 11.  Executive Compensation

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

Item 12.  Security Ownership of Certain Beneficial Owners and Management

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

Item 13.  Certain Relationships and Related Transactions

     None.

                                       30
<PAGE>

                                    PART IV

Item 14.    Exhibits, Financial Statement Schedules and Reports on Form 8-K

     (a)  Financial Statements and Financial Statement Schedules

          1. The consolidated financial statements of the Company and its
             subsidiaries filed as part of this Report are listed in the
             attached Index to Consolidated Financial Statements and Financial
             Statement Schedule.

          2. The schedule to the consolidated financial statements of the
             Company and its subsidiaries filed as part of this Report is listed
             in the attached Index to Consolidated Financial Statements and
             Financial Statement Schedule.

          3. The exhibits filed as part of this Report are listed in Item 14(c)
             below.

     (b)  Reports on Form 8-K.  None.

     (c)  Exhibits

Exhibit No.                           Description
-----------                           -----------
  2.1**        --Plan of Merger to Merge PPD Subsidiary, Inc. with and into
                 Pharmaceutical Product Development Clinical Research Unit, Inc.
                 ("PPD-CRU").
  2.2**        --Plan of Merger to Merge PPD-Europe, Inc. ("PPD Europe") with
                 and into the Registrant.
  2.3*         --Agreement and Plan of Reorganization, dated as of June 20,
                 1996, among the Registrant, Wilmington Merger Corp. and Applied
                 Bioscience International Inc.
  2.4*         --Stock and Asset Master Purchase Agreement by and among
                 Huntingdon International Holdings plc, Huntingdon Life Sciences
                 Inc., Applied Bioscience International Inc. and Pharmaco LSR
                 International Inc., dated as of November 1, 1995, incorporated
                 by reference to Exhibit 2 to Applied Bioscience International
                 Inc.'s Current Report on Form 8-K filed with the Securities and
                 Exchange Commission on December 6, 1996.
  2.5*         --Stock Purchase Agreement among Applied Bioscience International
                 Inc., PPD UK Holdings Limited and Environ Holdings Inc. for the
                 acquisition of all the capital stock of APBI Environmental
                 Sciences Group, Inc., Environmental Assessment Group Limited
                 and Environ International Limited, dated January 31, 1999.
  3.1*         --Restated Articles of Incorporation.
  3.2*         --Amended and Restated Bylaws.
  10.4**       --Plan of Merger to Merge PPD Subsidiary, Inc. with and into PPD-
                 CRU (see Exhibit 2.1).
  10.5**       --Plan of Merger to Merge PPD-Europe with and into the Registrant
                 (see Exhibit 2.2).
  10.8**       --Pharmaceutical Product Development, Inc. Equity Compensation
                 Plan, effective as of October 30, 1995.
  10.9**       --Pharmaceutical Product Development, Inc. Stock Option Plan for
                 Non-Employee Directors, effective as of October 31, 1995.
  10.10**      --Registration Rights Agreement, dated January 24, 1996, by and
                 among the Registrant and certain of its shareholders.
  10.35**      --Lease, dated January 26, 1994, by and between Michael James
                 Lawton, Jeffrey William Ware, Prudential Nominees Limited and
                 Gabbay Group Limited.
  10.39**      --Lease Agreement, dated as of October 25, 1995, by and between
                 PPD-CRU and Perimeter Park West Associates Limited Partnership.
  10.55**      --Lease made January 23, 1996 between PPD-CRU and Western Center
                 Properties, Inc.
  10.57*       --First Amendment to Registration Rights Agreement.
  10.59*       --First Amendment dated May 20, 1999 to Lease Agreement, dated
                 October 25, 1995, between PPD Development 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.
  10.81*       --Employment Agreement, dated as of September 26, 1996, by and
                 between Pharmaceutical Product Development, Inc., and Fred B.
                 Davenport, Jr.
  10.83a-83f*  --Substitute Non-Statutory Stock Option Agreements by and between
                 Pharmaceutical Product Development, Inc. and Grover C. Wrenn,
                 dated as of September 26, 1996.
  10.84*       --Employment Agreement dated June 4, 1997, by and between the PPD
                 Discovery, Inc. and Mark

                                       31
<PAGE>

                 E. Furth.
  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.
  10.93*       --Lease Agreement dated July 9, 1997, between Weeks Realty, Inc.
                 and PPD Pharmaco, Inc.
  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.
  10.99*       --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.
  10.103*      --Severance Agreement dated February 2, 1998 between
                 Pharmaceutical Product Development, Inc. and Fred B. Davenport,
                 Jr.
  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.
  10.110*      --Amendment to Employee Stock Purchase Plan, dated March 2, 1998.
  10.111*      --Employment Agreement dated May 22, 1998 between Subsidiary No.
                 5, Inc. and Karl B. Thor.
  10.112*      --Severance Agreement dated May 22, 1998 between Subsidiary No.
                 5, Inc. and Karl B. Thor.
  10.113*      --Note and Loan Agreement, dated June 24, 1998 between
                 Pharmaceutical Product Development, Inc. and First Union
                 National Bank.
  10.114*      --Lease Agreement dated June 26, 1998 between Weeks Realty
                 Limited Partnership and PPD Pharmaco, Inc.
  10.115*      --First Amendment to Loan Agreement dated August 6, 1998, between
                 Pharmaceutical Product Development, Inc. and Wachovia Bank,
                 N.A.
  10.116*      --First Amendment to Lease Agreement dated October 28, 1998,
                 between PPD Pharmaco, Inc. and Weeks Realty, Inc.
  10.117*      --Lease Agreement dated September 15, 1998 between PPD Pharmaco,
                 Inc. and BBC Family Limited Partnership.
  10.118*      --Lease Agreement dated December 16, 1998 between PPD Pharmaco,
                 Inc. and Weeks Realty Limited Partnership.
  10.119*      --Employment Agreement dated January 1, 1999 between
                 Pharmaceutical Product Development, Inc. and David R. Williams.
  10.120*      --Severance Agreement dated February 2, 1998 and Amendment No. 1
                 to Severance Agreement dated January 1, 1999 between
                 Pharmaceutical Product Development, Inc. and David R. Williams.
  10.121*      --Loan Agreement dated February 1, 1999, by and among PPGx, Inc.,
                 Pharmaceutical Product Development, Inc., as Guarantor, and
                 First Union National Bank.
  10.122*      --Second Amendment to Loan Agreement dated January 30, 1999,
                 between Pharmaceutical Product Development, Inc. and First
                 Union National Bank.
  10.123*      --Second Amendment to Loan Agreement dated January 30, 1999,
                 between Pharmaceutical Product Development, Inc. and Wachovia
                 Bank, N.A.
  10.124*      --Stock Purchase Agreement dated February 1, 1999 between PPGx,
                 Inc. and Pharmaceutical Product Development, Inc.
  10.125*      --Software License Agreement dated January 31, 1999 between Axys
                 Pharmaceuticals and Pharmaceutical Product Development, Inc.
  10.126*      --PPD Technology Transfer Agreement dated February 1, 1999
                 between PPGx, Inc. and Pharmaceutical Product Development, Inc.
  10.127*      --Assignment and Assumption of License Agreement dated February
                 1, 1999 between Pharmaceutical Product Development, Inc. and
                 PPGx, Inc.
  10.128*      --Credit and Security Agreement dated February 2, 1999, between
                 Applied Bioscience

                                       32
<PAGE>

                 International Inc., Environ Holdings, Inc. and APBI
                 Environmental Sciences Group, Inc.
  10.129*      --First Amendment to Credit and Security Agreement dated March
                 30, 1999, between Applied Bioscience International Inc.,
                 Environ Holdings, Inc. and Environ International Corporation
                 (formerly APBI Environmental Sciences Group, Inc.).
  10.130*      --Subordination and Intercreditor Agreement dated March 30, 1999,
                 between First Union National and Applied Bioscience
                 International, Inc.
  10.131*      --Amendment, dated April 14, 1999, to Lease Agreement dated
                 September 15, 1998 between PPD Pharmaco, Inc. and BBC Family
                 Limited Partnership.
  10.132*      --Amendment, dated April 14, 1999, to Lease Agreement dated March
                 25, 1996 between PPD and BBC Family Limited Partnership.
  10.133*      --Fourth Amendment, dated July 6, 1999, to Lease Agreement dated
                 July 9, 1997 between PPD Development, Inc. (formerly known as
                 PPD Pharmaco, Inc.) and Weeks Realty, L.P.
  10.134*      --Pharmaceutical Product Development, Inc. Equity Compensation
                 Plan as amended and restated effective May 12, 1999.
  10.135*      --Amendment to Employment Agreement dated August 20, 1999 between
                 PPD Development, Inc. and Mark Sirgo.
  10.136*      --Termination of Employment Agreement dated September 14, 1999
                 between Pharmaceutical Product Development, Inc. and Thomas
                 D'Alonzo.
  10.137       --Amendment No. 2 and Restatement of Credit and Security
                 Agreement dated November 24, 1999, between Applied Bioscience
                 International Inc., Environ Holdings, Inc. and Environ
                 International Corporation
  10.138       --Termination of Employment Agreement dated October 7, 1999
                 between PPD Development, Inc. and Joshua S. Baker.
  10.139       --Third Amendment to Loan Agreement dated November 11, 1999,
                 between Pharmaceutical Product Development, Inc. and Wachovia
                 Bank N.A.
  10.140       --Employment Agreement dated December 17, 1999 between PPD
                 Development, Inc. and Francis J. Casieri.
  10.141       --Severance Agreement dated December 17, 1999 between
                 Pharmaceutical Product Development, Inc. and Francis J.
                 Casieri.
  10.142       --Termination of Employment Agreement dated February 8, 2000
                 between Pharmaceutical Product Development, Inc. and Rudy C.
                 Howard.
  21           --Subsidiaries of the Registrant.
  23.1         --Consent of PricewaterhouseCoopers LLP
  27           --Financial Data Schedule (for SEC use only).


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

                                       33
<PAGE>

           PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES

                  INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


                                                                   Page
                                                                   ----

  Report of Independent Accountants                                F-2

  Consolidated Statements of Operations for the Years Ended
      December 31, 1999, 1998 and 1997                             F-3

  Consolidated Balance Sheets as of December 31, 1999 and 1998     F-4

  Consolidated Statements of Shareholders' Equity for the Years
      Ended December 31, 1999, 1998 and 1997                       F-5

  Consolidated Statements of Cash Flows for the Years Ended
      December 31, 1999, 1998 and 1997                             F-6

  Notes to Consolidated Financial Statements                       F-7

                                      F-1
<PAGE>

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


     In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of shareholders' equity and of
cash flows present fairly, in all material respects, the financial position of
Pharmaceutical Product Development, Inc. and its subsidiaries at December 31,
1999 and 1998, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 1999, in conformity with
accounting principles generally accepted in the United States.  These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits.  We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States, which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement.  An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation.  We believe that our audits provide a reasonable basis
for the opinion expressed above.



/s/ PRICEWATERHOUSECOOPERS LLP


Raleigh, North Carolina
January 31, 2000

                                      F-2
<PAGE>

           PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF OPERATIONS

             FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997

                     (in thousands, except per share data)


<TABLE>
<CAPTION>
                                                                               1999       1998       1997
                                                                             ---------  ---------  ---------
<S>                                                                          <C>        <C>        <C>

  Life sciences revenues, net of subcontractor costs of $120,666, $91,432
    and $69,094, respectively                                                $299,769   $234,626   $187,201
  Discovery sciences revenues, net of subcontractor costs of $57, $48
    and $45, respectively                                                       2,761        927        286
                                                                             --------   --------   --------
     Net revenue                                                              302,530    235,553    187,487
                                                                             --------   --------   --------

Direct costs - Life sciences                                                  147,439    117,625     94,909
Direct costs - Discovery sciences                                               7,719      3,623      1,859
Selling, general and administrative expenses                                   95,604     77,784     62,820
Depreciation and amortization                                                  14,842     12,317     10,880
Merger costs                                                                      218          -        558
Acquired in-process research and development costs                                  -      3,163      9,112
                                                                             --------   --------   --------
                                                                              265,822    214,512    180,138
                                                                             --------   --------   --------
     Operating income                                                          36,708     21,041      7,349
Interest:
   Income                                                                       3,555      1,584      1,342
   Expense                                                                       (400)      (414)      (478)
                                                                             --------   --------   --------
   Interest income, net                                                         3,155      1,170        864
Other income, net                                                               1,182      2,392        600
                                                                             --------   --------   --------

     Income from continuing operations before
       provision for income taxes                                              41,045     24,603      8,813
Provision for income taxes                                                     12,154      9,448      3,363
                                                                             --------   --------   --------
     Income from continuing operations                                         28,891     15,155      5,450
(Loss) income from operations of discontinued environmental sciences
  segment, net of income taxes of $(251), $3,012 and $2,711, respectively        (395)     4,614      4,152
                                                                             --------   --------   --------

Net income                                                                   $ 28,496   $ 19,769   $  9,602
                                                                             ========   ========   ========

Income from continuing operations per share:
     Basic                                                                   $   1.18   $   0.65   $   0.24
                                                                             ========   ========   ========
     Diluted                                                                 $   1.16   $   0.65   $   0.24
                                                                             ========   ========   ========

Income (loss) from discontinued operations per share:
     Basic                                                                   $  (0.02)  $   0.20   $   0.18
                                                                             ========   ========   ========
     Diluted                                                                 $  (0.01)  $   0.20   $   0.18
                                                                             ========   ========   ========

Net income per share:
     Basic                                                                   $   1.16   $   0.85   $   0.42
                                                                             ========   ========   ========
     Diluted                                                                 $   1.15   $   0.85   $   0.42
                                                                             ========   ========   ========

Weighted average number of common shares outstanding:
     Basic                                                                     24,566     23,186     22,825
     Dilutive effect of stock options                                             287        169         60
                                                                             --------   --------   --------
     Diluted                                                                   24,853     23,355     22,885
                                                                             ========   ========   ========
</TABLE>

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

                                      F-3
<PAGE>

           PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS

                       AS OF DECEMBER 31, 1999 AND 1998

                       (in thousands, except share data)

                                    Assets

<TABLE>
<CAPTION>
                                                      1999      1998
                                                    --------  --------
Current assets
<S>                                                 <C>       <C>
  Cash and cash equivalents                         $ 61,251  $ 34,083
  Accounts receivable and unbilled services, net     114,753   125,065
  Investigator advances                                2,069     1,505
  Prepaid expenses and other current assets           18,588     9,562
  Deferred tax asset                                   4,012     2,751
                                                    --------  --------
     Total current assets                            200,673   172,966

Property and equipment, net                           52,282    42,509
Goodwill, net                                          9,437    14,869
Notes receivable                                      17,714     2,000
Other assets                                           8,597     4,238
                                                    --------  --------
     Total assets                                   $288,703  $236,582
                                                    ========  ========

                     Liabilities and Shareholders' Equity

Current liabilities
 Accounts payable                                   $ 10,103  $  7,812
 Payables to investigators                             5,916     5,204
 Other accrued expenses                               27,471    28,007
 Unearned income                                      50,213    34,446
 Current maturities of long-term debt                    211     3,580
                                                    --------  --------
     Total current liabilities                        93,914    79,049

Long-term debt, less current maturities                  359       161
Deferred rent and other                                1,966     1,962
                                                    --------  --------
     Total liabilities                                96,239    81,172

Commitments and contingencies (Notes 10 and 14)

Shareholders' equity
 Common stock, $0.10 par value, 95,000,000 shares
  authorized; 24,629,000 and 23,433,000 shares
  issued and outstanding, respectively                 2,463     2,343
 Paid-in capital                                     134,029   123,709
 Retained earnings                                    58,697    29,929
 Accumulated other comprehensive loss                 (2,725)     (571)
                                                    --------  --------
     Total shareholders' equity                      192,464   155,410
                                                    --------  --------
     Total liabilities and shareholders' equity     $288,703  $236,582
                                                    ========  ========
</TABLE>



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

                                      F-4
<PAGE>

           PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

              FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997

                                 (in thousands)

<TABLE>
<CAPTION>
                                                                                 Retained
                                                                                 Earnings     Comprehensive
                                                  Common Shares       Paid in   (Accumulated     Income
                                                Shares    Par Value   Capital    Deficit)        (Loss)
                                               ------------------------------------------------------------
<S>                                            <C>        <C>        <C>        <C>           <C>
Balance December 31, 1996                       21,624       $2,163  $112,606       $  (363)
Net income                                                                            9,602      $    9,602
                                                                                              -------------
Other comprehensive income (loss):
   Unrealized loss on investments, net                                                                  (64)
   Translation adjustments                                                                           (1,318)
                                                                                              -------------
   Other comprehensive loss                                                                          (1,382)
                                                                                              -------------
Comprehensive income                                                                             $    8,220
                                                                                              =============
Issuance of common shares in
  connection with acquisitions                   1,165          115        89         1,304
Issuance of common shares for exercise
  of stock options                                 142           16     2,199
Income tax benefit from exercise of
  stock options                                                           510
Distribution to shareholders                                                           (431)
Proceeds of Section 16(b) transaction,
  net of related tax provision of $155                                    276
Other                                               18            1
                                               --------------------------------------------
Balance December 31, 1997                       22,949        2,295   115,680        10,112
Net income                                                                           19,769      $   19,769
                                                                                              -------------
Other comprehensive income (loss):
   Reclassification adjustment for net gain
     included in net income                                                                            (167)
   Translation adjustments                                                                               78
                                                                                              -------------
   Other comprehensive loss                                                                             (89)
                                                                                              -------------
Comprehensive income                                                                             $   19,680
                                                                                              =============
Issuance of common shares for exercise
  of stock options and employee stock
  purchase plan                                    484           48     6,980
Income tax benefit from exercise of
  stock options                                                         1,049
Repayment from shareholders                                                              48
                                               --------------------------------------------
Balance December 31, 1998                       23,433        2,343   123,709        29,929
Net income                                                                           28,496      $   28,496
                                                                                              -------------
Other comprehensive income (loss):
   Translation adjustments                                                                           (2,154)
                                                                                              -------------
Comprehensive income                                                                             $   26,342
                                                                                              =============
Issuance of common shares in connection
   with acquisition                                876           88     2,999           272

Issuance of common shares for exercise
  of stock options and employee stock
  purchase plan                                    320           32     6,168
Income tax benefit from exercise of
  stock options                                                         1,153
                                               --------------------------------------------
Balance December 31, 1999                       24,629       $2,463  $134,029       $58,697
                                               =======       ======  ========   ===========

<CAPTION>
                                                 Accumulated
                                                     Other
                                                Comprehensive
                                                Income (Loss)       Total
                                               ---------------------------
                                                <C>
Balance December 31, 1996                       $     900         $115,306
Net income                                                           9,602

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

   Other comprehensive loss                        (1,382)

Comprehensive income

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

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

   Other comprehensive loss                           (89)

Comprehensive income

Issuance of common shares for exercise
  of stock options and employee stock
  purchase plan                                                      7,028
Income tax benefit from exercise of
  stock options                                                      1,049
Repayment from shareholders                                             48
                                               ---------------------------
Balance December 31, 1998                            (571)         155,410
Net income                                                          28,496

Other comprehensive income (loss):
   Translation adjustments                         (2,154)          (2,154)

Comprehensive income

Issuance of common shares in connection
   with acquisition                                                  3,359

Issuance of common shares for exercise
  of stock options and employee stock
  purchase plan                                                      6,200
Income tax benefit from exercise of
  stock options                                                      1,153
                                               ---------------------------
Balance December 31, 1999                         $(2,725)        $192,464
                                               ==========         ========
</TABLE>


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


                                      F-5
<PAGE>

           PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

             FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997

                                (in thousands)


<TABLE>
<CAPTION>
                                                                  1999       1998       1997
                                                                --------   --------   --------
<S>                                                             <C>        <C>        <C>
Cash flows from operating activities:
 Net income                                                     $ 28,496   $ 19,769   $  9,602
 Adjustments to reconcile net income to net cash provided by
   operating activities:
   Depreciation and amortization                                  15,040     14,210     12,394
   Acquired in-process research and development                        -      3,163      9,112
   Gain on sale of CCCR                                                -     (1,071)         -
   Deferred income taxes                                          (6,469)     1,409       (910)
   Loss on disposition of property and equipment                       -         55         32
   (Gain) loss on sale of investments                                  -       (174)         3
   Change in operating assets and liabilities:
     Accounts receivable and unbilled services, net               (5,965)   (28,140)   (24,470)
     Prepaid expenses and investigator advances                   (3,819)      (381)     2,073
     Current income taxes                                          1,369     (2,088)     3,406
     Other assets                                                   (896)     1,468        842
     Accounts payable and other accrued expenses                   6,426      7,046     (8,336)
     Payable to investigators                                        712      1,066     (1,291)
     Unearned income                                              15,704      7,243      8,740
     Other                                                             -          -        (58)
                                                                --------   --------   --------
         Net cash provided by operating activities                50,600     23,575     11,139
                                                                --------   --------   --------
Cash flows from investing activities:
   Purchases of property and equipment                           (23,233)   (19,343)   (13,599)
   Net cash received from sale of businesses                       3,421      5,285          -
   Net cash paid for acquisition of in-process
     research and development costs                                    -     (3,163)    (9,112)
   Proceeds from sale of property and equipment                       31          5        174
   Proceeds from sale of marketable securities                         -      8,000     17,240
   Purchases of marketable securities                                  -          -    (10,972)
   Cash received from repayment of note receivable                   500          -          -
   Cost method investments                                        (3,500)         -     (1,500)
   Net cash received from (paid for) acquisitions                    738     (1,829)       991
                                                                --------   --------   --------
         Net cash used in investing activities                   (22,043)   (11,045)   (16,778)
                                                                --------   --------   --------
Cash flows from financing activities:
   Proceeds from long-term debt                                      982          -        138
   Principal repayments on long-term debt                         (6,406)    (1,480)    (1,355)
   Repayment of capital leases obligation                            (11)         -          -
   Proceeds of Section 16(b) transaction                               -          -        431
   Repayment from (distribution to) shareholders                       -         48       (431)
   Proceeds from exercise of stock options and employee
     stock purchase plan                                           6,200      7,028      2,215
                                                                --------   --------   --------
         Net cash provided by financing activities                   765      5,596        998
                                                                --------   --------   --------
Effect of exchange rate changes on cash and cash equivalents      (2,154)        78     (1,318)
                                                                --------   --------   --------
Net increase (decrease) in cash and cash equivalents              27,168     18,204     (5,959)
Cash and cash equivalents, beginning of the year                  34,083     15,879     21,838
                                                                --------   --------   --------
Cash and cash equivalents, end of the year                      $ 61,251   $ 34,083   $ 15,879
                                                                ========   ========   ========
</TABLE>

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

                                      F-6
<PAGE>

           PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                     (in thousands, except per share data)


1. Summary of Operations and Significant Accounting Policies:

Nature of Business

   Pharmaceutical Product Development, Inc. and its subsidiaries (collectively
the "Company") provide a broad range of research and development and consulting
services in the life sciences and discovery sciences segments. In the life
sciences segment, the Company provides worldwide clinical research and
development of pharmaceutical products and medical devices, biostatistical
analysis and analytical laboratory services. The discovery sciences services
include target identification and validation, compound creation, screening and
compound selection. The Company provides services under contract to clients in
the pharmaceutical, general chemical, agrochemical, biotechnology and other
industries. In addition, the Company performs discovery research on certain
compounds for which the Company holds a license. The Company markets its life
sciences services primarily in the United States and Europe. The Company's
discovery revenues have all been generated in the United States to date.

     Prior to selling its environmental sciences segment on January 31, 1999
(see Note 4), the Company also provided environmental sciences services.
Environmental sciences services included assessment and management of chemical
and environmental health risk, site investigation and remediation planning and
litigation support.  In addition to the industries mentioned above, the
environmental sciences segment also marketed services to clients in the
industrial, manufacturing and oil and gas industries.  The environmental
sciences segment marketed its services primarily in the United States and
Europe.

Principles of Consolidation

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

Merger Costs and Special Charges

     The Company recorded merger costs of $218 and $558 in connection with the
acquisitions of ATP in 1999 and Belmont Research, Inc., SARCO, Inc., and Intek
Labs, Inc. in 1997. These acquisitions were accounted for using the pooling of
interests method of accounting. These costs were primarily transaction expenses
related to these pooling transactions.

Acquired In-Process Research and Development Costs

     The Company recorded an acquired in-process research and development charge
of $3,163 in the second quarter of 1998 related to the purchase of a license to
six genitourinary compounds from Eli Lilly & Co. The Company immediately
expensed the costs of the acquisition of these compounds because they were in
the initial phase of development at the date of the acquisition and had no
alternative future use.

     The Company acquired the GSX System for $8,700 in cash in June 1997.
Liabilities assumed in this transaction were $832.  The purchase price in excess
of the net assets of the GSX System of $9,112 was allocated to acquired in-
process research and development costs and charged to operations at the
acquisition date, as the technology under development by the GSX System had not
reached technological feasibility and had no alternative future use.

Revenue Recognition

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

                                      F-7
<PAGE>

           PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                     (in thousands, except per share data)

1.   Summary of Operations and Significant Accounting Policies (Continued):

Revenue Recognition (Continued)

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

     A portion of the Company's revenue is derived from sale of software
licenses as well as support and maintenance, training and consulting services.
The Company adopted American Institute of Certified Public Accountants ("AICPA")
Statement of Position ("SOP") No. 97-2, "Software Revenue Recognition," as
amended by SOP No. 98-4 effective January 1, 1998. The adoption did not have a
material effect on the timing of the Company's revenue recognition or cause
changes to its revenue recognition policies.

     In December 1998, the AICPA issued Statement of Position No. 98-9,
"Modification of SOP No. 97-2, Software Revenue Recognition, with Respect to
Certain Transactions" ("SOP No. 98-9").  SOP No. 98-9 amends SOP No. 97-2 to
require recognition of revenue using the "residual method" in circumstances
outlined in SOP No. 98-9.  Under the residual method, revenue is recognized as
follows:  (1) the total fair value of undelivered elements, as indicated by
vendor specific objective evidence, is deferred and subsequently recognized in
accordance with the relevant sections of SOP No. 97-2 and (2) the difference
between the total arrangement fee and the amount deferred for the undelivered
elements is recognized as revenue related to the delivered elements.  SOP No.
98-9 is effective for transactions entered into in fiscal years beginning after
March 15, 1999.  Also, the provisions of SOP No. 97-2 that were deferred by SOP
No. 98-4 will continue to be deferred until the date SOP No. 98-9 becomes
effective.  The Company does not expect that the adoption of SOP No. 98-9 will
have a significant impact on the Company's results of operations or financial
position.

     Revenue from sale of software licenses totaled $313, $100 and $0 during the
years ended December 31, 1999, 1998 and 1997, respectively.  Revenue from
software licenses is recognized when there is evidence of an arrangement, the
product has been shipped, fees are fixed and determinable and collection of the
related receivable is probable.  Support and maintenance revenue totaled $90,
$29 and $0 during the years ended December 31, 1999, 1998 and 1997,
respectively.  Support and maintenance revenue is deferred and recognized
ratably over the service period.  Royalty revenue totaled $1,821, $889 and $349
during the years ended December 31, 1999, 1998 and 1997, respectively.  Royalty
revenue is comprised of royalties received from the sale of software licenses
and product maintenance by distributors of the Company's products.  Royalty
revenue is recognized when the Company is notified by the distributor of the
royalty and the amount is fixed and determinable.

Cash and Cash Equivalents

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

   Supplemental cash flow information consists of the following:

                                              Years Ended December 31,
                                           ------------------------------
                                            1999        1998        1997
                                           -------     -------     ------
Cash paid for interest                     $   319     $   420     $  354
                                           =======     =======     ======
Cash paid for income taxes, net            $15,972     $12,628     $2,583
                                           =======     =======     ======
Assets acquired under capital leases       $   349     $     -     $   44
                                           =======     =======     ======

                                      F-8
<PAGE>

           PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                     (in thousands, except per share data)

1.   Summary of Operations and Significant Accounting Policies (Continued):

Financial Instruments

     In the fourth quarter of 1999, the Company entered into a short sale and
repurchase of U.S. Treasury bonds with a face value of $520,000 based on
management's expectations that interest rates will rise between the date the
transaction was entered into and its maturity date of May 15, 2000. The Company
is required to record these financial instruments at their net fair value on
each reporting date, with any changes in the fair value recorded as either
interest income or interest expense. Net interest expense of $100 has been
recognized related to this transaction at December 31, 1999. The Company was
required to make a margin deposit of $2,600 related to this transaction.

Investigator Payments

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

Property and Equipment

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

Internal Use Software

     The Company accounts for internal use software in accordance with the
provisions of AICPA Statement of Position No. 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use," which requires
certain direct costs and interest costs that are incurred during the application
stage of development to be capitalized and amortized over the useful life of the
software.

Capitalized Software Costs

     Financial Accounting Standards Board Statement No. 86, "Accounting for the
Costs of Computer Software to be Sold, Leased or Otherwise Marketed," requires
the capitalization of certain software development costs once technological
feasibility has been established. The Company considers that technological
feasibility has been established once a working model of a product has been
established and tested. The establishment of technological feasibility and the
ongoing assessment of recoverability of capitalized software development costs
require considerable judgement by management concerning certain external factors
including, but not limited to, technological feasibility, anticipated future
gross revenue, estimated economic life and changes in software and hardware
technologies. To date, the Company has not capitalized any software development
costs, as amounts incurred subsequent to the establishment of technological
feasibility have not been material. Prior to the creation of a working model,
the Company expenses these costs.

                                      F-9
<PAGE>

           PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                     (in thousands, except per share data)

1.   Summary of Operations and Significant Accounting Policies (Continued):

Goodwill

     The excess of the purchase price of the businesses acquired over the fair
value of net tangible assets and identifiable intangibles and acquired in-
process research and development costs at the date of the acquisitions has been
assigned to goodwill. Goodwill is being amortized over periods of 15 to 40
years. Goodwill is presented net of accumulated amortization at December 31,
1999 and 1998 of $5,064 and $4,926, respectively. The amortization charges for
each of the three years ended December 31, 1999, 1998 and 1997 were $1,005,
$1,235 and $1,401, respectively.

Other Assets

     Other assets are comprised of cost-method investments in certain technology
companies, other intangible assets, two notes receivable and a net long-term
deferred tax asset. Other intangible assets are being amortized over periods of
three to thirty-nine and a half years. See Note 8.

Realizability of Carrying Value of Long-Lived Assets

     The Company is required to review long-lived assets for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable, in accordance with the provisions of Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed Of". Accordingly, when
indicators of impairment are present, the Company evaluates the carrying value
of property, plant and equipment and intangibles, including goodwill, in
relation to the operating performance and estimates of future discounted cash
flows of the underlying business and recognizes an impairment, if necessary, to
state property, plant and equipment and intangibles at their fair value. No such
impairment was necessary during any of the three years ended December 31, 1999,
1998 and 1997.

Unbilled Services and Unearned Income

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

Income Taxes

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

Concentration of Credit Risk

     Statement of Financial Accounting Standards No. 105, "Disclosure of
Information about Financial Instruments with Off-Balance-Sheet Risk and
Financial Instruments with Concentrations of Credit Risk", requires disclosure
of information about financial instruments with off-balance-sheet risk and
financial instruments with concentrations of credit risk. Financial instruments,
which subject the Company to concentrations of credit risk, consist principally
of accounts receivable, cash equivalents and U.S. Treasury Bonds. See Note 16.

                                      F-10
<PAGE>

           PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                     (in thousands, except per share data)

1.   Summary of Operations and Significant Accounting Policies (Continued):

Concentration of Credit Risk (Continued)

     The Company's clients are primarily pharmaceutical and biotechnology
companies.  No single client accounted for more than 10% of the Company's net
revenue in 1999, 1998 or 1997.  Concentrations of credit risk with respect to
accounts receivable are limited due to the large number of clients comprising
the Company's client base.  Ongoing credit evaluations of customers' financial
condition are performed and, generally, no collateral is required.  The Company
maintains reserves for potential credit losses and such losses, in the
aggregate, have not exceeded management's estimates.

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

Translation of Foreign Financial Statements

     Assets and liabilities of foreign operations, where the functional currency
is the local currency, are translated into U.S. dollars at the rate of exchange
at each reporting date. Income and expenses are translated at the average rates
of exchange prevailing during the month in which a transaction occurs. Gains or
losses from translating foreign currency financial statements are accumulated in
other comprehensive income. The cumulative translation adjustment included in
other comprehensive income at December 31, 1999 and 1998 totaled $(2,154) and
$78, respectively. Foreign currency transaction gains and losses are included in
other income.

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

Earnings Per Share

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

Stock-Based Compensation

     The Company accounts for stock-based compensation based on the provisions
of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB No. 25"), which states that no compensation expense is recorded
for stock options or other stock-based awards to employees that are granted with
an exercise price equal to or above the estimated fair value per share of the
Company's common stock on the grant date. In the event that stock options are
granted with an exercise price below the estimated fair value of the Company's
common stock at the grant date, the difference between the fair value of the
Company's common stock and the exercise price of the stock option is recorded as
deferred compensation. Deferred compensation is amortized to compensation
expense over the vesting period of the stock option. The Company has adopted the
disclosure requirements of Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS No. 123"), which requires
compensation expense to be disclosed based on the fair value of the options
granted at the date of the grant. See Note 11.

                                      F-11
<PAGE>

           PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                     (in thousands, except per share data)

1.   Summary of Operations and Significant Accounting Policies (Continued):

Comprehensive Income

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

Segment Reporting

     The Company adopted Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information" ("SFAS No.
131") on December 31, 1998.  SFAS No. 131 requires the Company to report certain
information about operating segments in complete sets of financial statements
and in condensed financial statements of interim periods issued to shareholders.
It also establishes standards for related disclosures about products and
services, geographic areas and major customers.  See Notes 16 and 17.

Pensions and other Postretirement benefits

     The Company adopted Statement of Financial Accounting Standards No. 132,
"Employers' Disclosures about Pensions and Other Postretirement Benefits" ("SFAS
No. 132") on December 31, 1998.  SFAS No. 132 standardizes the disclosure
requirements for pensions and other postretirement benefits to the extent
practicable, requires additional information on changes in the benefit
obligations and fair values of plan assets that will facilitate financial
analysis, and eliminates certain disclosures that are no longer useful.  See
Note 13.

New Accounting Pronouncements

     In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Investments
and Hedging Activities," (SFAS No. 133").  SFAS No. 133 establishes accounting
and reporting standards for derivatives and hedging activities and supercedes
several existing standards.  SFAS No. 133, as amended by SFAS No. 137, is
effective for all fiscal quarters of fiscal years beginning after June 15, 2000.
The Company does not expect that the adoption of SFAS No. 133 will have a
material impact on the consolidated 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 1999
presentation.

                                      F-12
<PAGE>

           PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                     (in thousands, except per share data)

2.   Acquisitions:

Poolings

     In March 1999, the Company acquired ATP, Inc. ("PPD ATP"), a health
information services company.  PPD ATP provides customized inbound and outbound
telecommunications programs targeting consumers and health care providers.  The
Company acquired all of the outstanding stock of PPD ATP in exchange for
issuance of approximately 876 shares of the Company's common stock.  Outstanding
PPD ATP options were exchanged for options to acquire approximately 216 shares
of the Company's common stock.  This acquisition was accounted for using the
pooling of interests method.  Results of operations for PPD ATP are included in
the consolidated results of operations of the Company beginning January 1, 1999.
Results of operations of the Company for periods prior to January 1, 1999 were
not restated as PPD ATP's results of operations for the year ended December 31,
1998 were not material to the Company's 1999 operating results.

     In March 1997, the Company acquired all of the outstanding stock of Belmont
Research, Inc. ("Belmont") in exchange for issuance of approximately 502 shares
of the Company's common stock plus outstanding options to purchase approximately
115 shares of the Company's common stock.  In June 1997, the Company acquired
all of the outstanding stock of SARCO, Inc. ("SARCO").  The consideration for
SARCO consisted of issuance of 263 shares of the Company's common stock.  In
November 1997, the Company acquired all of the outstanding stock of Intek Labs,
Inc. ("Intek").  The consideration for Intek consisted of issuance of 400 shares
of the Company's common stock.  All three of these acquisitions were accounted
for as pooling of interests transactions.  Pro forma information is not
presented nor have the Company's consolidated financial statements for 1996 been
restated to reflect the impact of these acquisitions as the results of
operations of Belmont, SARCO and Intek prior to the dates of the acquisitions
are not material individually or collectively to the Company.

Purchases

     In January 1998, the Company acquired two environmental consulting
businesses for a total of $1,006 in cash and potential for the former owners to
earn an additional amount depending on the profitability of the businesses for a
certain period after the acquisition.  In connection with these acquisitions,
the Company recorded approximately $900 in goodwill.  These businesses were
disposed of with the rest of the environmental sciences segment on January 31,
1999.  See Note 4.

     In January 1997, the Company acquired Technical Assessment Systems, Inc.
("TAS") for $490 in cash, a note for approximately $300 and the potential to
earn an additional amount depending on TAS's profitability for a certain period
after the acquisition.  In connection with the acquisition, the Company recorded
$1,070 in goodwill.  This business was disposed of with the rest of the
environmental sciences segment on January 31, 1999.  See Note 4.  In June 1997,
the Company acquired the GSX System, a functional genomics platform technology.
The GSX System was purchased for approximately $8,700 in cash.  Liabilities
assumed in this transaction were $832.  Pro forma information is not presented
as the acquired companies' results of operations prior to the dates of the
acquisitions are not material individually or collectively to the Company.

3.   Sale of Business:

     In February 1998, the Company, through its subsidiary Clinix International
Inc., sold substantially all of the assets of the Chicago Center for Clinical
Research ("CCCR").  The consideration received by the Company for CCCR totaled
approximately $7,785, which was comprised of $5,285 in cash and a promissory
note of $2,500 payable over five years.  The sale resulted in a gain of
approximately $1,071 that was recognized as other income during the first
quarter of 1998.  As part of the sales agreement, the Company continued to
provide CCCR with certain clinical and administrative services for an agreed
upon amount through the first quarter of 1999.

                                      F-13
<PAGE>

          PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                     (in thousands, expect per share date)

4.   Discontinued Operations:

     Effective January 31, 1999, the Company sold its environmental sciences
segment ("ENVIRON") to Environ Holdings, Inc., a new company formed by the
management of the environmental sciences segment, for total consideration of
approximately $26,244 in a management buyout. The Company received cash of
$1,244, a four-year note for $7,000 and a 12-year note for $18,000. See Note 7.
The sale resulted in no gain or loss because the sales price was equal to the
book value of the net assets sold at the date of the sale. In the first quarter
of 1999, the Company received full pre-payment of the four-year note.

     The consolidated balance sheet at December 31, 1999 and 1998 includes the
following assets and liabilities of the environmental sciences segment:

                                                   December 31,
                                              ----------------------
                                                1999          1998
                                              --------      --------
     Current assets                            $     -      $ 24,214
     Total assets                                    -        32,527

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

     The operating results of the environmental sciences segment for the years
ended December 31, 1999, 1998 and 1997 were as follows:

<TABLE>
<CAPTION>
                                                           Years Ended December 31,
                                                   ------------------------------------
                                                     1999          1998          1997
                                                   --------     ----------     --------
            <S>                                    <C>          <C>            <C>
            Net revenues                           $  3,866      $ 50,056        47,785
            Income (loss) from operations              (629)        7,627         6,863
            Net (loss) income                          (395)        4,614         4,152
</TABLE>

5.   Accounts Receivable and Unbilled Services:

     Accounts receivable and unbilled services consisted of the following:

                                                       December 31,
                                              -----------------------------
                                                 1999                1998
                                              ---------            --------
     Trade:
         Billed                               $  70,005            $  75,405
         Unbilled                                45,814               51,702
         Reserve for doubtful accounts           (1,066)              (2,042)
                                              ---------            ---------
                                              $ 114,753            $ 125,065
                                              =========            =========

     Change in reserve for doubtful accounts consisted of the following:

<TABLE>
<CAPTION>
                                                            Years Ended December 31,
                                                    -----------------------------------
                                                      1999         1998         1997
                                                    --------     --------     ---------
         <S>                                        <C>          <C>          <C>
         Balance at beginning of period             $  2,042     $  1,515     $   1,511
         Additions charged to costs and expenses         409          993           647
         Deductions                                     (516)        (466)         (740)
         Sale of environmental sciences segment         (869)           -             -
         Other changes                                     -            -            97
                                                    --------     --------     ---------
         Balance at end of period                   $  1,066     $  2,042     $   1,515
                                                    ========     ========     =========
</TABLE>

                                      F-14
<PAGE>

          PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                     (in thousands, expect per share date)

6.  Property and Equipment:

    Property and equipment, stated at cost, consisted of the following:

                                                          December 31,
                                                      --------------------
                                                        1999        1998
                                                      --------   ---------
    Land                                              $  1,159    $    519
    Buildings and leasehold improvements                15,000      14,002
    Construction in progress and asset deposits          2,216       2,621
    Furniture and equipment                             48,765      41,296
    Computer equipment and software                     43,325      43,688
                                                      --------    --------
                                                       110,465     102,126
    Less accumulated depreciation and amortization      58,183      59,617
                                                      --------    --------
                                                      $ 52,282    $ 42,509
                                                      ========    ========

    The annual depreciation and amortization charges on property and equipment
for each of the three years ended December 31, 1999, 1998 and 1997 were $13,936,
$12,887 and $10,830, respectively.

    The Company had property and equipment under capital leases of $374 and $47
at December 31, 1999 and 1998, respectively.

7.  Notes Receivable:

    Notes receivable consisted of the following:

<TABLE>
<CAPTION>
                                                                            December 31,
                                                                     -------------------------
                                                                       1999             1998
                                                                     --------          -------
    <S>                                                              <C>               <C>
    Note receivable from sale of CCCR                                $  1,500          $ 2,000
    Note receivable from sale of environmental sciences segment        16,214                -
                                                                     --------          -------
                                                                     $ 17,714          $ 2,000
                                                                     ========          =======
</TABLE>

    The note receivable related to the sale of CCCR (see Note 3) bears interest
at a rate of 10% and will be received over a five year period, which began on
February 27, 1998, in equal annual payments.

    The note receivable related to the sale of the Company's environmental
sciences segment (see Note 4) will be received over twelve years. The first four
years are interest only payments with the first payment received on December 31,
1999. Principal payments commence on December 31, 2003. The note bears interest
at a rate of 8%.

8.  Other Assets:

    Other assets consisted of the following:
                                                              December 31,
                                                          ---------------------
                                                           1999          1998
                                                          -------       -------
    Investment in PPGx                                    $ 4,186       $     -
    Investment in DAS                                       1,500         1,500
    Long-term deferred tax asset                            1,280         1,555
    Intangible and other assets, net of accumulated
      amortization of $1,106 and $1,190, respectively       1,631         1,183
                                                          -------       -------
                                                          $ 8,597       $ 4,238
                                                          =======       =======

                                      F-15
<PAGE>

          PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                     (in thousands, expect per share date)

8.   Other Assets (Continued):

     In February 1999, the Company formed a joint venture, PPGx, with Axys
Pharmaceuticals, Inc. ("Axys") to pursue the business of pharmacogenomics.  The
Company contributed $1,500, the net assets of Intek, and assigned the rights to
a certain software license from Axys for an 18.2% ownership interest in PPGx.
The Company is accounting for the investment in PPGx using the cost method of
accounting for investments.

     The Company owns 600 shares of Digital Arts and Sciences ("DAS") Series D
preferred stock, which represent approximately 6.8% ownership of DAS as of
December 31, 1999 and 1998.  The Company's investment in DAS is being accounted
for using the cost method.

     The annual amortization charges on intangible assets for each of the three
years ended December 31, 1999, 1998 and 1997 were $153, $88 and $163,
respectively.

9.   Other Accrued Expenses:

     Other accrued expenses consisted of the following:

<TABLE>
<CAPTION>
                                                                           December 31,
                                                                     -----------------------
                                                                      1999           1998
                                                                     -------        --------
<S>                                                                  <C>            <C>
     Accrued salaries, wages, benefits and related costs             $ 21,599       $ 21,721
     Other                                                              5,872          6,286
                                                                     --------       --------
                                                                     $ 27,471       $ 28,007
                                                                     ========       ========
</TABLE>

10.  Long-Term Debt and Lease Obligations:

     Long-term debt consisted of the following:

<TABLE>
<CAPTION>
                                                                           December 31,
                                                                     ------------------------
                                                                       1999            1998
                                                                     -------          -------
     <S>                                                             <C>              <C>
     Unsecured line of credit facility                               $     -          $ 3,300
     Equipment leases at interest rates up to 9%                         374               47
     Various notes at interest rates up to 9%                            196              394
                                                                     -------          -------
                                                                         570            3,741
     Less current maturities                                             211            3,580
                                                                     -------          -------
                                                                     $   359          $   161
                                                                     =======          =======
</TABLE>

     In June 1998, the Company obtained a $50,000 revolving credit facility with
First Union National Bank.  Interest accrues on amounts borrowed at a floating
rate currently equal to LIBOR plus 0.625% per year.  Indebtedness under the line
is unsecured and subject to certain covenants relating to financial ratios and
tangible net worth.  The unused portion of the loan is available to provide
working capital and for general corporate purposes.  As of December 31, 1999,
the Company had $5,700 reserved under this facility in the form of a letter of
credit.  This credit facility expires in June 2000, at which time any
outstanding balance is due.

     In August 1999, the Company renegotiated a credit facility for $50,000 with
Wachovia Bank, N.A.  Interest accrues on amounts borrowed at a floating rate
equal to LIBOR plus 0.625% per year.  Indebtedness under the line is unsecured
and subject to certain covenants relating to financial ratios and tangible net
worth.  As of December 31, 1998, the Company had $3,300 outstanding under this
facility, of which the entire amount was paid in June 1999.  This credit
facility expires in August 2000, at which time any outstanding balance is due.

                                      F-16
<PAGE>

          PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                     (in thousands, expect per share date)


10.  Long-Term Debt and Lease Obligations (Continued):

     For the years subsequent to December 31, 1999, annual maturities of long-
term debt and payment obligations on capital leases are:

                         2000                   $ 211
                         2001                     188
                         2002                     120
                         2003                       4
                         2004                       5
                         2005 and thereafter       42
                                                -----
                                                $ 570
                                                =====
Operating Leases

     The Company is obligated under noncancellable leases expiring at various
dates through 2015 relating to its operating facilities and certain equipment.
Rental expense for all operating leases, net of sublease income, was $13,625,
$13,330 and $13,492 for the years ended December 31, 1999, 1998 and 1997,
respectively.

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

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

     Future minimum payments for all operating lease obligations for years
subsequent to December 31, 1999 are as follows:

            2000                   $ 15,819
            2001                     15,271
            2002                     12,885
            2003                     11,986
            2004                     11,540
            2005 and thereafter      56,386
                                   --------
                                   $123,887
                                   ========

11.  Stock Plans:

Stock Incentive Program

     The Company has two stock option plans (the "Plans") under which the
Company may grant options to its employees and directors for up to 3,600 shares
of common stock. Under the Plans, the exercise price of each option granted must
equal the market price of the Company's stock on the date of grant and an
option's maximum exercise term is 10 years. Options are granted upon approval of
the Board of Directors and vest over various periods, as determined by the Board
of Directors at the date of the grant. The majority of the Company's options
vest over a period of three years.

                                      F-17
<PAGE>

           PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                     (in thousands, except per share data)


11.  Stock Plans (Continued):

     On January 1, 1996, the Company adopted the disclosure requirements of
Statement of Financial Accounting Standards No. 123 ("SFAS No. 123"),
"Accounting for Stock Based Compensation."  As permitted by SFAS No. 123, the
Company has chosen to apply Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees", and related interpretations in
accounting for the Plans.  Accordingly, no compensation cost has been recognized
for options granted under the Plans.  Had compensation cost for the Company's
Plans been determined based on the fair value at the grant dates for awards
under the Plans consistent with the method required by SFAS No. 123, the
Company's net income and diluted net income per share would have been the pro
forma amounts indicated below.

<TABLE>
<CAPTION>
                                       1999                  1998               1997
                                -------------------  -------------------  -------------------
<S>                             <C>       <C>        <C>       <C>        <C>       <C>
                                As                   As                      As
                                Reported  Pro Forma  Reported  Pro Forma  Reported  Pro Forma
                                --------  ---------  --------  ---------  --------  ---------
Net income                       $28,496    $25,232   $19,769    $17,236    $9,602     $7,730
Diluted net income per share     $  1.15    $  1.02   $  0.85    $  0.74    $ 0.42     $ 0.34
</TABLE>

     For the purposes of the pro forma presentation above, the fair value of
each option grant is estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted average assumptions used for
grants in 1999, 1998 and 1997: expected volatility of 81.1%, 60.3% and 58.7%,
respectively; risk-free interest of 6.19%, 5.75% and 6.0%, respectively; and
expected lives of five years.  The resulting estimated weighted average fair
value of options granted during 1999, 1998 and 1997 was $13.71, $13.49 and $9.48
per share, respectively. All options granted during the years ended December 31,
1999, 1998 and 1997 were granted with an exercise price equal to the fair value
of the Company's common stock at the grant date.  The estimated pro forma
amounts above include the compensation cost for the Company's Employee Stock
Purchase Plan based on the fair value of the contributions under this plan
consistent with the method of SFAS No. 123.

     A summary of the status of the Plans as of December 31, 1999, 1998 and
1997, and changes during the years ending on those dates, is presented below:

<TABLE>
<CAPTION>
                                              1999                        1998                      1997
                                    -------------------------  -------------------------  ------------------------
                                                 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       1,574           $21.67     1,532           $20.53    1,274           $22.28
Granted                                  594            14.22       381            23.20      526            15.56
Exercised                               (221)           18.78      (256)           15.69     (158)           14.74
Forfeited                               (340)           24.67       (83)           25.97     (110)           24.55
                                       -----                      -----                     -----
Outstanding at end of year             1,607           $18.69     1,574           $21.67    1,532           $20.53
                                       =====           ======     =====           ======    =====           ======
Options exercisable at year end        1,008           $18.40       837           $21.90      841           $20.80
                                       =====           ======     =====           ======    =====           ======
</TABLE>

     Included in options granted during the year ended December 31, 1999, were
216 options granted due to the acquisition of ATP. (See Note 2).

                                      F-18
<PAGE>

           PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                     (in thousands, except per share data)



11.  Stock Plans (Continued):

     The following table summarizes information about the Plans' stock options
at December 31, 1999:

<TABLE>
<CAPTION>
                                         Options Outstanding                     Options Exercisable
                           ------------------------------------------------  ---------------------------
                             Number      Weighted Average       Weighted       Number        Weighted
        Range of           Outstanding       Remaining          Average      Exercisable     Average
     Exercise Prices       at 12/31/99   Contractual Life    Exercise Price  at 12/31/99  Exercise Price
-------------------------- -----------   ----------------  ----------------  -----------  --------------
<S>                        <C>           <C>               <C>               <C>          <C>
    $  0.00-$ 10.00             217          8.8 years           $  4.43          193         $  4.04
    $ 10.01-$ 20.00             616          7.7 years           $ 14.63          312         $ 16.05
    $ 20.01-$ 30.00             704          6.3 years           $ 25.06          496         $ 25.18
    $ 30.01-$ 40.00              64          9.1 years           $ 33.77            1         $ 33.50
    $ 40.01-$ 50.00               6          2.2 years           $ 40.55            6         $ 40.55
                              -----                                             -----
                              1,607                                             1,008
                              =====                                             =====
</TABLE>

Savings Related Stock Option Plan

     The Company has a United Kingdom Savings Related Stock Option Plan under
which options are granted to employees who elect to purchase shares of common
stock at the end of a five or seven-year period. Savings are accumulated through
voluntary payroll deductions. The Company contributes a bonus to each
participant's savings account equal to nine monthly contributions at the end of
the five-year period and 18 monthly contributions at the end of the seven-year
period. When the savings period ends, the employee may elect to purchase the
shares using the savings balance, including the bonus; purchase some of the
shares and receive the savings balance in cash; or receive the savings and bonus
in cash. Currently, employees of the Company's United Kingdom subsidiary,
Pharmaco International Ltd., participate in this plan. Outstanding options of
APBI at the time of the merger with the Company in 1996 were converted into
options to purchase the Company's common stock in accordance with the exchange
ratio provided for in the merger agreement.

Employee Stock Purchase Plan

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

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

                                      F-19
<PAGE>

           PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                     (in thousands, except per share data)


11.  Stock Plans (Continued):

     At December 31, 1999, $1,073 had been contributed to the ESPP relating to
unissued shares. Shares were not issued on December 31, 1999 since the market
had to be closed before a purchase price could be determined. On January 5,
2000, 106 shares were issued. During 1999, $2,048 had been contributed to the
ESPP and 98 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 $466 and $532 and is reflected
in the pro forma net income and diluted net income per share for 1999 and 1998,
respectively as disclosed above.

12.  Income Taxes:

     The components of income (loss) before provision for income taxes were as
follows:



<TABLE>
<CAPTION>
                                                           Years Ended December 31,
                                                        ------------------------------
                                                           1999       1998       1997
                                                        --------   --------   --------
     <S>                                                   <C>        <C>        <C>
     Domestic                                           $ 38,782   $ 24,875   $ 10,044
     Foreign                                               2,263       (272)    (1,231)
                                                        --------    -------    -------
     Income (loss) from continuing operations             41,045     24,603      8,813
     Domestic                                               (683)     7,357      6,169
     Foreign                                                  37        269        694
                                                        --------   --------    -------
     Income from discontinued operations                    (646)     7,626      6,863
                                                        --------   --------    -------
          Total                                         $ 40,399   $ 32,229    $15,676
                                                        ========   ========    =======
</TABLE>

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


<TABLE>
<CAPTION>
                                                           Years Ended December 31,
                                                        -----------------------------
                                                           1999       1998      1997
                                                        ---------   --------   ------
     <S>                                                <C>         <C>        <C>
     State income taxes:
          Current                                       $  1,620    $    942   $   313
          Deferred                                          (329)         99       (97)
     Federal income taxes:
          Current                                         10,113       9,607     5,305
          Deferred                                          (589)      1,549       115
     Foreign income taxes:
          Current                                          1,288         503       438
          Deferred                                          (200)       (240)        -
                                                        --------    --------   -------
     Provision for income taxes                         $ 11,903    $ 12,460   $ 6,074
                                                        ========    ========   =======
</TABLE>

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

<TABLE>
<CAPTION>
                                                           Years Ended December 31,
                                                        -------------------------------
                                                           1999       1998        1997
                                                        ---------   -------     -------
<S>                                                     <C>         <C>         <C>
     Continuing operations                              $ 12,154    $  9,448    $ 3,363
     Discontinued operations                                (251)      3,012      2,711
                                                        --------    --------    -------
          Total                                         $ 11,903    $ 12,460    $ 6,074
                                                        ========    ========    =======
</TABLE>


                                      F-20
<PAGE>

           PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                     (in thousands, except per share data)



12.  Income Taxes (Continued):

     The 1999, 1998 and 1997 current foreign income tax expense represents
the foreign income tax liabilities associated with the Company's foreign
operations.

     The 1999 federal and state tax expense reflects the benefit related to the
utilization of capital loss carryforwards to offset the capital gains derived
from the Company's investment activities.

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

<TABLE>
<CAPTION>
                                                                                     Years Ended December 31,
                                                                                    ----------------------------
                                                                                      1999       1998     1997
                                                                                    --------- --------- --------
<S>                                                                                 <C>       <C>       <C>
     Effective tax rate                                                                 29.5%     38.7%    38.7%
                                                                                    ========  ========  =======
     United States federal statutory rate of 35%                                    $ 14,140  $ 11,280  $ 5,487
     State taxes (net of federal benefit)                                                839       677      237
     Utilization of capital loss carry forward                                        (3,853)   (1,799)       -
     Tax gain in excess of book                                                            -     1,319        -
     Foreign taxes in excess of U.S. rate                                                591       423        -
     Allowance for limitation of utilization of foreign
       tax losses                                                                        (91)      (38)     533
     Goodwill and other items not deductible for income
       tax purposes                                                                      432       450      449
     Other                                                                               261       175     (371)
     Benefit of federal statutory rate reduction from 35% to 34%                           -         -     (100)
     Deferred taxes set up for S to C conversion on
       acquisitions                                                                     (211)        -     (161)
     Change in valuation allowance                                                      (205)      (27)       -
                                                                                    --------  --------  -------
     Provision for income taxes                                                     $ 11,903  $ 12,460  $ 6,074
                                                                                    ========  ========  =======
</TABLE>

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

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

<TABLE>
<CAPTION>
                                                                 December 31,
                                                              ------------------
                                                                1999      1998
                                                              --------  --------
     <S>                                                      <C>       <C>
     Future benefit of foreign net operating losses           $ 2,732   $ 2,736
     Allowance for doubtful accounts                              319       413
     Accruals                                                   3,157     2,002
     Valuation allowance                                       (2,196)   (2,400)
                                                              -------   -------
     Net current deferred tax asset                           $ 4,012   $ 2,751
                                                              =======   =======
</TABLE>

                                      F-21
<PAGE>

           PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                     (in thousands, except per share data)



12.  Income Taxes (Continued):

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

<TABLE>
<CAPTION>
                                                                  December 31,
                                                               -----------------
                                                                 1999     1998
                                                               -------- --------
     <S>                                                       <C>      <C>
     Depreciation and amortization                             $ 2,148  $ 1,504
     Deferred rent                                                   -      220
     Other                                                        (868)    (169)
                                                               -------  -------
     Net long-term deferred tax asset                          $ 1,280  $ 1,555
                                                               =======  =======
</TABLE>

     A valuation allowance was recorded against the foreign net operating
loss carryforwards because there is a significant uncertainty that the deferred
tax assets will be realized.

     The cumulative amount of undistributed earnings of foreign subsidiaries for
which the Company has not provided U.S. income taxes at December 31, 1999 was
$2,132. No provision has been made for the additional taxes that would result
from the distribution of earnings of foreign subsidiaries since such earnings
have been permanently reinvested in the foreign operations.

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

13.  Employee Savings and Pension Plans:

Savings Plans

     The Company provides a 401(k) Retirement Savings Plan to its U.S.
employees. The Company matches 50% of an employee's savings up to 6% of pay, and
these contributions vest ratably over a four-year period. Company matching
contributions for all employees for each of the three years ended December 31,
1999, 1998 and 1997 were $2,562, $2,201 and 1,945, respectively.

Pension Plans

     Pension costs are determined under the provisions of Statement of Financial
Accounting Standards No. 87, "Employers' Accounting for Pensions", and related
disclosures are determined under the provisions of Statement of Financial
Accounting Standards No. 132, "Employers' Disclosures about Pensions and other
Postretirement Benefits," which was adopted by the Company in 1998.  There was
no impact on the Company's financial statement balances as a result of the
adoption of this pronouncement.

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

                                      F-22
<PAGE>

           PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                     (in thousands, except per share data)


13.  Employee Savings and Pension Plans (Continued):

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

<TABLE>
<CAPTION>
                                                           Years Ended December 31,
                                                         ----------------------------
                                                           1999      1998      1997
                                                         --------  --------  --------
     <S>                                                 <C>       <C>       <C>
     Service cost-benefits earned
      during the year                                    $    740  $    662  $    738
     Interest cost on projected
      benefit obligation                                      756       777       631
     Expected return on plan assets                        (1,006)     (984)     (954)
     Net amortization and deferral                            205       (13)      (13)
                                                         --------  --------  --------
     Net periodic pension cost                           $    695  $    442       402
                                                         ========  ========  ========
</TABLE>

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

<TABLE>
<CAPTION>
                                                           Years Ended December 31,
                                                         ----------------------------
                                                           1999      1998      1997
                                                         --------  --------  --------
     <S>                                                 <C>       <C>       <C>
     Change in benefit obligations
      Benefit of obligation at beginning of year         $ 11,545  $  8,528  $  8,404
      Service cost                                            740       662       738
      Interest cost                                           756       777       631
      Net actuarial loss (gain)                             2,047     2,046      (403)
      Benefits paid                                          (273)     (513)     (540)
      Foreign currency translation adjustment                (308)       45      (302)
                                                         --------  --------  --------
      Benefit obligation at end of year                  $ 14,507  $ 11,545  $  8,528
                                                         ========  ========  ========
     Change in plan assets
      Fair value of plan assets at beginning of year     $ 12,579  $ 10,931  $  9,963
      Actual asset return                                   3,626     1,535     1,451
      Employer contributions                                  457       430       366
      Plan participants' contributions                        195       141        50
      Benefits and expenses paid                             (273)     (513)     (540)
      Foreign currency translation adjustment                (334)       55      (359)
                                                         --------  --------  --------
      Fair value of plan assets at end of year           $ 16,250  $ 12,579  $ 10,931
                                                         ========  ========  ========
     Net amount recognized
      Funded status                                      $  1,743  $  1,034  $  2,404
      Unrecognized transition asset                           (69)      (85)      (97)
      Unrecognized net actuarial loss (gain)                  265     1,085      (406)
                                                         --------  --------  --------
      Prepaid pension cost                               $  1,939  $  2,034  $  1,901
                                                         ========  ========  ========
</TABLE>

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

<TABLE>
<CAPTION>
                                                           1999      1998      1997
                                                         --------  --------  --------
     <S>                                                 <C>       <C>       <C>
     Discount rate                                            5.5%      7.5%      8.5%
     Rate of compensation increase                            3.0%      5.0%      6.0%
     Long-term rate of return on plan assets                  8.0%      8.5%      9.5%
</TABLE>

                                      F-23
<PAGE>

           PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                     (in thousands, except per share data)


13.  Employee Savings and Pension Plans (Continued):

     Prior to January 31, 1999, the Company maintained the APBI Environmental
Sciences Group, Inc. Pension Plan (the "ENVIRON Pension Plan"), a tax-qualified,
defined-contribution money-purchase pension plan, for the benefit of its
eligible ENVIRON employees. ENVIRON is required to make annual contributions to
the ENVIRON 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 ENVIRON Pension Plan
for the two years ended December 31, 1998 and 1997 was $697 and $638,
respectively. As of December 31, 1998, accrued pension cost, included in other
accrued expenses, was $651.

     All benefits under the ENVIRON Pension Plan became the responsibility of
the purchaser of the environmental services segment on January 31, 1999.

14.  Commitments and Contingencies:

     The Company currently maintains liability insurance on a "claims made"
basis for professional acts, errors and omissions. The policy has a self-insured
retention per claim of $250. As of December 31, 1999 and 1998, there are no open
claims related to this coverage above the self-insured retention.

     The Company currently is self-insured for group health for employees
located within the United States. The Company maintains insurance on a "claims
made" basis, up to a maximum of $100 per occurrence. As of December 31, 1999 and
1998 the Company maintained a reserve of approximately $1,752 and $1,483,
respectively, included in other accrued expenses on the consolidated balance
sheets to cover estimated open claims and claims incurred but not reported.

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

15.  Related Party Transactions:

     The Company was related through common ownership with E.M. Associates,
Inc., which provided investigative board services to the Company. The Company
had transactions with E.M. Associates, Inc. of $37 in expenses for the year
ended December 31, 1997. There were no transactions with E.M. Associates during
the year ended December 31, 1999 or 1998.

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:

Accounts Receivable, Accounts Payable and Accrued Liabilities

     The carrying amount approximates fair value because of the short maturity
of these items.

Notes Receivable

     The notes receivable from the sale of CCCR and ENVIRON are carried at their
original value plus any accrued and unpaid interest. The Company believes the
carrying value approximates market on December 31, 1999.

                                      F-24
<PAGE>

           PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                     (in thousands, except per share data)


16.  Fair Value of Financial Instruments (Continued):

Investment in DAS and PPGx

     The Company's investment in DAS and PPGx are recorded at $1,500 and $4,186,
respectively, at December 31, 1999. The Company's investment in DAS and PPGx are
accounted for using the cost method of accounting as the investment in DAS and
PPGx are not tradeable and the Company does not exert significant influence on
the operations of DAS or PPGx.

Derivative Financial Instrument

     The Company entered into a purchase and sale of a U.S. Treasury Bond with a
face value of $520,000 during the fourth quarter of 1999 with the same financial
institution. The Company has the legal right of offset with regard to the
obligation to pay for the cost of the U.S. Treasury Bond and the investment in
the U.S. Treasury Bond. The fair value of this net obligation of $100 at
December 31, 1999 was based on the quoted market price of these investments and
is determined as follows:

     Fair Value of U.S. Treasury Bond        $ 537,958
     Fair Value of Purchase Obligation        (538,058)
                                             ---------
                                             $    (100)
                                             =========

Long-Term Debt

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

Letters of Credit

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

17.  Business Segment Data:

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

                                      F-25
<PAGE>

           PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                     (in thousands, except per share data)


17.  Business Segment Data (Continued):

     Revenues by principal business segment are separately stated in the
consolidated financial statements. Merger costs and acquired in-process research
and development costs incurred in 1999, 1998 and 1997 of $218, $3,163 and
$9,670, respectively, were not allocated to the Company's business segments and
are shown separately for purposes of business segment analysis. Income taxes are
allocated evenly to each division for purposes of business segment analysis,
except for the 1999 tax benefit of $3,800 from the reversal of a portion of the
valuation allowance on the Company's capital loss carryforward which has been
specifically identified to the Life Sciences segment. Income from operations,
net income, depreciation and amortization, identifiable assets and capital
expenditures by principal business segment were as follows:

<TABLE>
<CAPTION>
                                                       Years Ended December 31,
                                                 -----------------------------------
                                                   1999         1998         1997
                                                 ---------    ---------    ---------
     <S>                                         <C>          <C>          <C>
     Income from operations: (a)
         Life sciences                           $  44,669    $  28,693    $  19,344
         Discovery sciences                         (7,743)      (4,489)      (2,325)
         Merger costs and acquired in-process
           research and development costs             (218)      (3,163)      (9,670)
                                                 ---------    ---------    ---------
         Total                                   $  36,708    $  21,041    $   7,349
                                                 =========    =========    =========

     Net income:
         Life sciences                           $  33,630    $  17,882    $   6,856
         Discovery sciences                         (4,739)      (2,727)      (1,406)
         Environmental sciences                       (395)       4,614        4,152
                                                 ---------    ---------    ---------
         Total                                   $  28,496    $  19,769    $   9,602
                                                 =========    =========    =========

     Depreciation and amortization: (a)
         Life sciences                           $  14,294    $  11,897    $  10,651
         Discovery sciences                            548          420          229
                                                 ---------    ---------    ---------
         Total                                   $  14,842    $  12,317    $  10,880
                                                 =========    =========    =========

     Identifiable assets: (b)
         Life sciences                           $ 286,424    $ 200,382    $ 165,855
         Discovery sciences                          2,279        3,672        1,465
         Environmental sciences                          -       32,528       29,727
                                                 ---------    ---------    ---------
         Total                                   $ 288,703    $ 236,582    $ 197,047
                                                 =========    =========    =========

     Capital expenditures:
         Life sciences                           $  22,644    $  16,866    $  11,589
         Discovery sciences                            589          740          495
         Environmental sciences                          -        1,737        1,515
                                                 ---------    ---------    ---------
         Total                                   $  23,233    $  19,343    $  13,599
                                                 =========    =========    =========
</TABLE>

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

(b)  The note receivable from the sale of the environmental sciences segment is
     included in the Life Sciences segment. See Note. 4.

                                      F-26
<PAGE>

           PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                     (in thousands, except per share data)


18.  Operations by Geographic Area:

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

                                                    Years Ended December 31,
                                                 ------------------------------
                                                   1999       1998       1997
                                                 --------   --------   --------
     Net revenue:  (a)
         United States                           $257,717    199,295    162,822
         U.K.                                      16,391     16,506     14,583
         Other (b)                                 28,422     19,752     10,082
                                                 --------   --------   --------
         Total                                   $302,530   $235,553   $187,487
                                                 ========   ========   ========
     Operating income (loss): (a)
         United States                           $ 35,362   $ 20,749   $  8,778
         U.K.                                        (469)    (1,004)      (575)
         Other (b)                                  1,815      1,296       (854)
                                                 --------   --------   --------
         Total                                   $ 36,708   $ 21,041   $  7,349
                                                 ========   ========   ========
     Identifiable assets:
         United States                           $244,403   $183,411   $157,543
         U.K.                                      27,988     36,825     27,063
         Other (b)                                 16,312     16,346     12,441
                                                 --------   --------   --------
         Total                                   $288,703   $236,582   $197,047
                                                 ========   ========   ========

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

(b) Principally consists of revenue from 16 countries, ten of which are located
    in Europe, none of which individually comprise more than 5% of net revenue,
    operating income (loss) or identifiable assets.

                                      F-27
<PAGE>

           PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                     (in thousands, except per share data)


19.  Quarterly Financial Data (Unaudited):

<TABLE>
<CAPTION>

               1999                    First     Second    Third      Fourth    Total
-----------------------------------    -----     ------    -----      ------    -----
<S>                                  <C>        <C>       <C>        <C>       <C>
Net revenue                          $ 69,610   $ 76,254  $ 79,358   $ 77,308  $302,530
Operating income                        9,029      9,805    10,962      6,912    36,708
Net income from continuing
  operations                            6,256      6,622     7,396      8,617    28,891
Net income (loss) from operations
  of discontinued environmental
  sciences segment                       (125)         -      (270)         -      (395)
Net income                              6,131      6,622     7,126      8,617    28,496
Net income per share:
     Basic                           $   0.25   $   0.27  $   0.29   $   0.35  $   1.16
     Diluted                         $   0.25   $   0.27  $   0.29   $   0.35  $   1.15
Income from continuing
  operations per share:
     Basic                           $   0.26   $   0.27  $   0.30   $   0.35  $   1.18
     Diluted                         $   0.25   $   0.27  $   0.30   $   0.35  $   1.16

             1998 (a)
-----------------------------------
Net revenue                          $ 52,153   $ 57,465  $ 61,452   $ 64,483  $235,553
Operating income                        3,976      2,183     6,596      8,286    21,041
Net income from continuing
  operations                            3,434      1,669     4,428      5,624    15,155
Net income from operations of
  discontinued environmental
  sciences segment                      1,102      1,206     1,198      1,108     4,614
Net income                              4,536      2,875     5,626      6,732    19,769
Net income per share:
     Basic                           $   0.20   $   0.12  $   0.24   $   0.29  $   0.85
     Diluted                         $   0.20   $   0.12  $   0.24   $   0.29  $   0.85
Income from continuing
  operations per share:
     Basic                           $   0.15   $   0.07  $   0.19   $   0.24  $   0.65
     Diluted                         $   0.15   $   0.07  $   0.19   $   0.24  $   0.65
</TABLE>

________________

(a)  Quarterly financial operating results have been restated to reflect the
     environmental sciences segment as discontinued operations.

                                      F-28
<PAGE>

           PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                     (in thousands, except per share data)


20.  Subsequent Events:

           In February 2000, the Company acquired the assets of the Pharmazyme
division of Immune Complex Corporation for $1,500 in cash.  This acquisition
will be accounted for using the purchase method of accounting and the Company
will record goodwill in excess of the fair market value of the assets acquired.
Pharmazyme is a developer, producer and marketer of drug metabolism reagent
products and services.

                                      F-29
<PAGE>

                                  SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.

                                   PHARMACEUTICAL PRODUCT DEVELOPMENT, INC.


Date: March 1, 2000                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>
<S>                                  <C>                                          <C>
/s/ Fredric N. Eshelman, Pharm.D.    Director and Chief Executive Officer         March 1, 2000
----------------------------------   (Principal Executive Officer)
Fredric N. Eshelman, Pharm.D.

/s/ Linda Baddour                    Interim Chief Financial Officer and Chief    March 1, 2000
----------------------------------
Linda Baddour                        Accounting Officer (Principal Financial
                                     Officer)

/s/ Ernest Mario, Ph.D.              Director                                     March 1, 2000
----------------------------------
Ernest Mario, Ph.D.

/s/ Stuart Bondurant, M.D.           Director                                     March 1, 2000
----------------------------------
Stuart Bondurant, M.D.

/s/ Abraham Cohen                    Director                                     March 1, 2000
----------------------------------
Abraham E. Cohen

/s/ Frederick Frank                  Director                                     March 1, 2000
----------------------------------
Frederick Frank

/s/ Paul J. Rizzo                    Director                                     March 1, 2000
----------------------------------
Paul J. Rizzo

/s/ John A. McNeill, Jr.             Director                                     March 1, 2000
----------------------------------
John A. McNeill, Jr.

/s/ Donald C. Harrison, M.D.         Director                                     March 1, 2000
----------------------------------
Donald C. Harrison, M.D.
</TABLE>

                                      S-1