**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


WASHINGTON,
      D.C. 20549





**FORM
      10-K**





**FOR
      ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR
      15(d)**


**OF
      THE SECURITIES EXCHANGE ACT OF 1934**





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


**ACT
      OF 1934**





For
      the
      fiscal year ended December 31, 2006





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: 0-30318*





**INVENTIV
      HEALTH, INC.**


(Exact
      Name of Registrant as Specified in its Charter)





Delaware
              (State
                or Other Jurisdiction No. of Incorporation or
                Organization)
            52-2181734
              (I.R.S.
                Employer Identification No.)




200
      Cottontail Lane Vantage Court North; Somerset, New Jersey 08873


(Address
      of Principal Executive Offices) (Zip Code)





Registrant’s
      telephone number, including area code: (800) 416-0555





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





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


**(Title
      of Class)**





Indicate
      by check mark if the registrant is a well-known seasoned issuer, as defined
      in
      Rule 405 of the Securities Act. Yes [X] No [_]





Indicate
      by check mark if the registrant is not required to file reports pursuant to
      Section 13 or 15(d) of the Act. Yes [ ] No [X]





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 statement
      incorporated by reference in Part III of this Form 10-K or any amendment to
      this
      Form 10-K. [X]





Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, or a non-accelerated filer. See definition of "accelerated
      filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check
      one):





Large
      accelerated filer [X]    Accelerated
      filer [ ]    Non-accelerated
      filer [ ]





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Act). Yes [_] No [X]





Based
      on
      the closing sale price on the Nasdaq National Market as of the last business
      day
      of the registrant’s most recently completed second fiscal quarter, the aggregate
      market value of the voting stock held by nonaffiliates of the registrant was
      approximately $800,988,009. For the purposes of this calculation, shares owned
      by officers, directors and 10% shareholders known to the registrant have been
      deemed to be owned by affiliates. This determination of affiliate status is
      not
      a determination for other purposes.





As
      of
      February 22, 2007, there were 30,135,993 outstanding shares of the registrant's
      common stock.





**DOCUMENTS
      INCORPORATED BY REFERENCE**


Certain
        portions of the registrant's annual report to security holders for the fiscal
        year ended December 31, 2006 are incorporated by reference into Part II of
        this
        report. Certain
        portions of the Registrant's Definitive Proxy Statement to be filed with
        the
        Commission for use in connection with the 2007 Annual Meeting of Stockholders
        are incorporated by reference into Part III of this Form 10-K.





**TABLE
      OF CONTENTS**





Item
            DescriptionPART
                I1
            Business1A
            Risk
                Factors1B
            Unresolved
                Staff Comments2
            Properties3
            Legal
                Proceedings4
            Submission
                of Matters to a Vote of Securities
                HoldersPART
                II5
            Market
                for the Registrant’s Common Equity,
                Related Stockholder Matters and Issuer Purchase of Equity
                Securities6
            Selected
                Financial Data7
            Management’s
                Discussion and Analysis of Financial
                Condition and Results of Operations7A
            Quantitative
                and Qualitative Disclosures About Market
                Risk8
            Financial
                Statements and Supplementary
                Data9
            Changes
                in and Disagreements with Accountants on
                Accounting and Financial Disclosures9A
            Controls
                and Procedures9B
            Other
                InformationPART
                III10
            Directors,
                Executive Officers and
                Corporate Governance11
            Executive
                Compensation12
            Security
                Ownership of Certain Beneficial Owners and
                Management and Related Stockholder Matters13
            Certain
                Relationships and Related Transactions,
                and Director Independence14
            Principal
                Accounting Fees and
                ServicesPART
                IV15
            Exhibits
                and Financial Statement
                Schedules





**CAUTIONARY
      STATEMENT REGARDING FORWARD-LOOKING DISCLOSURE**





**STATEMENT
      REGARDING FORWARD-LOOKING DISCLOSURE**





This
      report contains “forward-looking statements” within the meaning of Section 27A
      of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
      of
      1934. These statements concern expectations, beliefs, projections, future plans
      and strategies, anticipated events or trends and similar expressions concerning
      matters that are not historical facts. Specifically, this report contains
      forward-looking statements regarding:





·
            our
                estimates regarding our liquidity, capital expenditures and sources
                of
                both, and our ability to fund our operations and planned capital
                expenditures for the foreseeable future;




·
              our
                  strategy to address the need to offer additional services through
                  acquisitions of other companies, including the personnel of such
                  companies;
 
 ·
              our
                  expectations regarding our pursuit of additional debt or equity
                  sources to
                  finance our internal growth initiatives or
                  acquisitions;
  ·
              our
                  belief that our growth and success will depend on our ability to
                  continue
                  to enhance the quality of our existing services, introduce new
                  services on
                  a timely and cost-effective basis, integrate new services with
                  existing
                  services, increase penetration with existing customers, recruit,
                  motivate
                  and retain qualified personnel and economically train existing
                  sales
                  representatives and recruit new sales
                  representatives;  ·
                our
                    belief that there are ample opportunities for cross-selling to
                    our
                    existing clients;
 
 ·
                our
                      anticipation that it will be necessary to continue to select,
                      invest in
                      and develop new and enhanced technology and end-user databases
                      on a timely
                      basis in the future in order to maintain our
                      competitiveness;
 
 ·
                our
                      expectations regarding the impact of our acquisitions, joint
                      ventures and
                      partnerships; and




·
            our expectations regarding the impact of the adoption
              of
              certain accounting standards.




These
      forward-looking statements reflect our current views about future events and
      are
      subject to risks, uncertainties and assumptions. We wish to caution readers
      that
      certain important factors may have affected and could in the future affect
      our
      actual results and could cause actual results to differ significantly from
      those
      expressed in any forward-looking statement. The most important factors that
      could prevent us from achieving our goals, and cause the assumptions underlying
      forward-looking statements and the actual results to differ materially from
      those expressed in or implied by those forward-looking statements include,
      but
      are not limited to, the following:




·
              our
                  ability to sufficiently increase our revenues and maintain or decrease
                  expenses and cash capital expenditures to permit us to fund our
                  operations;
 
 ·
              our
                    ability to continue to comply with the covenants and terms of
                    our credit
                    facility and to access sufficient capital to fund our
                    operations;
  ·
              our
                  ability to grow our existing client
                  relationships, obtain new clients and cross-sell our
                  services;
 
 ·
              our
                  ability to successfully operate new lines of
                  business;
  ·
              our
                  ability to manage our infrastructure and resources to support our
                  growth;
 
 ·
              our
                  ability to successfully identify new businesses to acquire, conclude
                  acquisition negotiations and integrate the acquired businesses
                  into our
                  operations;
  ·
              any
                    disruptions, impairments, or malfunctions affecting software
                    as well as
                    excessive costs or delays that may adversely impact our continued
                    investment in and development of software;
 
 ·
              our
                  ability to comply with all applicable laws as well as our ability
                  to
                  successfully implement from a timing and cost perspective any changes
                  in
                  applicable laws;
  ·
              our
                  ability to recruit, motivate and retain qualified personnel, including
                  sales representatives;
 
 ·
              the
                  actual impact of the adoption of certain accounting standards;
                  and
  
 ·
              changes
                  in trends in the pharmaceutical industry or in pharmaceutical
                  outsourcing.




Investors
      should carefully consider these risk factors and the additional risk factors
      outlined in more detail in Item 1A, Risk Factors, in this report.








**PART
      I**





**Item
      1*****.
      Business.***





**Overview**





inVentiv
      Health Inc. (together with its subsidiaries, “inVentiv”, or the “Company”) is a
      leading provider of value-added services to the pharmaceutical and life sciences
      industries. On June 14, 2006, we changed our name to inVentiv Health, Inc.
      (from
      Ventiv Health, Inc.) as part of a re-branding initiative that began when we
      acquired inVentiv Communications, Inc. (then known as inChord Communications,
      Inc.) (“inVentiv Communications, Inc.” or “inChord”). We support a broad range
      of clinical development, communications and commercialization activities that
      are critical to our customers' ability to complete the development of new drug
      products and medical devices and successfully bring them to market. Our goal
      is
      to assist our customers in meeting their objectives in each of our operational
      areas by providing our services on a flexible and cost-effective basis that
      permits us to provide discrete service offerings in focused areas as well as
      integrated multidisciplinary solutions. We provide services to over 200 client
      organizations, including all top 20 global pharmaceutical companies and numerous
      emerging and specialty biotechnology companies.





Our
      service offerings reflect the changing needs of our clients as their products
      move through the late-stage development and regulatory approval processes and
      into product launch. We have established expertise and leadership in providing
      the services our clients require at each of these stages of product development
      and commercialization and seek to address their outsourced service needs on
      a
      comprehensive basis throughout the product life cycle through both standalone
      and integrated solutions. Our services assist our clients in developing,
      executing and monitoring strategic and tactical sales and marketing plans and
      programs for the promotion of pharmaceutical, biotechnology and other life
      sciences products.





The
      success of our business as a whole, and of our inVentiv Clinical and inVentiv
      Commercial segments in particular, is related significantly to the degree to
      which pharmaceutical companies outsource services that have traditionally been
      performed internally by fully integrated manufacturers. We believe that our
      business has been positively affected by a trend of large pharmaceutical
      manufacturers toward utilizing outsourcing arrangements as a means of
      controlling variable unit cost and increasing flexibility. We also believe
      that
      the increasing percentage of New Drug Application (“NDA”) and New Molecular
      Entity (“NME”) approvals attributable to small and mid-tier pharmaceutical and
      biotechnology companies presents an opportunity for companies providing
      outsourced services because these companies often prefer to employ high-quality,
      third party service providers (either directly or in co-promotion situations
      with pharmaceutical partners) to effect critical late-stage developmental and
      commercialization functions. We therefore target a broad spectrum of companies
      within the pharmaceutical and life sciences industry in seeking to develop
      business opportunities.





Our
      strategy relies on both internal growth and acquisitions to meet our growth
      objectives. Our businesses have generated strong internal revenue growth for
      the
      past few years. Our revenue growth reflects our strong track record in winning
      new business, which in turn, is enhanced by our pursuit of cross-servicing
      opportunities within and across our business segments. As a result of these
      successes, our customer base has become increasingly diversified within the
      pharmaceutical and life sciences industries, with no single customer accounting
      for in excess of 10% of revenues. Furthermore, although our revenues are
      generally received under contracts with limited terms and that can be terminated
      at the client’s option on short notice, we have been successful historically in
      obtaining increasing amounts of repeat business from our clients and in
      expanding the scope of the services we provide to them.





We
      seek
      out acquisitions in order to fill strategic gaps, selectively strengthen
      existing franchises, further strengthen and broaden our clinical, communications
      and/or commercial capabilities, add complementary client relationships and
      bring
      on board additional management talent. We believe that our track record in
      identifying, negotiating, closing and integrating strategic, accretive
      acquisitions has been successful to-date. While the performance of all of our
      business units has been strong over the past several years, our acquired
      business operations have contributed to an even greater degree to our revenue
      growth and profitability. ****





**Business
      Segments**





We
      have
      organized our businesses into three complementary operating divisions, which
      correspond to our operating segments: inVentiv Clinical, inVentiv Communications
      and inVentiv Commercial. Each of our operating segments is composed of multiple
      businesses that are referred to as "business units" throughout this report.
      The
      following is a detailed description of our three operating
      segments:





**inVentiv
      Clinical**





inVentiv
      Clinical provides services in the areas of clinical development and clinical
      trial support. inVentiv Clinical includes the Smith Hanley group of companies
      (Smith Hanley Associates ("SHA"), Smith Hanley Consulting Group ("SHCG"),
      MedFocus and Anova Clinical Resources) and HHI Clinical and Statistical Research
      Services ("HHI"). inVentiv Clinical has also established international execution
      capabilities through an exclusive joint venture agreement with SIRO Clinpharm
      Pvt. Ltd. (“SIRO”), India's largest domestic contract research organization.
      inVentiv Clinical's service offerings include: ****





·
            Clinical
                Staffing and Recruiting.
                Through SHCG and MedFocus, we meet staffing and recruiting needs
                of more
                than 100 pharmaceutical and biotechnology clients, including 14 of
                the top
                20 global pharmaceutical companies, for SASTM programmers, data managers,
                statisticians, monitors and clinical research associates, study and
                project managers, clinical trials coordinators, safety/regulatory
                staff,
                medical writers, scientific and laboratory staff and other clinical
                personnel. We provide clinical staffing clients with flexibility
                in
                managing and executing clinical trials internally and allow them
                to avoid
                the expense of hiring and training a full staff. We draw from a database
                of over 30,000 candidates that is continually expanded through new
                recruiting techniques that include search engines, job fairs, conferences
                and referral bonuses.





·
            Functional
                Outsourcing.
                We provide a variety of functional outsourcing services, including
                data
                management and statistical analysis services through HHI, through
                our
                dedicated facility in Indianapolis, Indiana and through our joint
                venture
                with SIRO, and monitoring and project management services through
                Synergos. We have performed these services for over 150 clinical
                trials.
                Our functional outsourcing services complement SHCG and MedFocus’s
                contract staffing pool with a statistically-knowledgeable physician
                and
                medically-knowledgeable statisticians to deliver well-organized research
                used in clinical trial and clinical program design, data management,
                data
                analysis, double key data entry and validation, reporting and standard
                operating procedures writing. This bi-disciplinary expertise enables
                us to
                set up, manage and present data to help pharmaceutical clients move
                from
                the preclinical stage through the drug approval process and
                post-commercialization oversight.





·
            Executive
                Placement.
                We provide executive placement services through SHA, which is one
                of the
                most experienced and respected executive placement organizations
                focused
                primarily on statisticians and data-related functions.





**inVentiv
      Communications**





inVentiv
      Communications provides a full suite of advertising, communications and other
      functionally related services through the business
      units comprising inVentiv Communications, Inc., as described below, and offers
      innovative patient pharmaceutical compliance programs through Adheris.





·
            Advertising
                and Communications Support.
                Advertising and communications support services are delivered to
                pharmaceutical industry clients through four separate
                agencies:





·
            GSW
                WorldwideandPalioare full-service agencies that create marketing solutions through
                advertising, public relations, market access strategies, media and
                market
                research. GSW Worldwide has established international reach through
                a
                network of twelve international affiliate relationships.


·
            Navicorspecializes in oncology and immunology
                expertise.


·
            Stoneflyconducts advertising, marketing, and public relations services focused
                primarily on biotechnology and emerging pharmaceutical
                companies.


·
            Jeffrey
                Simbrow and Associates (“JSAI”)is
                a leading healthcare marketing and communications agency in
                Canada.





·
            Patient
                and physician education.
                Cadent Medical Communications, Selva Communications andCenter
                for Biomedical Continuing Education("CBCE") provide education and communications services to build advocacy
                for pharmaceutical and biotech brands. CBCE is an accredited provider
                of
                continuing patient and physician education for
                physicians.





·
            Branding
                Consultation.
                Y
                Brand is a specialized consulting group providing branding solutions
                for
                products, product science and technologies, therapeutic franchises
                and
                corporations





·
            Interactive
                Communication Development.
                Blue Diesel is a multi-faceted interactive communications company
                that
                strategically blends direct marketing, interactive technology and
                creative
                design to provide evidence-based marketing
                solutions.





·
            Consulting
                and Contract Marketing.
                Creative Healthcare Solutions, LLC (“CHS”) is a leading provider of
                contract marketing services for pharmaceutical and biotech companies.
                CHS
                supports product teams by adding expertise in brand management, new
                product planning, market research and business
                development.





·
            Patient
                Pharmaceutical Compliance Programs.Through
                Adheris, we provide a variety of patient support services with a
                proven
                history of improving medication adherence across nearly every chronic
                therapeutic category. By partnering with pharmacies around the country,
                Adheris’ programs build on the pharmacist-patient relationship and trust
                with personalized letters from pharmacists themselves. Adheris programs
                comply with the patient privacy provisions of the Health Insurance
                Portability and Accountability Act of 1996, ("HIPAA"), and its OnSyte(TM)
                technology allows retail pharmacies to help patients stay on therapy
                while
                protecting their confidentiality and private medical
                information.





**inVentiv
      Commercial**





inVentiv
      Commercial provides a wide range of services in the commercialization area.
      These service offerings are organized principally along the lines of the
      business units that make up inVentiv Commercial, which are organized into the
      following subdivisions within the operating segment: ****





·
            inVentiv
                Pharma Teams:
                The inVentiv Pharma Teams group provides outsourced product
                commercialization programs for prescription pharmaceutical and other
                life
                sciences products. inVentiv Commercial maintains and operates systems,
                facilities, and support services necessary to recruit, train and
                deploy a
                customized, full-service, targeted sales force. inVentiv Pharma Teams
                operates one of the largest pharmaceutical outsourced sales organizations
                in the United States (“U.S.”).





Life
      sciences companies, particularly pharmaceutical manufacturers, have
      traditionally relied upon product detailing as the primary means of influencing
      prescription writing patterns and promoting their products. Product detailing
      consists of a one-on-one meeting in a physician's office where a sales
      representative reviews the medical profile of a product's Food and Drug
      Administration approved indications. In order to engage in an effective
      dialogue, the salesperson must be well educated and highly trained. Recruiting
      qualified personnel and providing client and product specific training are
      both
      core competencies of inVentiv Commercial.





To
      accomplish a coordinated recruiting effort, we maintain a national recruitment
      office that locates and hires potential sales representatives. Our in-house
      human resources team adheres to selective hiring criteria and conducts detailed
      evaluations to ensure high quality of representation for our clients. inVentiv
      Commercial’s recruiters maintain a fully automated database of qualified
      candidates for immediate hiring opportunities, and our website home page offers
      an online application for employment. We offer these recruitment services to
      clients as part of an integrated sales force recruitment, training and
      management program, or on a standalone basis. inVentiv Pharma Teams hires a
      mix
      of full-time and flex-time representatives in order to accommodate the detailing
      level required by clients and enhance cost efficiency.





We
      have
      one of the largest dedicated training facilities of its type in the U.S. Topics
      such as sample accountability, negotiation tactics, personal writing skills,
      integrity selling, time and territory management, team productivity and
      pharma-manager leadership are covered extensively in order to prepare the
      representatives for their contact with medical professionals. Our trainers
      have
      access to proprietary information about the prescription writing behavior of
      physicians. We provide this training both for our own and our clients' sales
      forces, and training and development services are essential to maintaining
      and
      building our relationships with the pharmaceutical companies. These strengths
      are widely recognized as distinguishing inVentiv Commercial from its
      competitors.





·
            inVentiv
                Pharma Analytics:inVentiv Pharma Analytics consists of our Health Products Research
                (“HPR”), Total Data Solutions (“TDS”) and MedConference business units.





HPR
      is a
      leader in the development and implementation of advanced data analysis and
      research technologies to support client decision making within pharmaceutical
      and biotechnology companies. HPR combines leading edge technology with advanced
      statistical techniques and empirical research to deliver strategic and tactical
      solutions that help pharmaceutical executives maximize their return on
      investment for promotional resources. HPR’s range of services includes a variety
      of quantitative and other tools that supports HPR’s clients in optimizing and
      continually improving the effectiveness of deployed promotional and sales force
      resources.





TDS
      collects and analyzes sales force level data necessary to make marketing
      resource allocation decisions. Sales representatives are equipped with an
      industry-leading palm-top and laptop sales force automation system developed
      for
      inVentiv Commercial. This system enables our sales representatives to rapidly
      collect sales call and physician profiling information while in the field,
      which
      is compiled daily in a central data storage server. Our information processing
      system allows sales management teams to analyze data regularly, compare the
      results with targeted initiatives and historical data and make necessary
      adjustments to the sales strategy. TDS supports inVentiv Pharma Teams’ needs and
      also offers this sales force automation system on a standalone basis to clients.





MedConference
      is a leading provider of live and on-demand virtual event services to the
      pharmaceutical industry . MedConference’s
      flagship service, MedConferenceLiveTM, creates and manages live and on-demand web
      events for the healthcare industry. MedConference’s turnkey package of reliable
      technology and full-support services provides a flexible, easy-to-use online
      communication platform for pharmaceutical companies, medical education
      providers, professional medical associations and others who need to deliver
      timely information to physicians and healthcare practitioners.





·
            inVentiv
                Pharma Services:inVentiv Pharma Services consists of our Franklin Group and Lincoln
                Ltd.
                (collectively, “Franklin”), Pharmaceutical Resource Solutions (“PRS”) and
                Promotech Research Associates (“Promotech”) business
                units:





o
            *Patient
                Support Programs:*We
                offer patient assistance programs and reimbursement counseling through
                our
                Franklin business unit. Franklin has established a leadership position
                in
                providing reliable and innovative patient assistance programs,
                reimbursement counseling, web-based programs, missions programs and
                proactive fulfillment. Franklin also provides a variety of additional
                patient support services to clients, including support in Medicare
                Part D
                education.





o
            *Regulatory
                Compliance Services:*Through our Franklin and PRS business units, we provide independent
                oversight of Prescription Drug Marketing Act (“PDMA”) and Office of
                Inspector General compliance to clients and to internal inVentiv
                Pharma
                Teams. Our expertise in PDMA compliance issues is nationally recognized.
                Franklin serves as a liaison for the pharmaceutical industry and
                consultant to the Food and Drug Administration (“FDA”) and has an ongoing
                working relationship with the Department of Justice. We provide a
                number
                of processes, systems and services to help clients comply with federal
                and
                state regulations specific to sample accountability, including auditing
                of
                sample accountability compliance by field force professionals and
                "whole
                systems" sample accountability assessments. Franklin also licenses
                software solutions for the implementation of sophisticated PDMA compliance
                strategies.





o
            *Non-Personal
                Promotion:*We
                provide assembly, mailing, fulfillment, pharmacy, teleservices and
                eServices through our Promotech business unit. Promotech maintains
                a newly
                expanded facility with over 62,000 square feet that includes an
                environmentally controlled, FDA and Drug Enforcement Agency (“DEA”)
                certified and PDMA compliant warehouse, office space and a 64-station
                call
                center.





**Acquisitions
      and Divestitures**




The
      pursuit
      of strategic acquisitions is a core part of our business strategy. We believe
      that our expertise in identifying potential acquisition targets, assessing
      their
      importance to our operational and growth objectives, diligencing and completing
      the acquisition of appropriate businesses and effectively integrating them
      with
      our existing operations is a significant competitive advantage. During the
      first
      quarter of 2007, we signed definitive agreements to acquire ignite comm.net
      and
      Incendia Health, Inc. (collectively, “Ignite”) and Chamberlain Communications
      Group, Inc. (“Chamberlain”), as highlighted in the table below and further
      described in Management’s Discussion and Analysis. These acquisitions are
      expected to close on March 1, 2007. The following is a summary of our
      acquisitions to date:


**Acquisition**
              **Type
                  of Business**
              **Segment
                  (“inVentiv”)**
              **Location**
              **Month**
                **Acquired**Ignite
                  Health
              Interactive
                  communications agency
              Communications
              California
              PendingChamberlain
              Public
                  relations
              Communications
              New
                  York
              PendingMedConference
              Virtual
                  event services
              Commercial
              Pennsylvania
              November
                  2006DialogCoach
              Education
                  and training
              Commercial
              Pennsylvania
              November
                  2006JSAI
              Marketing
                  and communications agency
              Communications
              Ontario,
                Canada
              April
                  2006Synergos
              Clinical
                  trial management services
              Clinical
              Texas
              April
                  2006Adheris
              Patient
                  pharmaceutical compliance
              Communications
              Massachusetts
              February
                  2006inChord
              Advertising
                  and communications services
              Communications
              Ohio
              October
                  2005PRS
              Regulatory
                  compliance
              Commercial
              Pennsylvania
              August
                  2005HHI
              Data
                  management and statistical analyses
              Clinical
              Maryland
              November
                  2004Smith
                  Hanley
              Contract
                  staffing and clinical trial support
              Clinical
              Connecticut
              October
                  2004Franklin
              Patient
                  support programs
              Commercial
              New
                  Jersey
              June
                  2004


Our
      acquisition activity
      adds complexity to the analysis of period-to-period financial results and makes
      direct comparison of those financial results difficult. Our acquisitions are
      accounted for using purchase accounting and the financial results of the
      acquired businesses are included in our consolidated financial statements from
      their acquisitions dates. A prior year period that ended before an acquisition
      was completed, however, will not include the corresponding financial results
      of
      the acquired business.




During
      2002
      and 2003, we divested our European Contract Sales businesses. We have been
      receiving payments subsequent to some of these divestitures based on the
      subsequent earnings of the divested unit. For the years ended December 31,
      2006,
      2005 and 2004, we received approximately $1.4 million, $1.7 million and $2.1
      million, respectively, mostly relating to the German and Hungarian-based (2004
      only) contract sales organizations.





**International
      Operations**





As
      part of
      the acquisition of inVentiv Communications, Inc. in October 2005, we added
      that
      company's U.K.-based operations. These operations, based in London, provide
      advertising, marketing and public relations services to clients throughout
      Europe. As previously mentioned, in December 2005, we entered into an exclusive
      joint venture agreement with SIRO Clinpharm Pvt. Ltd., India's largest domestic
      contract research organization, to offer pharmaceutical companies India-based
      clinical data management services. This project is in the development stage
      and
      has not commenced providing client services. In April 2006, we acquired JSAI,
      a
      leading healthcare marketing and communications agency in Canada.




As
      a result
      of the acquisition of inVentiv Communications, Inc., we have a 15% ownership
      interest in Heart Reklambyra AB (“Heart”), an advertising agency located in
      Sweden and a 44% interest in Angela Liedler GmbH (“Liedler”), a service provider
      of communication and marketing tools for technical, medical and pharmaceutical
      products, located in Germany. Both of these investments are accounted for by
      using the equity method of accounting.





**Clients**




We
      provide
      our services to leading pharmaceutical and life sciences companies as well
      as
      emerging and specialty biotechnology companies. For the year ended December
      31,
      2006, no clients individually exceeded 10% of our total revenues and
      approximately 48% of our revenues were derived from our ten largest clients.
      Our
      ten largest clients during 2006, listed alphabetically, were as follows:
      Allergan, ALTANA Pharma, Boehringer Ingelheim, Inc., Bristol-Myers Squibb
      Company, Cephalon, Inc., Eli Lilly and Company, Glaxo Smith Kline, Inc., Johnson
      and Johnson, Novartis Pharmaceuticals, Inc. and Sanofi-Aventis Group. For the
      year ended December 31, 2005, two clients accounted for approximately 14% and
      11%, respectively, of our total revenue.




We
      consider
      our close relationships with leading pharmaceutical manufacturers to be an
      important competitive advantage, providing us with a source for recurring
      revenues as well as sales growth opportunities as our clients launch new
      products and as we develop new offerings. Our services are typically sold to
      similar target groups within the client organization, typically their clinical
      or their marketing and sales departments and brand teams. This provides the
      basis for continuous interaction and feedback, allowing us to continuously
      improve our services and identify new business opportunities, a process
      augmented by the longevity of many of our client relationships. We have
      developed sustained relationships with large, mid-tier and emerging
      pharmaceutical and biotechnology clients that provide us with recurring revenue
      streams and cross-selling opportunities. Our ability to perform services and
      add
      value at every part of the product life cycle enhances our ability to develop
      new business opportunities and form long-lasting relationships with
      clients.




Our
      relationships with a client's clinical or marketing and sales organizations
      also
      benefit from high switching costs, as retaining another sales force or
      advertising agency and redesigning a marketing program creates substantial
      additional expense and causes losses in time and productivity for our clients.
      In addition, successful marketing and sales outsourcers have established their
      reputations due to sophisticated performance evaluation capabilities, and
      clients are unlikely to use vendors without widely recognized
      expertise.





**Competition**




We
      operate in
      highly competitive industries. Our competitors include a variety of vendors
      providing services to the pharmaceutical and life sciences industry, including
      outsourced sales organizations, medical communications agencies and contract
      research organizations. Each of our business segments faces distinct competitors
      in the individual markets in which each operates:





·
            inVentiv
                Clinical:
                The specialty staffing services industry is very competitive and
                fragmented with relatively few barriers to entry. We compete with
                several
                large nationwide temporary staffing companies. Our primary clinical
                staffing competitors include ClinForce (a division of Cross Country),
                Managed Clinical Solutions (a division of ICON), ASG, Advanced Clinical
                Services and Kforce. Primary competitors in the permanent placement
                area
                include Korn Ferry, Reynolds and Reynolds, Heidrick and Struggles
                as well
                as numerous smaller specialty permanent placement groups which compete
                with us; however we are one of the only national firms that specializes
                exclusively in professional clinical trials research personnel.





·
            inVentiv
                Communications:
                Marketing and communications services is a relatively fragmented
                and
                competitive market. Our Communications Services group competes with
                the
                healthcare offerings of the five large global advertising holding
                companies, which include WPP, Omnicom, Publicis, IPG and Havas. In
                addition, we compete with a large number of smaller specialized agencies
                that have focused either on a therapeutic area or a particular
                service offering.





·
            inVentiv
                Commercial:
                The majority of sales teams are managed internally by our clients,
                and we
                compete with our clients' alternative choices of managing their needs
                internally or partnering with another pharmaceutical company. In
                addition,
                a small number of providers comprise the market for outsourced sales
                teams, and we believe that inVentiv, Innovex (Quintiles), Professional
                Detailing, Inc. and Publicis combined account for the majority of
                the U.S.
                outsourced sales team market share. The rest of the industry is
                fragmented, with a number of small providers attempting to develop
                niche
                services. One or more of our large competitors in the outsourced
                sales
                team market could become significant competitors with regard to the
                other
                services we offer by either developing additional capabilities or
                acquiring smaller companies.





We
      believe that our business units individually and our organization as a whole
      have a variety of competitive advantages that have allowed us to compete
      successfully in the marketplaces for our services. These advantages include
      the
      following:





·
            Leading
                Position Within Service Categories:
                We believe that our operating divisions, and the business units within
                each operating division, have achieved positions of leadership within
                their service areas. Our inVentiv Communications division is a major
                force
                in advertising and communications, and prior to our acquisition of
                that
                company, was
                the largest privately-held healthcare marketing organization in the
                world.inVentiv
                Clinical is recognized as a leader in clinical trials staffing and
                a
                leading provider of clinical trials-related SAS programmers,
                statisticians, data management and monitoring personnel to the major
                pharmaceutical and biotechnology companies. inVentiv Pharma Teams
                provides
                product detailing services to a large number of physicians, nurses,
                pharmacists and formularies. Our business units have extensive experience
                and proven track records that support our sales
                efforts.





·
            Comprehensive
                Service Offering:
                We are one of the largest providers of services to the pharmaceutical
                industry in the U.S. and offer a broad range of services. These are
                important factors to our clients and potential clients, many of whom
                prefer to work with organizations that can provide a comprehensive
                suite
                of complementary services and have a proven track record.**





·
            Broad
                and Diversified Client Base:
                In addition to serving many of the largest pharmaceutical companies,
                we
                also serve a large number of mid-size and smaller biotechnology and
                life
                sciences companies. As each of these companies uses our services,
                our
                relationship is expanded and the opportunity to cross-sell products
                increases. Our client base of over 200 pharmaceutical and biotechnology
                clients is broad and diversified, and with many of these clients
                we have
                maintained long-term relationships that help us in continuing to
                win new
                business.





·
            Proprietary
                Technologies and Data:
                We maintain and operate a number of proprietary software programs
                and
                systems for marketing development and data gathering. We invest in
                technology and have developed and deployed cutting-edge marketing
                and
                sales force automation tools. Our technical advantages in the sales
                force
                automation area are important for the management of sales and marketing
                campaigns for pharmaceutical products throughout their life cycle,
                particularly during the product launch phase. Our patient compliance
                offerings rely on a broad network of retail pharmacies and our use
                of
                proprietary technologies to effectively manage the underlying data
                in a
                timely and targeted manner.





·
            Experienced
                Management Team:
                Our management team includes executives with substantial expertise
                in
                pharmaceutical and healthcare services, as well as substantial background
                within pharmaceutical companies themselves, including managing
                pharmaceutical sales forces, establishing sales and marketing strategies,
                and product management industry experience. The team also has extensive
                experience in the areas of outsourced staffing, permanent placement
                and
                executive search services. We believe our mix of senior management
                with
                pharmaceutical services experience, entrepreneurial talent and strategic
                perspective is unique in the
                industry.





**Seasonality**




Although
      our
      business is subject to variability as a result of the ongoing startup and
      completion of contracts, periodic receipt of incentive fees and the ramp up
      of
      product revenues in certain contracts, and select businesses do have some degree
      of seasonality, our business in aggregate is not generally subject to seasonal
      variation.





**Employees**




At
      December
      31, 2006, we employed approximately 5,200 people in our operations. Many aspects
      of our business are very labor intensive and the turnover rate of employees
      in
      our industry, and in corresponding segments of the pharmaceutical industry,
      is
      generally high, particularly with respect to sales force employees. We believe
      our turnover rate is comparable to that of other outsourced service
      organizations and internal pharmaceutical sales and marketing departments.
      We
      believe that our relations with our employees are satisfactory.





**Government
      Regulation**




Our
      pharmaceutical and life sciences clients are subject to extensive government
      regulation. Generally, compliance with these regulations is the responsibility
      of those clients. However, several of our businesses are themselves subject
      to
      the direct effect of government regulation. In addition, we may be liable under
      certain of our customer contracts for the violation of government regulations
      by
      the applicable customers to the extent those violations result from or relate
      to
      the services we have performed for such customers. We could be subject to a
      variety of enforcement or private actions for our failure or the failure of
      our
      clients to comply with such regulations.




Our
      inVentiv
      Communications segment is subject to all of the risks, including regulatory
      risks, that advertising companies generally experience as well as risks that
      relate specifically to the provision of advertising services to the
      pharmaceutical industry. There has been an increasing tendency in the U.S.
      on
      the part of advertisers to resort to the courts and industry and self-regulatory
      bodies to challenge comparative advertising on the grounds that the advertising
      is false and deceptive. Through the years, there has been a continuing expansion
      of specific rules, prohibitions, media restrictions, labeling disclosures and
      warning requirements with respect to the advertising for certain products.




Adheris,
      which, through our inVentiv Communications segment, provides persistence and
      compliance programs, principally in the form of refill reminder communications,
      to pharmacy chains. These activities are subject to regulation under HIPAA, the
      Federal Health Care Programs Antikickback Law and corresponding state laws.
      We
      believe that Adheris's activities comply with all applicable federal and state
      laws in all material respects. Certain of these laws are subject to
      interpretation that is evolving. We could incur significant expenses if
      Adheris's activities are determined to be non-compliant and, depending the
      extent and scope of any such regulatory developments, our consolidated financial
      condition and results of operations could be materially and adversely affected.




Our inVentiv
      Commercial segment
      provides contract sales services to the pharmaceutical industry and employs
      sales representatives who handle and distribute samples of pharmaceutical
      products. The handling and distribution of prescription drug products are
      subject to regulation under the Prescription Drug Marketing Act of 1987 and
      other applicable federal, state and local laws and regulations. These laws
      and
      regulations regulate the distribution of drug samples by mandating storage,
      handling, solicitation and record-keeping requirements for drug samples and
      by
      banning the purchase or sale of drug samples.




Some
      of our
      physician education services in our inVentiv
      Commercial segment
      are subject to a variety of federal and state regulations relating to both
      the
      education of medical professionals and the marketing and sale of
      pharmaceuticals. In addition, certain ethical guidelines promulgated by the
      American Medical Association ("AMA") govern the receipt by physicians of gifts
      in connection with the marketing of healthcare products. These guidelines govern
      the honoraria and other items of value that AMA physicians may receive, directly
      or indirectly, from pharmaceutical companies. Any changes in such regulations
      or
      their application could have a material adverse effect on inVentiv. Failure
      to
      comply with these requirements could result in the imposition of fines, loss
      of
      licenses and other penalties and could have a material adverse effect on our
      consolidated financial condition and results of operations .




From
      time to
      time, state and federal legislation is proposed with regard to the use of
      proprietary databases of consumer and health groups. The uncertainty of the
      regulatory environment is increased by the fact that we generate and receive
      data from many sources. As a result, there are many ways government might
      attempt to regulate our use of this data. Any such restriction could have a
      material adverse effect on our consolidated financial condition and results
      of
      operations.





**Available
      Information**




We
      make
      available on our website, located at www.inventivhealth.com, the following
      filings as soon as reasonably practicable after they are electronically filed
      with or furnished to the United States Securities and Exchange Commission
      (“SEC”): our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current
      Reports on Form 8-K and any amendments to those reports filed or furnished
      pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934.
      All
      such filings are available free of charge. Information found on our website
      should not be considered part of this annual report on Form
      10-K.










**Item
      1A.*****Risk
      Factors*******




**Risks
      Related to Our Business**




We
      are a
      complex organization encompassing three segments, each with its own particular
      risks and uncertainties. A wide range of factors could materially affect our
      financial results and the performance of our stock price. The factors affecting
      our operations include the following:





***Our
      revenues are dependent on expenditures by companies in the pharmaceutical and
      life sciences industries, and a variety of factors could cause the overall
      levels of those expenditures to decline.***




Our
      revenues
      are highly dependent on expenditures by companies in the pharmaceutical industry
      (and, to a lesser extent, other life sciences industries) for advertising,
      promotional, marketing and sales, recruiting, clinical staffing and support
      and
      compliance services. Any decline in aggregate demand for these services could
      negatively affect our business.





·
            Advertising,
                promotional, marketing and sales expenditures by pharmaceutical
                manufacturers have in the past been, and could in the future be,
                negatively impacted by, among other things, governmental reform or
                private
                market initiatives intended to reduce the cost of pharmaceutical
                products
                or by governmental, medical association or pharmaceutical industry
                initiatives designed to regulate the manner in which pharmaceutical
                manufacturers promote their products.


·
            Consolidation
                in the pharmaceutical industry could negatively affect certain of
                our
                business units by reducing overall outsourced expenditures, particularly
                in the sales, marketing and staffing
                areas.


·
            Companies
                may elect to perform advertising, promotional, marketing, sales,
                compliance and other services internally based on industry and
                company-specific factors such as the rate of new product development
                and
                FDA approval of those products, number of sales representatives employed
                internally in relation to demand for or the need to promote new and
                existing products and competition from other
                suppliers.


·
            Companies
                may elect to perform clinical tasks internally based on industry
                and
                company-specific factors such as the rate of new product development
                and
                FDA approval of those products, the number of clinical professionals
                employed internally in relation to the demand for or the need to
                develop
                new drug candidates, and competition from other suppliers.****





***Many
      of the contracts under which we provide services are subject to termination
      on
      short notice, which may make our revenues less
      predictable.***




We
      provide
      services to many of our most significant clients under contracts that our
      clients may cancel on short notice (generally 10 to 120 days, depending on
      the
      specific business unit). In addition, many of our pharmaceutical sales contracts
      provide our clients with the opportunity to internalize the sales forces under
      contract. Although we have been successful in a number of cases in negotiating
      longer-term commitments and a non-cancelable initial period for pharmaceutical
      sales contracts, we cannot be assured that clients will renew relationships
      beyond the expiration date of existing contracts in any of our business units.
      We cannot assure you that our most significant clients will continue to do
      business with us over the long term. If any of our significant clients elect
      to
      cancel, convert or not renew their contracts, it could have a material adverse
      effect on our consolidated financial condition and results of
      operations.





***We
      are in the process of integrating a significant number of acquisitions and
      expect to make future acquisitions, which will involve additional
      risks*** **




For
      the past
      several years, a significant component of our growth strategy has been the
      addition through acquisitions of business units that are accretive to earnings.
      We have and will continue to seek to address the need to offer additional
      services through acquisitions of other companies, including the personnel such
      acquisitions may bring to us. The current market for acquisition targets in
      our
      industry is competitive, and we may not be successful in continuing to identify,
      successfully bid for and complete acquisitions necessary to achieve our
      operational and financial goals.




Our
      acquisitions of Adheris, JSAI, Synergos, MedConference and DialogCoach were
      completed during 2006 (MedConference and DialogCoach during the fourth quarter
      of 2006). Operational and financial integration of the acquired businesses
      is
      not yet complete and we may experience difficulties in completing the
      integration processes. Among other things, we are generally required to document
      internal controls under Section 404 of the Sarbanes-Oxley Act for each of our
      acquired business units by the end of the first fiscal year following the year
      in which the acquisition occurs. We may not be successful in recognizing
      material weaknesses in internal controls over financial reporting for our
      acquired businesses and may have difficulty remedying any such material
      weaknesses on a timely basis. More generally, we may experience difficulties
      in
      the integration of personnel and technologies across diverse business platforms.




Acquisitions
      involve numerous risks in addition to integration risk, including the
      following:




·
            diversion
                of management’s attention from normal daily operations of the
                business;




·
            insufficient
                revenues to offset increased expenses associated with acquisitions;
                and




·
            the
                potential loss of key customers or employees of the acquired
                companies.




Acquisitions,
      and related acquisition earnouts, may also cause us to deplete our cash reserves
      and/or increase our leverage, and therefore increase the financial risk of
      our
      capital structure; assume liabilities of the acquired businesses; record
      goodwill and non-amortizable intangible assets that will be subject to
      impairment testing and potential periodic impairment charges; incur amortization
      expenses related to certain intangible assets; or become subject to
      litigation.




Mergers
      and
      acquisitions of new businesses are inherently risky, and no assurance can be
      given that our previous or future acquisitions will be successful and will
      not
      materially and adversely affect our business, operating results, or financial
      condition. Failure to manage and successfully integrate acquisitions we make
      could harm our operational and consolidated financial condition and results
      of
      operations in a material way.





***We
      may not be successful in managing our infrastructure and resources to support
      continued growth.***




Our
      ability
      to grow also depends to a significant degree on our ability to successfully
      leverage our existing infrastructure to perform services for our clients,
      develop and successfully implement new sales channels for the services we offer
      and to enhance and expand the range of services that we can deliver to our
      customers. We have historically maintained a relatively flat management
      structure; as the sizes of our business units grow and the number of our
      acquired business units increases, the breadth and depth of the responsibilities
      of our senior management team has increased as well. Our growth will also depend
      on a number of other factors, including our ability to:





·
            maintain
                the high quality of the services we provide to our
                customers;





·
            increase
                our penetration with existing
                customers;





·
            recruit,
                motivate and retain qualified personnel;





·
            economically
                train existing sales representatives and recruit new sales
                representatives; and




·
            implement
                operational and financial systems and additional management resources
                to
                operate efficiently and effectively regardless of market conditions.





We
      cannot
      assure you that we will be able to manage or expand our operations effectively
      to address current or future demand and market conditions, or that we will
      be
      able to do so without incurring increased costs in order to maintain appropriate
      infrastructure and senior management capabilities. If we are unable to manage
      our infrastructure and resources effectively, our business, consolidated
      financial condition and results of operations could be materially and adversely
      affected.





***We
      employ sophisticated computer technology to deliver our services, and any
      failure of or damage to this technology could impair our ability to conduct
      our
      business.***




We
      have
      invested significantly in sophisticated and specialized computer technology
      and
      have focused on the application of this technology to provide customized
      solutions to meet many of our clients' needs. We have also invested
      significantly in sophisticated end-user databases and software that enable
      us to
      market our clients' products to targeted markets. We anticipate that it will
      be
      necessary to continue to select, invest in and develop new and enhanced
      technology and end-user databases on a timely basis in the future in order
      to
      maintain our competitiveness. In addition, our business is dependent on our
      computer equipment and software systems, and the temporary or permanent loss
      of
      this equipment or systems, through casualty or operating malfunction, could
      have
      a material adverse effect on our consolidated financial condition and results
      of
      operations Our property and business interruption insurance may not adequately
      compensate us for all losses that we may incur in any such event.





***We
      are subject to a high degree of government regulation.***




We
      are
      subject to a high degree of government regulation. Significant
      changes in these regulations, or our failure to comply with them, could impose
      additional costs on us or otherwise negatively affect our
      operations. See the
      discussion under "Business - Government Regulation" above.





***Our
      services are subject to evolving industry standards and rapid technological
      changes*** **.**




The
      markets
      for our services are characterized by rapidly changing technology, evolving
      industry standards and frequent introduction of new and enhanced services.
      To
      succeed, we must continue to enhance our existing services; introduce new
      services on a timely and cost-effective basis to meet evolving customer
      requirements; integrate new services with existing services; achieve market
      acceptance for new services; and respond to emerging industry standards and
      other technological changes.





***We
      may be adversely affected by customer concentration.***




We
      have no
      customers, individually, that accounted for in excess of 10% of our revenues
      for
      the year ended December 31, 2006, and our largest customer during such year
      accounted for 8% of revenues. If any large customer decreases or terminates
      its
      relationship with us, our business and consolidated financial position and
      results of operations could be materially adversely affected.





***Substantial
      defaults by our customers on our accounts receivable could have a significant
      negative impact on our business, results of operations, financial condition
      or
      liquidity.***




A
      significant
      portion of our working capital consists of accounts receivable from customers.
      If customers responsible for a significant amount of accounts receivable were
      to
      become insolvent or otherwise unable to pay for products and services, or were
      to become unwilling or unable to make payments in a timely manner, our business,
      consolidated results of operations, consolidated financial position or liquidity
      could be materially and adversely affected. In the event of an economic or
      industry downturn, such downturn could have an adverse affect on the servicing
      of these accounts receivable, which could result in longer payment cycles,
      increased collection costs and defaults in excess of management’s
      expectations.





***We
      may lose or fail to attract and retain key employees and management
      personnel.***




Our
      key
      managerial and other employees are among our most important assets. An important
      aspect of our competitiveness is our ability to attract and retain key employees
      and management personnel. Compensation for these key employees and management
      personnel is an essential factor in attracting and retaining them, and there
      can
      be no assurance that we will offer a level of compensation sufficient to do
      so.
      Equity-based compensation, including compensation in the form of options and
      restricted stock, plays an important role in our compensation of new and
      existing employees. Because of limitations on the number of shares available
      for
      future grant under our equity incentive plan, we may be unable to meet the
      compensation requirements of our key employees and management personnel. In
      addition, as a result of our adoption of SFAS 123R effective January 1, 2006,
      equity-based compensation is reflected in our income statement and has a
      negative impact on earnings.





***We
      may incur liability in connection with litigation.***




We
      are
      subject to lawsuits, investigations and claims arising out of the conduct of
      our
      business, including those related to commercial transactions, contracts,
      government regulation and employment matters. Certain claims, suits and
      complaints have been filed or are pending against us. We do not believe that
      any
      claims that are currently pending will have a material adverse effect on our
      consolidated financial position and results of operations. Litigation is
      inherently uncertain, however, and we cannot assure you that we will not suffer
      such an effect as a consequence of any pending or future claims.





***We
      may not be able to comply with the requirements of our credit
      facility.***




In
      connection
      with our acquisition of of inVentiv Communications, Inc., we entered into a
      syndicated credit facility with UBS
      AG,
      Stamford Branch and
      others. The current outstanding balance under this facility was approximately
      $164.6 million as of December 31, 2006, which is attributable to a $175 million
      term loan component. The term loan will mature on the sixth anniversary of
      the
      credit facility, with scheduled quarterly amortization of 1% per year during
      years one through five and 95% during year six. The revolving loans will mature
      on the sixth anniversary of the credit facility. Amounts advanced under the
      credit facility must be prepaid with a portion of our "Excess Cash Flow", as
      defined in the credit agreement. The credit facility contains numerous operating
      covenants that have the effect of reducing management's discretion in operating
      our businesses, including covenants limiting:





·
            the
                incurrence of indebtedness;





·
            the
                creation of liens on our assets;





·
            sale-leaseback
                transactions;





·
            acquisitions;





·
            guarantees;





·
            payment
                of dividends; and





·
            fundamental
                changes and transactions with
                affiliates.





The
      credit
      facility also requires that we meet certain ongoing performance tests relating
      to leverage, interest rate coverage and fixed charge coverage ratios that vary
      based on the amount of time elapsed since the initial extension of credit.
      If we
      are unable to comply with the requirements of the credit facility, our lenders
      could refuse to advance additional funds to us and/or seek to enforce remedies
      against us. Any such developments would have a material adverse effect on
      inVentiv. As of the date of this report, we comply with the requirements of
      our
      credit facility.





***Our
      future financial results may not be consistent with our
      guidance.***




From
      time to
      time, we communicate to the market guidance relating to our revenue, earnings
      per share and other financial measures. These statements are intended to provide
      metrics against which to evaluate our performance, but they should not be
      understood as predictions or assurances of our future performance. Our ability
      to meet any projected financial result milestone is subject to inherent risks
      and uncertainties, and we caution investors against placing undue reliance
      on
      our published guidance. See "Cautionary Statement Regarding Forward-Looking
      Disclosure" above.





**Risks
      Related to our Common Stock**




***The
      trading price of our common stock may be volatile, and you may not be able
      to
      sell your shares at or above the price at which you acquire
      them.***




The
      trading
      price of our common stock may fluctuate significantly. Factors affecting the
      trading price of our common stock include:





·
            variations
                in operating results;





·
            the
                gain or loss of significant customers or
                suppliers;





·
            announcements
                relating to our acquisition of other
                businesses;





·
            changes
                in the estimates of our operating results or changes in recommendations
                by
                any securities analysts that elect to follow our common stock;
                and





·
            market
                conditions in our industry, the industries of our customers and our
                suppliers and the economy as a
                whole.





In
      addition, if the market for health care stocks or the stock market in general
      experiences a loss of investor confidence, the trading price of our common
      stock
      could decline for reasons unrelated to our business, consolidated operating
      results or consolidated financial condition.




***Anti-takeover
      provisions in our organizational documents make any change in control more
      difficult.***




Our
      certificate of incorporation and by-laws contain provisions that may delay
      or
      prevent a change in control, may discourage bids at a premium over the market
      price of our common stock and may affect adversely the market price of our
      common stock and the voting and other rights of the holders of our common stock.
      These provisions include:





·
            limitations
                on the ability of our shareholders to call a special meeting of
                shareholders;





·
            our
                ability to issue additional shares of our common stock without shareholder
                approval;





·
            our
                ability to issue preferred stock with voting or conversion rights
                that
                adversely affect the voting or other rights of holders of common
                stock
                without their approval;





·
            provisions
                that provide that vacancies on the board of directors, including
                any
                vacancy resulting from an expansion of the board, may be filled by
                a vote
                of the directors in office at the time of the
                vacancy; and





·
            advance
                notice requirements for raising matters of business or making nominations
                at shareholders’ meetings.





***Our
      acquisition activity may dilute your equity interest and negatively affect
      the
      trading price of our common stock.***




We
      have
      historically chosen to satisfy a significant portion of the consideration paid
      for acquired businesses in the form of shares of our common stock, including
      by
      reserving the right to satisfy a portion of any contingent, or "earnout",
      consideration, by issuing additional shares of our common stock. The potential
      earnout obligations under the terms of our completed acquisitions may be
      material individually or in the aggregate. Acquisitions we make in the future,
      and any earnout consideration from completed acquisitions that we satisfy
      through the issuance of our common stock, may significantly dilute your equity
      interest and may negatively affect the trading price of our common
      stock.





***A
      substantial number of our securities are eligible for future sale and this
      could
      affect the market price for our stock.***




The
      market
      price of our common stock could drop due to sales of a large number of shares
      of
      our common stock or the perception that these sales could occur. As of February
      22, 2007, we had 30,135,993 shares of common stock outstanding. Of these shares,
      a total of 534,471 shares were subject to resale restrictions and will become
      eligible for sale pursuant to Rule 144 over the next several years or earlier
      if
      inVentiv elects to register those shares for resale on a voluntary basis. Shares
      issued in future acquisitions, and shares issued in satisfaction of earnout
      obligations under completed acquisitions, may add substantially to the number
      of
      shares available for future sale.




In
      addition,
      as of February 22, 2007, approximately 2,192,521 shares of our common stock
      were
      subject to outstanding stock options. Holders of our stock options are likely
      to
      exercise them, if ever, at a time when we otherwise could obtain a price for
      the
      sale of our securities that is higher than the exercise price per security
      of
      the options or warrants. This exercise, or the possibility of this exercise,
      may
      reduce the price of our common stock.




**Item
      1B.*****Unresolved
      Staff Comments***




We
      have
      received no written comments regarding its periodic or current reports from
      the
      staff of the Securities and Exchange Commission that were issued 180 days
      or more preceding the end of its 2006 fiscal year and that remain unresolved.




**Item
      2.*****Properties.***




As
      of
      December 31, 2006, we leased 36 facilities totaling 681,379 square feet,
      including our principal executive offices located in Somerset, New Jersey.
      Ten
      facilities totaling 63,083 square feet are leased by the inVentiv Clinical
      segment, 14 facilities totaling 285,445 square feet are leased by the inVentiv
      Communications segment, 10 facilities totaling 274,688 square feet are leased
      by
      the inVentiv Commercial segment, and two facilities with approximately 58,163
      square feet is leased by the Other (corporate) segment. These leases expire
      at
      varying dates through 2017. We believe that our facilities are adequate for
      our
      present and reasonably anticipated business requirements.





**Item
      3.*****Legal
      Proceedings.***




We
      are
      subject to lawsuits, investigations and claims arising out of the conduct of
      our
      business, including those related to commercial transactions, contracts,
      government regulation and employment matters. Certain claims, suits and
      complaints have been filed or are pending against us. All such matters are
      of a
      kind routinely experienced in our business and are consistent with our
      historical experience. We do not believe that any action will have a material
      adverse effect on our consolidated balance sheets, results of operations or
      cash
      flows.  The
      following action is pending against our Adheris business unit: 
 Utility
        Consumer Action Network v. Albertson’s Inc.(Case No. GIC
        830069). This
        action was filed on May 17, 2004 in California Superior Court against
        Albertson’s Inc. three other drug store chains and 17 pharmaceutical companies
        alleging, among other things, violations of the California Unfair Competition
        Law and the California Confidentiality of Medical Information Act arising
        from
        the operation of manufacturer-sponsored, pharmacy-based compliance programs
        similar to Adheris's programs. The plaintiff is seeking "equitable monetary
        relief", disgorgement, statutory damages and penalties, injunctive relief
        and
        reimbursement of attorneys' fees in this lawsuit. An amended complaint was
        filed
        on November 4, 2004 naming Adheris as an additional defendant. Three demurrers
        are in the briefing stage and are expected to be ruled on shortly. Our insurer
        is defending this action under reservation of rights. We do not believe that
        this action will have a material adverse effect on our consolidated balance
        sheets, results of operations or cash flows.




**Item
      4.*****Submission
      of Matters to a Vote of Securities Holders.***




No
      matters
      were submitted to a vote of security holders during the fourth quarter of the
      year ended December 31, 2006.





**PART
      II**





**Item
      5*****.
      Market for the Registrant's Common Equity, Related Stockholder Matters and
      Issuer Purchase of Equity Securities.***





The
      following
      table contains the high and low sales prices of our common stock traded on
      the
      Nasdaq Global Select (ticker symbol “VTIV”) during the periods
      indicated:




**High**
            
            
            **Low**Year
                ended December 31, 2006First
                Quarter
            
            $
            33.22
            
            $
            23.91Second
                Quarter
            
            $
            32.67
            
            $
            26.77Third
                Quarter
            
            $
            32.70
            
            $
            26.99Fourth
                Quarter
            
            $
            35.35
            
            $
            27.19**High**
            
            
            **Low**Year
                ended December 31, 2005First
                Quarter
            
            $
            26.17
            
            $
            19.47Second
                Quarter
            
            $
            24.60
            
            $
            17.22Third
                Quarter
            
            $
            27.23
            
            $
            19.00Fourth
                Quarter
            
            $
            27.65
            
            $
            23.20





On
      February
      22, 2007, there were approximately 186 record holders of our common
      stock.




To
      date, we
      have not declared cash dividends on our common stock and are currently
      restricted from doing so under our credit agreement. We do not anticipate paying
      any cash dividends in the foreseeable future.




The
      following
      table summarizes securities authorized for issuance under our equity
      compensation plans as of December 31, 2006:





Number
                of securities to be issued upon exercise of outstanding options,
                warrants
                and rights
            Weighted-average
                exercise price of outstanding options, warrants and rights
            Number
                of securities remaining available for future issuance under equity
                compensation plansEquity
                compensation plans approved by security holders2006
                Stock Incentive Plan
            2,194,116
            $14.43
            2,476,714
            *Equity
                compensation plans not approved by security holders
            -
            -
            -Total
            2,194,116
            
            2,476,714*
                The 2006 Long-Term Incentive Plan authorizes the issuance of stock
                options, restricted stock, restricted stock units, stock appreciation
                rights and performance awards.




During
      the
      fourth quarter of 2006, we did not repurchase any of our outstanding equity
      securities and, to our knowledge, no “affiliated purchaser” of inVentiv
      repurchased any of our outstanding securities.




The
      transfer
      agent for our common stock is American Stock Transfer and Trust Company, 6201
      Fifteenth Avenue, Brooklyn, New York, 11219.




The
      information required by Item 201(e) of Regulation S-K will be contained in,
      and
      is incorporated by reference from, the annual report to security holders for
      our
      fiscal year ended December 31, 2006.  Such
      information shall not be deemed to be “filed” or incorporated by reference in
      future filings with the SEC, or subject to the liabilities of Section 18 of
      the
      Securities Exchange Act of 1934, except to the extent that we specifically
      incorporate it by reference into a document filed under the Securities Act
      of
      1933 or the Securities Exchange Act of 1934.





**Item
      6.*****Selected
      Financial Data.***





**SELECTED
      FINANCIAL DATA**





The
      following
      table summarizes certain of our historical financial data and is qualified
      in
      its entirety by reference to, and should be read in conjunction with, our
      historical consolidated financial statements and related notes included
      elsewhere in this Annual Report on Form 10-K. Historical financial information
      may not be indicative of our future performance. See also "Item 7--Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations".





For
                the Years Ended December 31,**2006**
            
            
            **2005**
            
            
            **2004**
            
            
            **2003**
            
            
            **2002****(in
                thousands, except per share data)**Revenues
            
            $
            766,245
            
            $
            556,312
            
            $
            352,184
            
            $
            224,453
            
            $
            215,387Income
                from continuing operations
            
            $
            49,198
            
            $
            43,082
            
            $
            30,130
            
            $
            9,895
            
            $
            4,941Income
                (losses) from discontinued operations
            
            $
            2,037
            
            $
            781
            
            $
            1,002
            
            $
            (4,119
            )
            $
            2,951Net
                income
            
            $
            51,235
            
            $
            43,863
            
            $
            31,132
            
            $
            5,776
            
            $
            7,892Basic
                earnings (losses) per share:Continuing
                operations
            
            $
            1.69
            
            $
            1.60
            
            $
            1.26
            
            $
            0.43
            
            $
            0.22Discontinued
                operations
            
            $
            0.07
            
            $
            0.03
            
            $
            0.04
            
            $
            (0.18
            )
            $
            0.13Basic
                earnings per share
            
            $
            1.76
            
            $
            1.63
            
            $
            1.30
            
            $
            0.25
            
            $
            0.35Diluted
                earnings (losses) per share:Continuing
                operations
            
            $
            1.64
            
            $
            1.53
            
            $
            1.18
            
            $
            0.42
            
            $
            0.22Discontinued
                operations
            
            $
            0.06
            
            $
            0.03
            
            $
            0.04
            
            $
            (0.18
            )
            $
            0.13Diluted
                earnings per share
            
            $
            1.70
            
            $
            1.56
            
            $
            1.22
            
            $
            0.24
            
            $
            0.35Shares
                used in computing basic earnings (losses) per share
            
            
            29,159
            
            
            26,875
            
            
            23,951
            
            
            22,919
            
            
            22,842Shares
                used in computing diluted earnings (losses) per share
            
            
            30,058
            
            
            28,165
            
            
            25,437
            
            
            23,801
            
            
            22,857Balance
                sheet data:Total
                assets
            
            $
            771,054
            
            $
            583,894
            
            $
            287,452
            
            $
            180,708
            
            $
            153,418Long-term
                debt (a)
            
            $
            184,717
            
            $
            190,508
            
            $
            24,898
            
            $
            18,488
            
            $
            8,904Total
                equity
            
            $
            358,462
            
            $
            253,219
            
            $
            172,444
            
            $
            107,725
            
            $
            96,446





(a)
      Long-term debt includes the non-current portion of our credit arrangement (for
      2005 and 2006) and capital lease obligations (for all years), but excludes
      the
      current portion of our credit agreement and capital lease
      obligations.











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




This
      Management's Discussion and Analysis of Financial Condition and Results of
      Operations should be read in conjunction with the consolidated financial
      statements, accompanying notes and other financial information included in
      this
      Annual Report on Form 10-K for the years ended December 31, 2006, 2005 and
      2004.





**Introduction**




We
      currently
      manage three operating segments: inVentiv Clinical, inVentiv Communications
      and
      inVentiv Commercial, and its non-operating reportable segment, “Other”, which is
      based on the way management makes operating decisions and assesses performance.
      The following represents our reportable segments:





·
            inVentiv
                Clinical,
                which provides services related to permanent placement, clinical
                staffing,
                data collection and management and functional
                outsourcing.





·
            inVentiv
                Communications,
                which provides services related to pharmaceutical advertising, branding,
                interactive communication development and patient and physician
                education.





·
            inVentiv
                Commercial,
                which consists of our outsourced sales and marketing teams, planning
                and
                analytics services, sample accountability and patient assistance
                businesses, marketing support services, professional development
                and
                training, and recruitment of sales representatives in the commercial
                services area.




Our
      business is heavily dependent on the willingness and propensity of our customers
      to seek outsourced solutions for the services we provide. We believe that our
      business has been positively affected by a trend of large pharmaceutical
      manufacturers toward utilizing outsourcing arrangements as a means of
      controlling variable unit cost and increasing flexibility. Although large
      contracts with these manufacturers remain an important component of our overall
      business activity, there is a potential for margin contraction and the
      termination of contracts resulting from downsizing and other cost control
      measures by large pharmaceutical manufacturers.




We
      believe that the increasing percentage of New Drug Application (“NDA”) and New
      Molecular Entity (“NME”) approvals attributable to small and mid-tier
      pharmaceutical and biotechnology companies presents an opportunity for companies
      providing outsourced services because these companies often prefer to employ
      high-quality, third party service providers (either directly or in co-promotion
      situations with pharmaceutical partners) to effect critical late-stage
      developmental and commercialization functions, rather than building significant
      infrastructure internally. We therefore target a broad spectrum of companies
      within the pharmaceutical and life sciences industry in seeking to develop
      business opportunities.











**Critical
      Accounting Policies**





*Revenue
      Recognition*





The
      following is a summary of our revenue recognition policy, based on the segment
      and services we provide:





**inVentiv
      Clinical**





·
            Clinical
                Staffing and Recruiting-
                Revenues are recognized and recorded when services are rendered.





·
            Functional
                Outsourcing-
                Revenues are recognized and recorded when milestones are achieved,
                in
                accordance with the terms of the
                contracts.





·
            Executive
                Placement-
                Revenues are recognized and recorded at the time a candidate begins
                full-time employment. Any write-offs due to cancellations and/or
                billing
                adjustments historically have been insignificant.





**inVentiv
      Communications**





·
            Advertising
                and Communication support-
                Revenues are recognized and recorded under the proportional performance
                method, by relating the actual hours of work performed to date to
                the
                current estimated total hours of the respective projects. Any anticipated
                losses on projects are recognized when such losses are anticipated.
                Time
                and production billings are billed as incurred for actual time and
                expenses.





·
            Branding
                Consultation-
                Revenues are recognized and recorded on a fee for service basis,
                in
                accordance with the terms of the
                contracts.





·
            Patient
                and Physician Education-
                Revenues are recognized and recorded using either the completed contract
                method or when milestones are achieved, depending on the terms of
                the
                specific contracts.





·
            Interactive
                Communication Development-
                Revenues are recognized and recorded as time and production billings
                are
                billed as incurred for actual time and
                expenses.





**inVentiv
      Commercial**





·
            Sales
                and Marketing Teams-
                Revenues and associated costs are recognized and recorded under
                pharmaceutical detailing contracts based on the number of physician
                calls
                made or the number of sales representatives utilized. Most of our
                Sales
                and Marketing Teams’ contracts involve two phases, a “deployment phase”,
                typically three months, in which we perform initial recruiting, training
                and preparation for deployment of the field force at the start of
                a new
                contract, and the “Promotion phase” in which our deployed field force
                actively promotes specified products for clients through face-to-face
                interactions with physicians referred to as
                “detailing”.





Our
      inVentiv Pharma Teams contracts specify a separate fee for the initial
“deployment phase” of a project. We consider the deployment phase to be a
      separate and distinct earnings process and recognize the related revenues
      throughout the deployment phase, which typically spans a period of two to three
      months at the beginning of the first year of a contract. We generally recognize
      revenue during the “promotion phase” of our inVentiv Pharma Teams contracts on a
      straight-line basis based on the size of the deployed field force. The
      accounting for the two phases is based on our analysis of Emerging Issues Task
      Force (“EITF”) Issue No. 00-21, *Revenue
      Arrangements with Multiple Deliverables,* in
      which
      we have concluded that the deployment and promotion phases are being sold
      separately and therefore qualify as separate units of accounting within the
      meaning of paragraph 9 of EITF 00-21.





Many
      of
      the product detailing contracts allow for additional periodic incentive fees
      to
      be earned once agreed-upon performance benchmarks have been attained. Revenue
      from incentive fees is recognized and recorded when we are reasonably assured
      that payment will be made, and is typically based upon verification through
      calculation of achievement, third party data or client verification. Many
      contracts also stipulate penalties if agreed upon performance benchmarks have
      not been met. These penalties are recognized upon verification of performance
      shortfalls.





Non-refundable
      conversion fees are recognized and recorded as revenue when one of our sales
      professionals accepts a firm offer of permanent employment from a customer
      during the term of a contract.





·
            Planning
                and Analytics-
                Revenues for HPR generally include fixed fees, which are recognized
                and
                recorded when monthly services are performed based on the proportional
                performance method and when payment is reasonably assured. HPR’s initial
                contracts typically range from one month to one year. Revenues for
                additional services are recognized and recorded when the services
                are
                provided and payment is reasonably
                assured.





·
            Regulatory
                Compliance and Patient Assistance-
                Regulatory compliance revenues for both fixed fees services and fees
                for
                specific compliance related services are recognized and recorded
                when
                monthly services are performed. Patient assistance programs revenues
                depend on the number of patients served and are recognized and recorded
                as
                each service is performed.





·
            Marketing
                Support Services-
                Revenues are recognized and recorded based on time incurred and
                fulfillment requirements in accordance with the terms of the contracts
                .





·
            Professional
                Development and Training-
                Revenues are generally recognized and recorded as training courses
                are
                completed.





**General
      Revenue Recognition**





Reimbursable
      Costs


Reimbursable
      costs, including those relating to travel and out-of pocket expenses, sales
      force bonuses tied to individual or product revenues, and other similar costs,
      are generally included in revenues, and an equivalent amount of reimbursable
      expenses is included in costs of services in the period in which such amounts
      have been finalized. In certain cases, based on our analysis of EITF Issue
      No.
      99-19, *Reporting
      Revenue Gross as a Principal versus Net as an Agent* ,
      and
      related accounting literature, we may also record certain reimbursable
      transactions, such as the placement of media advertisements where we act as
      an
      agent, as net revenues.





Loss
      Contracts


We
      periodically analyze our contracts to determine the likelihood and amount of
      any
      potential loss on a contract resulting from lower than anticipated product,
      field force or other performance. In the event that current information
      illustrates a loss is likely to be incurred over the remaining life of the
      contract, we accrue that loss at the time it becomes probable. We did not have
      any material loss contracts in 2006, 2005 or 2004.





Billing


Customers
      are invoiced according to agreed upon billing terms. Contracts that are invoiced
      prior to performance of related services are recorded as client advances and
      unearned revenue and are not recognized as revenues until earned, in accordance
      with our revenue recognition policies. Amounts earned for revenues recognized
      before the agreed upon billing terms have been met are recorded as revenue
      and
      included in unbilled services. Upon billing, these amounts are transferred
      to
      billed accounts receivable.




*Goodwill
      and Other Intangible Assets*




Goodwill
      and
      other indefinite-life intangibles are assessed for potential impairment pursuant
      to the guidelines of Statement of Financial Accounting Standards (“SFAS”) No.
      142, *Goodwill
      and Other Intangible Assets* , ** o n
      an
      annual basis (at June 30) or when management determines that the carrying value
      of goodwill or an indefinite-lived intangible asset may not be recoverable
      based
      upon the existence of certain indicators of impairment. Goodwill
      is tested for impairment at least annually using a two-step process that begins
      with an estimation of the fair value of a reporting unit. The first step is
      a
      screen for potential impairment, and the second step measures the amount of
      impairment, if any. We
      calculate and compare the fair value of the goodwill and indefinite-lived
      intangible asset to its carrying value. If the carrying value exceeds the fair
      value, an impairment loss will be recognized in an amount equal to the
      difference. If we deem the useful life to be no longer indefinite after testing
      for impairment in accordance with the applicable rules stated above, we amortize
      the intangible asset over its remaining estimated useful life, following the
      pattern in which the expected benefits will be consumed or otherwise used up
      and
      we continue to review for impairment on an annual basis.




We
      performed
      annual impairment tests as of June 30, 2006 and concluded that the existing
      goodwill and indefinite-lived intangible tradename balances were not impaired
      and continue to maintain this position as of December 31, 2006, based on various
      factors, including updated forecasts and the current condition of the Company.
      As of December 31, 2006, we had goodwill of approximately $266.8 million
      and other intangibles (net) of $152.6 million in the Consolidated Balance
      Sheet.





*Stock-based
      Compensation*




Statement
      of
      Financial Accounting Standards No. 123R “Share Based Payments” (“ SFAS
      123R”),establishes accounting for share-based awards exchanged for employee
      services and requires companies to expense the estimated fair value of these
      awards over the requisite employee service period. On April 14, 2005, the
      U.S. Securities and Exchange Commission adopted a new rule amending the
      effective dates for SFAS 123R. In accordance with the new rule, we adopted
      the
      accounting provisions of SFAS 123R as of January 1, 2006.




We
      adopted
      SFAS 123R using the modified prospective transition method beginning
      January 1, 2006. Accordingly, during the year ended December 31, 2006, we
      recorded stock-based compensation expense for awards granted prior to, but
      not
      yet vested, as of January 1, 2006, as if the fair value method required for
      pro forma disclosure under FAS 123 were in effect for expense recognition
      purposes, adjusted for estimated forfeitures. For stock-based awards granted
      after January 1, 2006, we recognized compensation expense based on the
      estimated grant date fair value method using the Black-Scholes valuation model.
      For these awards, compensation expense was recognized using a ratable
      amortization method.




With
      the
      adoption of SFAS 123R in 2006, we have limited our issuance of stock options
      to
      senior executives, while granting restricted shares to employees at various
      levels. During
      the fourth quarter of 2005, prior to the adoption of SFAS 123R, management
      analyzed its expected volatility and expected life of stock options and
      concluded that the expected volatility for options granted during the fourth
      quarter of 2005 should be 45% and the expected life of the options granted
      should range between 5.5 and 6.0 years, depending on the grantee’s employee
      status. In
      2006,
      we analyzed historical trends in these variables on a quarterly basis, resulting
      in a decrease in our expected volatility to 39% during the fourth quarter of
      2006, while the range of the expected term remained at 5.5 to 6 years. For
      the
      year ended December 31, 2006 we elected to use the simplified method of
      determining the expected term as permitted by SAB 107 the
      range
      of the expected term remained unchanged at 5.5 to 6 years. We continue
      to base the estimate of risk-free rate on the U.S. Treasury yield curve in
      effect at the time of grant. We have never paid cash dividends and do not
      currently intend to pay cash dividends, and have certain restrictions under
      its
      credit facility to pay dividends and thus have assumed a 0% dividend yield. Stock-based
      compensation for the year ended December 31, 2006 has been reduced for estimated
      forfeitures based on an estimated forfeiture rate of 3.25%. When estimating
      forfeitures, we consider voluntary termination behaviors as well as trends
      of
      actual option forfeitures. These
      conclusions were based on several factors, including past company history,
      current and future trends, comparable benchmarked data and other key
      metrics.





*Claims
      and Insurance Accruals*




We
      maintain
      self-insured retention limits for certain insurance policies. The liabilities
      associated with the risk we retain are estimated in part based on historical
      experience, third-party actuarial analysis, demographics, nature and severity,
      past experience and other assumptions. The liabilities for self-funded retention
      are included in claims and insurance reserves based on claims incurred, with
      liabilities for unsettled claims and claims incurred but not yet reported being
      actuarially determined with respect to workers’ compensation and auto liability
      claims and estimated based on management’s evaluation of the nature and severity
      of individual claims and historical experience with respect to all other
      liabilities. A significant number of these claims typically take several years
      to develop and even longer to ultimately settle. These estimates tend to be
      reasonably accurate over time; however, the actual liabilities could vary
      materially from management's estimates and assumptions regarding severity of
      claims, medical cost inflation, as well as specific case facts can create
      short-term volatility in estimates. Management believes that these reserves
      are
      adequate.





*Income
      Taxes*




Deferred
      tax
      assets and liabilities are determined based on the difference between the
      financial reporting and the tax bases of assets and liabilities and are measured
      using the tax rates and laws that are expected to apply to taxable income in
      the
      years in which those temporary differences are expected to be recovered or
      settled.  A
      valuation allowance is established, when necessary, to reduce deferred income
      tax assets to the amount that is more likely than not to be realized. Realization
      is dependent on generating sufficient taxable income of a specific nature prior
      to the expiration of any loss carryforwards or capital losses. The asset may
      be
      reduced if estimates of future taxable income during the carryforward period
      are
      reduced. In addition, we maintain reserves for certain tax items, which are
      included in income taxes payable on our consolidated balance sheet. We
      periodically review these reserves to determine if adjustments to these balances
      are necessary.





*Derivative
      Financial Instruments*




Effective
      October 2005, we entered into an amortizing three-year interest rate swap
      arrangement with a notional amount of $175 million at inception to apply a
      fixed
      interest rate against the six-year $175 million loan arrangement entered into
      to
      facilitate the acquisition of inVentiv Communications, Inc. We entered into
      this
      interest rate swap agreement to modify the interest rate characteristics of
      our
      outstanding long-term debt. At the inception of the hedged item’s designation,
      and at least quarterly thereafter, we assess whether derivatives used to hedge
      transactions are highly effective in offsetting changes in the cash flow of
      the
      hedged item. To the extent the instruments are considered to be effective,
      changes in fair value are recorded as a component of other comprehensive income
      (loss). To the extent there is any hedge ineffectiveness, changes in fair value
      relating to the ineffective portion are immediately recognized in earnings
      (interest expense).




From
      October
      2005 to July 2006, we did not qualify for hedge accounting and recorded a $2.9
      million reduction to interest expense relating to the mark-to-market adjustment,
      and a corresponding derivative asset of approximately $2.9 million, which was
      recorded in Deposits and Other Assets on the Consolidated Balance Sheet. The
      fair values of the interest rate swaps were obtained from dealer quotes. These
      values represent the estimated amount we would receive or pay to terminate
      the
      agreement taking into consideration the difference between the contract rate
      of
      interest and rates currently quoted for agreements of similar terms and
      maturities.




On
      July 17,
      2006, we formally designated the interest rate swap as a cash flow hedge
      pursuant to SFAS No. 133, *Accounting
      for Derivative Instruments and Hedging Activities* .
      We
      employed the dollar offset method by performing a shock test to assess
      ineffectiveness and utilized the hypothetical derivative model to measure
      ineffectiveness. The hypothetical derivative contains the same terms and
      conditions as the original derivative, but was initiated in July 2006. From
      July
      2006 to December 2006, the fair market value of the derivative asset decreased
      to approximately $1.1 million, resulting in a $1.8 million decrease in the
      derivative asset; approximately $1.2 million (approximately $0.7 million, net
      of
      taxes) adjustment to Other Comprehensive Income; and $0.6 million of interest
      expense due to ineffectiveness of the hedged item.





**New
      Accounting Pronouncements**




In
      February
      2007, theFinancial
      Accounting Standards Board (“FASB”)issued
      SFAS No. 159,*The
      Fair Value Option for Financial Assets and Financial Liabilities—Including an
      amendment of FASB Statement No. 115.*SFAS
      No.
      159provides
      companies with an option to report selected financial assets and liabilities
      at
      fair value. This statement is effective as of the beginning of an entity’s first
      fiscal year that begins after November 15, 2007. Early adoption is permitted
      as
      of the beginning of a fiscal year that begins on or before November 15, 2007,
      provided the entity also elects to apply the provisions of FASB Statement No.
      157,*Fair
      Value Measurements.*We
      have
      not yet determined the impact SFAS 159 will have on its consolidated results
      of
      operations or consolidated financial position.




In
      September
      2006, the FASB issued SFAS No. 157, " *Fair
      Value Measurements* ".
      SFAS
      157 defines fair value, establishes a framework for measuring fair value in
      accordance with generally accepted accounting principles, and expands
      disclosures about fair value measurements. The provisions of SFAS 157 are
      effective for the fiscal year beginning January 1, 2008. We have not yet
      determined the impact SFAS 157 will have on its consolidated results of
      operations or consolidated financial position.




In
      September
      2006, the Securities and Exchange Commission issued Staff Accounting Bulletin
      (“SAB”) No. 108, *Considering
      the Effects of Prior Year Misstatements when Quantifying Current Year
      Misstatements.* SAB
      No. 108 requires analysis of misstatements using both an income statement
      (rollover) approach and a balance sheet (iron curtain) approach in assessing
      materiality and provides for a one-time cumulative effect transition adjustment.
      SAB No. 108 is effective for our 2006 annual financial statements. The
      adoption of SAB No. 108 did not have a material impact on our consolidated
      results of operations or consolidated financial position.




In
      July 2006,
      the FASB issued FASB Interpretation No. 48 (“FIN 48”), *Accounting
      for Uncertainty in Income Taxes, an interpretation of FASB Statement
      No. 109* .
      FIN 48
      clarifies the accounting for income taxes by prescribing the minimum recognition
      threshold a tax position is required to meet before being recognized in the
      financial statements. FIN 48 also provides guidance on derecognition,
      measurement, classification, interest and penalties, accounting in interim
      periods, disclosure and transition. FIN 48 applies to all tax positions related
      to income taxes subject to FASB Statement No. 109, *Accounting
      for Income Taxes* (“FASB
      No. 109”). FIN 48 is effective for fiscal years beginning after
      December 15, 2006; as such, we will adopt FIN 48 on January 1, 2007.
      Differences between the amounts recognized in the statements of financial
      position prior to the adoption of FIN 48 and the amounts reported after adoption
      should be accounted for as a cumulative-effect adjustment recorded to the
      beginning balance of retained earnings. We evaluated the impact of the adoption
      of FIN 48 and do not expect it to have a material impact on the Company’s
      consolidated statements of operations, financial position, cash flows, or other
      significant matters, such as debt covenants or the Company’s normal business
      practices.




On
      November 10, 2005, the FASB issued Interpretation No. 45-3, *Application
      of FASB Interpretation No. 45 to Minimum Revenue Guarantees Granted to a
      Business or Its Owners* (“FIN
      45-3”). FIN 45-3 amends FIN 45, Guarantor’s Accounting and Disclosure
      Requirements for Guarantees, Including Indirect Guarantees of Indebtedness
      of
      Others, to expand the scope to include guarantees granted to a business, such
      as
      a physician’s practice, or its owner(s), that the revenue of the business for a
      period will be at least a specified amount. Under FIN 45-3, the accounting
      requirements of FIN 45 are effective for any new revenue guarantees issued
      or
      modified on or after January 1, 2006 and the disclosure of all revenue
      guarantees, regardless of whether they were recognized under FIN 45, is required
      for all interim and annual periods beginning after January 1, 2006. The
      adoption of FIN 45-3 did not have a material impact on our consolidated results
      of operations or consolidated financial position.




In
      June 2005,
      the Financial
      Accounting Standards Board (“FASB”) issued
      Statement of Financial Account Standard (“SFAS”) No. 154, *Accounting
      Changes and Error Corrections* ,
      (“SFAS
      No.154”) a replacement of Accounting
      Principles Board ("APB") Opinion
      No. 20, *Accounting
      Changes* ,
      and
      Statement No. 3, *Reporting
      Accounting Changes in Interim Financial Statements* .
      SFAS
      No. 154 changes the requirements for the accounting for and the reporting of
      a
      change in accounting principle. Previously, most voluntary changes in accounting
      principles required recognition by recording a cumulative effect adjustment
      within net income in the period of change. SFAS No. 154 requires retrospective
      application to prior periods’ financial statements, unless it is impracticable
      to determine either the specific period effects or the cumulative effect of
      the
      change. SFAS No. 154 is effective for accounting changes made in fiscal years
      beginning after December 15, 2005. The implementation of SFAS No. 154 did not
      have a material impact on our consolidated balance sheets, consolidated income
      statements or consolidated statements of cash flows.





**Recent
      Business Developments**





*Acquisitions*




**Ignite** - In
        February 2007, we signed a definitive agreement to acquire ignite comm.net
        and
        Incendia Health, Inc. (collectively, “Ignite”) for approximately $20.0 million
        in cash and stock, excluding post-closing adjustments and direct acquisition
        costs, which have yet to be finalized. We will be obligated to make certain
        earn-out payments, which may be material, contingent on Ignite's performance
        measurements during 2007 through 2009. Ignite is based in Irvine, California,
        and specializes in medical advertising and interactive communications targeting
        patients and caregivers. Ignite’s financial results were not included in the
        consolidated financial statements since the definitive agreement was signed
        after December 31, 2006. Ignite is expected to be included in the inVentiv
        Communications segment.
 
 **Chamberlain** - In
        February 2007, we signed a definitive agreement to acquire Chamberlain
        Communications Group, Inc. (“Chamberlain”) for approximately $13.0 million in
        cash and stock, excluding post-closing adjustments and direct acquisition
        costs,
        which have yet to be finalized. We will be obligated to make certain earn-out
        payments, which may be material, contingent on Chamberlain's performance
        measurements during 2007 through 2009. Chamberlain is based in New York,
        and
        specializes in public relations in the healthcare industry. Chamberlain’s
        financial results were not included in the consolidated financial statements
        since the definitive agreement was signed after December 31, 2006. Chamberlain
        is expected to be included in the inVentiv Communications segment.
  The
        terms
        of our acquisitions completed during 2004, 2005 and 2006 are summarized in
        footnote 3 to our Consolidated Financial Statements included in Part II,
        Item 8
        of this report.
  A
        summary
        of the purchase price consideration for the acquisitions is as follows, in
        thousands:




**2004
      and 2005 acquisitions**


Purchase
                price consideration
            
            
            **Franklin**
            
            
            **Smith
                Hanley**
            
            
            **HHI**
            
            
            **PRS**
            
            
            **inChord**Cash
            
            $
            6,667
            
            $
            30,000
            
            $
            5,000
            
            $
            9,100
            
            $
            172,500Stock
            
            
            3,580
            
            
            21,215
            
            
            747
            
            
            4,105
            
            
            12,145Direct
                acquisition and otherPost-closing
                adjustments
            
            
            1,064
            
            
            1,685
            
            
            478
            
            
            440
            
            
            12,160Contingent
                consideration for completed measurement periods
            
            
            6,788
            
            
            11,209
            
            
            10,517
            
            
            1,989
            
            
            28,741Total
            
            $
            18,099
            
            $
            64,109
            
            $
            16,742
            
            $
            15,634
            
            $
            225,546




**2006
      acquisitions**


Purchase
                price consideration
            
            
            **Adheris**
            
            
            **JSAI**
            
            
            **Synergos**
            
            
            **MedConference**
            
            
            **DialogCoach**Cash
            
            $
            45,349
            
            $
            6,903
            
            $
            4,000
            
            $
            4,900
            
            $
            3,500Stock
            
            
            14,617
            
            
            1,684
            
            
            1,929
            
            
            2,168
            
            
            1,548Direct
                acquisition and otherPost-closing
                adjustments
            
            
            15,341
            
            
            1,376
            
            
            500
            
            
            1,025
            
            
            667Contingent
                consideration for completed measurement periods
            
            
            7,911
            
            
            --
            
            
            847
            
            
            1,595
            
            
            --Total
            
            $
            83,218
            
            $
            9,963
            
            $
            7,276
            
            $
            9,688
            
            $
            5,715




The
      following
      represents the allocation of the purchase price to the acquired assets of the
      2004, 2005 and 2006 acquisitions. The allocations are based upon the estimated
      fair value of the assets acquired and liabilities assumed as of the respective
      acquisition date.





Allocation
                of purchase price (2004-2005 acquisitions)
            
            
            **Franklin**
            
            
            **Smith
                Hanley**
            
            
            **HHI**
            
            
            **PRS**
            
            
            **inChord**Current
                assets
            
            $
            3,165
            
            $
            13,859
            
            $
            1,005
            
            $
            1,368
            
            $
            66,223Property
                and equipment, and other noncurrent assets
            
            
            432
            
            
            670
            
            
            48
            
            
            183
            
            
            13,533Goodwill
            
            
            12,856
            
            
            37,237
            
            
            14,317
            
            
            10,798
            
            
            107,670Identifiable
                intangible assets
            
            
            2,557
            
            
            17,400
            
            
            1,610
            
            
            3,870
            
            
            94,300Liabilities
                assumed
            
            
            (911
            )
            
            (5,057
            )
            
            (238
            )
            
            (585
            )
            
            (56,165
            )Minority
                interest
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            (15
            )Total
            
            $
            18,099
            
            $
            64,109
            
            $
            16,742
            
            $
            15,634
            
            $
            225,546








Allocation
                of purchase price (2006 acquisitions)
            
            
            **Adheris**
            
            
            **JSAI**
            
            
            **Synergos**
            
            
            **MedConference**
            
            
            **DialogCoach**Current
                assets
            
            $
            23,492
            
            $
            6,215
            
            $
            900
            
            $
            1,200
            
            $
            790Property
                and equipment, and other noncurrent assets
            
            
            810
            
            
            558
            
            
            49
            
            
            238
            
            
            --Goodwill
            
            
            44,937
            
            
            5,257
            
            
            4,186
            
            
            5,571
            
            
            3,398Identifiable
                intangible assets
            
            
            28,170
            
            
            4,990
            
            
            2,411
            
            
            3,000
            
            
            2,070Liabilities
                assumed
            
            
            (14,191
            )
            
            (7,057
            )
            
            (270
            )
            
            (321
            )
            
            (543
            )Total
            
            $
            83,218
            
            $
            9,963
            
            $
            7,276
            
            $
            9,688
            
            $
            5,715




Goodwill
      represents the excess of the purchase price over the fair value of tangible
      and
      identifiable intangible assets.





*Divesting
      Transactions*





During
      2002 and 2003, we divested our European Contract Sales businesses. We have
      been
      receiving payments subsequent to the divestiture of the German-based business
      based on the subsequent earnings of the divested unit. For the years ended
      December 31, 2006, 2005 and 2004, we received approximately $1.4 million, $1.7
      million and $2.1 million, respectively, relating to these divestitures. In
      addition, approximately $1.2 million of tax liability was reversed since the
      receivership of the previously-divested France-based unit was finalized during
      the fourth quarter of 2006.








**Results
      of Operations**





The
      following sets forth, for the periods indicated, certain components of our
      operating earnings, including such data stated as a percentage of revenues:


**For
                the Years Ended December 31,****2006**
            **2005**
            **2004**(in
                thousands, except for per share data)Revenues:
            
            
            
            
            
            Percentage*
            
            
            
            
            
            Percentage*
            
            
            
            
            
            Percentage
                *inVentiv
                Clinical
            
            $
            149,786
            
            
            19.5
            %
            $
            113,700
            
            
            20.4
            %
            $
            21,688
            
            
            6.2
            %inVentiv
                Communications
            
            
            257,055
            
            
            33.6
            %
            
            48,726
            
            
            8.8
            %
            
            --
            
            
            --inVentiv
                Commercial
            
            
            359,404
            
            
            46.9
            %
            
            393,886
            
            
            70.8
            %
            
            330,496
            
            
            93.8
            %Total
                revenues
            
            
            766,245
            
            
            100.0
            %
            
            556,312
            
            
            100.0
            %
            
            352,184
            
            
            100.0
            %Cost
                of services:inVentiv
                Clinical
            
            
            100,632
            
            
            67.2
            %
            
            75,177
            
            
            66.1
            %
            
            14,487
            
            
            66.8
            %inVentiv
                Communications
            
            
            161,533
            
            
            62.8
            %
            
            32,440
            
            
            66.6
            %
            
            --
            
            
            --inVentiv
                Commercial
            
            
            284,584
            
            
            79.2
            %
            
            309,408
            
            
            78.6
            %
            
            265,246
            
            
            80.3
            %Total
                cost of services
            
            
            546,749
            
            
            71.4
            %
            
            417,025
            
            
            75.0
            %
            
            279,733
            
            
            79.4
            %Selling,
                general and administrative expenses
            
            
            141,418
            
            
            18.4
            %
            
            79,313
            
            
            14.3
            %
            
            38,539
            
            
            10.9
            %Other
                operating income
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            264
            
            
            --Total
                operating income
            
            
            78,078
            
            
            10.2
            %
            $
            59,974
            
            
            10.8
            %
            $
            34,176
            
            
            9.7
            %Interest
                expense
            
            
            (11,361
            )
            
            (1.5
            )%
            
            (3,955
            )
            
            (0.7
            )%
            
            (922
            )
            
            (0.3
            )%Interest
                income
            
            
            2,694
            
            
            0.4
            %
            
            1,409
            
            
            0.3
            %
            
            678
            
            
            0.2
            %Income
                from continuing operations before income tax
              provision,
                minority interest in income of subsidiary
              and
                income from equity investments
            
            
            69,411
            
            
            9.1
            %
            
            57,428
            
            
            10.4
            %
            
            33,932
            
            
            9.6
            %Income
                tax provision
            
            
            (19,166
            )
            
            (2.5
            )%
            
            (14,229
            )
            
            (2.6
            )%
            
            (3,802
            )
            
            (1.1
            )%Income
                from continuing operations before minority
              interest
                in income of subsidiary and income from
              equity
                investments
            
            
            50,245
            
            
            6.6
            %
            
            43,199
            
            
            7.8
            %
            
            30,130
            
            
            8.5
            %Minority
                interest in income of subsidiary
            
            
            (1,207
            )
            
            (0.2
            )%
            
            (224
            )
            
            --
            
            
            --
            
            
            --Equity
                earnings in investments
            
            
            160
            
            
            --
            
            
            107
            
            
            --
            
            
            --
            
            
            --Income
                from continuing operations
            
            
            49,198
            
            
            6.4
            %
            
            43,082
            
            
            7.8
            %
            
            30,130
            
            
            8.5
            %Income
                from discontinued operations:Gains
                on disposals of discontinued operations, net of taxes
            
            
            2,037
            
            
            0.3
            %
            
            781
            
            
            0.1
            %
            
            1,002
            
            
            0.3
            %Income
                from discontinued operations
            
            
            2,037
            
            
            0.3
            %
            
            781
            
            
            0.1
            %
            
            1,002
            
            
            0.3
            %Net
                income
            
            $
            51,235
            
            
            6.7
            %
            $
            43,863
            
            
            7.9
            %
            $
            31,132
            
            
            8.8
            %Earnings
                per share:Continuing
                operations:Basic
            
            $
            1.69
            
            
            
            
            $
            1.60
            
            
            
            
            $
            1.26Diluted
            
            $
            1.64
            
            
            
            
            $
            1.53
            
            
            
            
            $
            1.18Discontinued
                operations:Basic
            
            $
            0.07
            
            
            
            
            $
            0.03
            
            
            
            
            $
            0.04Diluted
            
            $
            0.06
            
            
            
            
            $
            0.03
            
            
            
            
            $
            0.04Net
                income:Basic
            
            $
            1.76
            
            
            
            
            $
            1.63
            
            
            
            
            $
            1.30Diluted
            
            $
            1.70
            
            
            
            
            $
            1.56
            
            
            
            
            $
            1.22


*
      Cost of
      services is expressed as a percentage of segment revenue. All other line items
      are displayed as a percentage of total revenues.







**Year
      Ended December 31, 2006 Compared to Year Ended December 31,
      2005**





***Revenues*** :
      Revenues increased by approximately $209.9 million, or 37.7%, to $766.2 million
      in the year ended December 31, 2006, from $556.3 million in the year ended
      December 31, 2005.




inVentiv
      Clinical’s revenues were $149.8 million during the year ended December 31, 2006,
      an increase of $36.1 million compared to $113.7 million during the year ended
      December 31, 2005. Revenues in the clinical staffing and recruiting division
      were higher in 2006 predominantly due to increased placement of clinical
      staffing personnel. The clinical staffing and recruiting division also typically
      experiences a decrease in personnel during the first quarter of a year as
      clients may decide not to continue to employ these temporary personnel. This
      “falloff” was less significant in 2006 than 2005. Finally, in April 2006, the
      Company acquired Synergos, which complements the segment by strengthening the
      functional outsourcing service.




inVentiv
      Communications was established principally through the acquisitions of inChord
      in October 2005, Adheris in February 2006 and JSAI in April 2006, and
      contributed approximately $257.0 million of revenues during the year ended
      December 31, 2006, versus approximately $48.7 million of revenue from the
      acquisition date of inChord through December 31, 2005. This segment specializes
      in pharmaceutical advertising, branding, marketing and patient and physician
      education.




Revenues
      in our inVentiv Commercial business were $359.4 million, a decrease of $34.5
      million or 8.8% from the $393.9 million in the same period in 2005. This
      decrease resulted primarily from anticipated wind-downs of certain contracts,
      and was partially offset by additional revenue during 2006 from acquisitions,
      such as PRS, which was acquired in August 2005, and MedConference and
      DialogCoach, which were acquired during the fourth quarter of 2006.





***Cost
      of Services*** :
      Cost of
      services increased by approximately $129.7 million or 31.1%, to $546.7 million
      for the year ended December 31, 2006 from $417.0 million in the year ended
      December 31, 2005. Cost of services decreased as a percentage of revenues to
      71.4% from 75.0% in the year ended December 31, 2006 and 2005, respectively,
      mainly due to increased acquisitions that are contributing higher margins than
      the historical Commercial business. Overall cost of services increased due
      to
      increased revenue over the same period; in addition, cost of services increased
      due to $2.4 million of share-based compensation expense not recorded in prior
      years. On January 1, 2006, inVentiv adopted the provisions of Statement
      of Financial Accounting Standards No. 123 (Revised 2004) (SFAS 123R), *Share-Based
      Payment* ,
      which
      establishes accounting for share-based awards exchanged for employee services
      and requires companies to expense the estimated fair value of these awards
      over
      the requisite employee service period. In prior periods, inVentiv recorded
      compensation expense for unvested restricted shares over the applicable vesting
      periods. Starting in January 2006, as a result of adopting SFAS 123R, inVentiv
      has also recorded compensation expense for its stock options. For further
      details on the new accounting policy, see section on Critical Accounting
      Policies.





inVentiv
      Clinical’s cost of services increased by approximately $25.4 million, or 33.9%,
      to $100.6 million during the year ended December 31, 2006 from $75.2 million
      during the year ended December 31, 2005. Cost of services as a percentage of
      revenues increased from 66.1% during the year ended December 31, 2005 to 67.2%
      during the same period in 2006.





inVentiv
      Communications was acquired starting in October 2005 and incurred approximately
      $161.5 million of cost of sales during the year ended December 31, 2006. Cost
      of
      services was $32.4 million from the inChord acquisition date through December
      31, 2005. Cost of sales was 62.8% of this segment’s revenues in 2006 and 66.6%
      for the three-month period in 2005. This segment specializes in pharmaceutical
      advertising, branding, marketing and patient and physician education. Pursuant
      to the acquisition of inChord, the Company assumed a $7.5 million existing
      incentive plan liability (out of a potential $15 million liability) on inChord’s
      balance sheet relating to certain performance thresholds of the segment over
      a
      three-year period from 2005 through 2007. The Company has monitored these
      performance thresholds on a quarterly basis. At December 31, 2006, as a result
      of new business and a strengthened
      outlook for inChord’s business during 2007, management felt it was appropriate
      to record an additional $3.5 million (of which $1.2 million is recorded in
      cost
      of services and $2.3 million is recorded in SG&A) of the potential $15
      million liability since the likelihood of achieving the next threshold is
      probable and the amount is estimable, pursuant to SFAS No. 5, *Accounting
      for Contingencies* .
      The
      Company will continue to monitor these performance thresholds, which may result
      in up to an additional $3.7 million of expenses, but currently the Company
      does
      not believe that it is probable that the final threshold will be met.





Cost
      of
      services at inVentiv Commercial decreased by approximately $24.8 million, or
      8.0%, to $284.6 million in the year ended December 31, 2006 from $309.4 million
      in the year ended December 31, 2005, mainly due to the decrease in revenues.
      Cost of services was 79.2% of inVentiv Commercial revenue in the year ended
      December 31, 2006, compared to 78.6% in the year ended December 31, 2005, mainly
      due to increased compensation expense in 2006 for unvested shares as discussed
      above.





***Selling,
      General and Administrative Expenses (“SG&A”)*** :
      SG&A expenses increased by approximately $62.1 million, or 78.3%, to $141.4
      million from $79.3 million in the year ended December 31, 2006 and 2005,
      respectively. This increase was primarily due to SG&A expenses at inChord,
      which was acquired in October 2005, and additional SG&A from acquisitions
      consummated in 2006; increased compensation levels in 2006 versus 2005; and
      $5.1
      million of share-based compensation expense, which was new in 2006, as described
      above in the cost of services section.




SG&A
      expenses at inVentiv Clinical was approximately $37.6 million in 2006, compared
      to $29.1 million during 2005 due to increased selling expense and commissions
      from additional business; additional staffing requirements; SG&A expense
      from Synergos, which was acquired on April 1, 2006; and increased compensation
      expense relating to the adoption of SFAS 123R.




SG&A
      expenses at inVentiv Communications, which was acquired in October 2005, was
      approximately $60.6 million for the year ended December 31, 2006, and $10.6
      million for the period in 2005 subsequent to the acquisition. As described
      in
      the cost of services’ section, the Company recorded an additional $3.5 million
      (of which $1.2 million is recorded in cost of services and $2.3 million is
      recorded in SG&A) of potential $15.0 million in liabilities relating to
      certain performance thresholds of the segment over a three-year period. See
      above for further details.




SG&A
      expenses at inVentiv Commercial increased by approximately $1.5 million, or
      5.2%, to $30.5 million in the year ended December 31, 2006 from $29.0 million
      incurred in the year ended December 31, 2005. This increase was mainly due
      to
      the increased compensation expense attributable to the adoption of SFAS 123R
      this year, and additional SG&A from new acquisitions during the fourth
      quarter of 2006.




Other
      SG&A was approximately $12.7 million for the year ended December 31, 2006,
      an increase of approximately $2.1 million or 19.4% from $10.6 million for the
      year ended December 31, 2005. Almost all of this increase was related to
      increases in stock-based compensation expense in 2006, as described
      above.




***Provision
      for Income Taxes*** :
      In June
      2006, we recognized a tax benefit of approximately $9.1 million related to
      net
      operating losses associated with a previously-divested unit, as management
      determined that it is more likely than not that this deferred tax asset will
      be
      realized. Including these tax benefits, our annual effective tax rate was 27.6%
      in 2006.




In
      March
      2005, we recognized a tax benefit of approximately $1.6 million primarily
      related to prior period tax contingencies, which are no longer required. During
      the third quarter of 2005, we recorded a tax benefit of approximately $6.7
      million primarily related to the reversal of a previously recorded valuation
      allowance as we determined an additional portion of its deferred tax asset
      was
      more likely than not expected to be realized. Including these tax benefits,
      our
      annual effective tax rate was 24.8% in 2005.




Our
      current effective tax rate is based on current projections for earnings in
      the
      tax jurisdictions in which we do business and is subject to taxation. Our
      effective tax rate could fluctuate due to changes in earnings between operating
      entities and related tax jurisdictions, or due to the potential tax impact
      arising from previous divestitures.





In
      July
      2006, the FASB issued FASB Interpretation No. 48 (“FIN 48”), *Accounting
      for Uncertainty in Income Taxes, an interpretation of FASB Statement
      No. 109* ,
      to
      create a single model to address accounting for uncertainty in tax positions.
      FIN 48 clarifies the accounting for income taxes by prescribing the minimum
      recognition threshold a tax position is required to meet before being recognized
      in the consolidated financial statements. FIN 48 also provides guidance on
      derecognition, measurement, classification, interest and penalties, accounting
      in interim periods, disclosure and transition. FIN 48 applies to all tax
      positions related to income taxes subject to FASB Statement No. 109, *Accounting
      for Income Taxes* (“FASB
      No. 109”). FIN 48 is effective for fiscal years beginning after
      December 15, 2006; as such, the Company will adopt FIN 48 as of January 1,
      2007, as required. Differences between the amounts recognized in the
      consolidated financial statements prior to the adoption of FIN 48 and the
      amounts reported after adoption should be accounted for as a cumulative-effect
      adjustment recorded to the beginning balance of retained earnings. We conducted
      an internal review of its uncertain tax positions resulting from the adoption
      of
      FIN 48. The adoption of FIN 48 is not expected to have a material impact on
      our
      consolidated results of operations, financial position and cash
      flows.





***Discontinued
      Operations*** :
      For the
      year ended December 31, 2006 and 2005, earnings from discontinued operations,
      net of taxes, were approximately $2.0 million and $0.8 million, respectively.
      The gains on disposals of discontinued operations mainly consisted of
      contingency payments due from our previously-divested Germany-based unit. In
      addition, approximately $1.2 million of tax liability was reversed since the
      receivership of the previously-divested France-based unit was finalized during
      the fourth quarter of 2006.





***Net
      Income and Earnings Per Share (“EPS”)*** *:* inVentiv’s net income increased by approximately 16.8% to $51.2 million, from
      net income of $43.9 million in the year ended December 31, 2006 and 2005,
      respectively. Diluted earnings per share increased to earnings of $1.70 per
      share for the 2006 from earnings of $1.56 per share for 2005.  Operating
      results were higher due to increased results in inVentiv Communications and
      the
      new acquisitions, offset by stock-based compensation expense recorded as a
      result of adopting SFAS 123R. Earnings per share were also affected because
      of
      approximately 1.9 million additional shares outstanding in 2006 over
      2005.




**Year
      Ended December 31, 2005 Compared to Year Ended December 31,
      2004**




***Revenues*** :
      Revenues increased by approximately $204.1 million, or 58.0%, to $556.3 million
      in the year ended December 31, 2005, from $352.2 million in the year ended
      December 31, 2004, mainly due to increased business in our inVentiv Commercial
      business and company acquisitions during 2004 and 2005, as more fully described
      below.




As
      a
      result of the fourth quarter 2004 acquisitions in inVentiv Clinical, the segment
      has contributed approximately $21.7 million of revenues in 2004 and $113.7
      million of revenues for the year ended December 31, 2005. The key driver of
      increased business was due to increased hiring in permanent placement and
      clinical staffing.




In
      our
      inVentiv Communications segment, which was initially established in October
      2005
      via acquisition, there was approximately $48.7 million of revenue recorded
      from
      the acquisition date through December 31, 2005.




Revenues
      in our inVentiv Commercial business were $393.9 million in the year ended
      December 31, 2005, an increase of $63.4 million or 19.2% from $330.5 million
      in
      the year ended December 31, 2004, and accounted for 70.8% of total revenues
      for
      the year ended December 31, 2005. The majority of this growth is due to
      increased business in our inVentiv Pharma Teams, offset by decreases
      attributable to contract conversions of certain clients. There were also two
      acquisitions (Franklin in June 2004 and PRS in August 2005), which contributed
      to the increase in revenues.




**C** ***ost
      of Services*** :
      Cost of
      services increased by approximately $137.3 million or 49.1%, to $417.0 million
      during the year ended December 31, 2005 from $279.7 million in the year ended
      December 31, 2004, mainly due to increased business in our inVentiv Commercial
      business and company acquisitions during 2004 and 2005, as mentioned previously.
      Cost of services decreased as a percentage of revenues to 75.0% from 79.4%
      in
      the year ended December 31, 2005 and 2004, respectively. The 2004 and 2005
      acquisitions in the inVentiv Clinical and inVentiv Communications segments
      generally tend to have higher margins than the inVentiv Commercial group due
      to
      the nature of the services provided.




inVentiv
      Clinical’s cost of services in 2005 was approximately $75.2 million, compared to
      approximately $14.5 million during the fourth quarter of 2004, when the segment
      was established via the Smith Hanley and HHI acquisitions. Cost of services
      as a
      percentage of revenues was in line from the previous year. The increase in
      cost
      was due to the full year effect of the acquisitions and increased hiring in
      permanent placement and clinical staffing.




Our
      inVentiv Communications segment incurred approximately $32.4 million in cost
      of
      services from the October 5, 2005 acquisition date through December 31, 2005.
      The segment’s cost of services was approximately 66.6 % of the segment’s
      revenues.




Cost
      of
      services at the inVentiv Commercial business increased by approximately $44.2
      million, or 16.6%, to $309.4 million in the year ended December 31, 2005 from
      $265.2 million in the year ended December 31, 2004. This variance percentage
      is
      lower than the percentage increase in revenue between the related periods.
      Cost
      of services was 78.6% of inVentiv Commercial revenue in the year ended December
      31, 2005, compared to 80.3% in the year ended December 31, 2004. The decrease
      of
      cost of services as a percentage of revenue in 2005 as compared to 2004 was
      attributable to ongoing cost savings measures implemented by management to
      align
      our support and infrastructure with the current level of operations. In
      addition, we acquired Franklin in June 2004, as described previously, which
      is a
      higher margin division than the core commercial services business.




***SG&A*** :
      SG&A expenses increased by approximately $40.8 million, or 105.8%, to $79.3
      million from $38.5 million in the years ended December 31, 2005 and 2004,
      respectively. This increase was primarily due to increased compensation levels
      in 2005 versus 2004, SG&A expenses incurred at the divisions acquired in
      2004 and 2005, increases in professional fees related to increased acquisitions
      and compliance with the internal control standards of Section 404 of the
      Sarbanes-Oxley Act of 2002, and the hiring of an internal audit department
      in
      2005.




SG&A
      expenses at our inVentiv Clinical business units, which were acquired during
      the
      fourth quarter of 2004, were approximately $29.0 million during the year ended
      December 31, 2005, compared to $5.5 million during the fourth quarter of
      2004.




SG&A
      expenses at our newly acquired inVentiv Communications businesses were
      approximately $10.6 million in 2005, which reflects expenses incurred during
      the
      fourth quarter, when the acquisition of inVentiv Communications, Inc. was
      consummated.




SG&A
      expenses at inVentiv Commercial increased by approximately $5.0 million, or
      20.8%, to $29.0 million in the year ended December 31, 2005 from $24.0 million
      incurred in the year ended December 31, 2004. This increase was due to increased
      compensation and benefits in 2005 versus 2004, mainly due to increased results
      during 2005; $2.1 million of additional SG&A at Franklin, which was acquired
      in June 2004; and additional SG&A at PRS, which was acquired in August
      2005.




Other
      SG&A was approximately $10.6 million for the year ended December 31, 2005,
      an increase of approximately $1.6 million or 18.2% from $9.0 million for the
      year ended December 31, 2004. The increase was mainly related to increases
      in
      compensation as a result of improved company performance, professional fees
      primarily related to increased acquisitions and our compliance with the internal
      control standards of Section 404 of the Sarbanes-Oxley Act of 2002, and the
      hiring of an internal audit department in 2005. Due to increased acquisitions
      over the last two years, our internal and external audit expenses have increased
      substantially from 2004.




***Provision
      for Income Taxes*** :
      In
      March 2005, we recorded a tax benefit of approximately $1.6 million primarily
      related to prior period tax contingencies, which are no longer required. During
      the third quarter of 2005, we recorded a tax benefit of approximately $6.7
      million primarily related to the reversal of a previously recorded valuation
      allowance as the Company determined an additional portion of its deferred tax
      asset was more likely than not expected to be realized. Including these tax
      benefits, our annual effective tax rate was 24.8% in 2005.





During
      the fourth quarter of 2004, we recorded a tax benefit of approximately $7.1
      million primarily related to the divestiture and shutdown of certain former
      subsidiaries. Our tax rate during the fourth quarter benefited additionally
      from
      $2.0 million of net federal & state tax adjustments and other one-time
      reversals, primarily related to prior period tax contingencies, which are no
      longer required. Including these tax benefits, our annual effective tax rate
      was
      11.2% in 2004.





Our
      current effective tax rate is based on current projections for earnings in
      the
      tax jurisdictions in which we do business and is subject to taxation. Our
      effective tax rate could fluctuate due to changes in earnings between operating
      entities and related tax jurisdictions, or due to the potential tax impact
      arising from previous divestitures.




***Discontinued
      Operations*** :
      For the
      year ended December 31, 2005 and 2004, income from discontinued operations,
      net
      of taxes, was $0.8 million and $1.0 million, respectively, which mainly
      consisted of contingency payments due from our previously divested Germany
      and
      Hungary (2004 only) based operations, as more fully described in Recent Business
      Developments.




***Net
      Income and Earnings Per Share (“EPS”)*** :
      Our net
      income increased by approximately $12.8 million from $31.1 million in 2004
      to
      $43.9 million in 2005. Diluted earnings per share increased to $1.56 per share
      for the year ended December 31, 2005 from $1.22 for the year ended December
      31,
      2004.  Operating results were higher due to increased revenues from certain
      contracts; the middle to late 2004 and 2005 acquisitions; and various cost
      saving strategies in 2005. This was slightly offset by the higher tax benefits
      recorded in 2004 than 2005.








***Liquidity
      and Capital Resources***




At
      December 31, 2006, we had $79.8 million of unrestricted cash and equivalents,
      an
      increase of $6.7 million from December 31, 2005. For the year ended December
      31,
      2005 compared to 2006, cash provided by operations increased by $30.4 million
      from $55.3 million to $85.7 million. Cash used in investing activities decreased
      from $196.1 million to $70.2 million for the year ended December 31, 2005 and
      2006, respectively. Cash from financing activities decreased from a source
      of
      $163.2 million to a use of $9.0 million over the same comparative periods.




Cash
      provided
      by operations was $85.7 million during the year ended December 31, 2006, while
      cash provided by operations was $55.3 million in the year ended December 31,
      2005. This increase was, in large part, due to the increased operating cash
      flows from inVentiv Communications, Inc. and other acquisitions relating to
      new
      business. Timing of advances recorded as deferred revenue in new contracts
      from
      certain inVentiv Communications, Inc. clients increased dramatically in 2006
      over 2005.




Cash
      used in
      investing activities decreased by $125.9 million from $196.1 million to $70.2
      million for the year ended December 31, 2005 and 2006, respectively. The Company
      paid $187.0 million for the 2005 acquisitions of inVentiv Communications, Inc.
      and PRS, while spending $61.5 million in acquisitions for the 2006 acquisitions
      of Adheris, JSAI, Synergos, MedConference and DialogCoach.




Cash
      from
      financing activities decreased from a source of $163.2 million to a use of
      $9.0
      million over the same comparative periods, mainly due to the Company’s borrowing
      of $175.0 million in 2005 pursuant to the acquisition of inChord as more fully
      described below, with no corresponding amounts drawn on the line of credit
      in
      2006. During 2006, inVentiv adopted SFAS 123 R, resulting in a $8.6 million
      excess tax benefit, which is displayed as a financing inflow and corresponding
      operating outflow. This did not exist in 2005.




Our
      principal
      external source of liquidity is our syndicated, secured credit agreement, which
      we entered into with UBS AG, Stamford Branch, and others in connection with
      the
      inVentiv Communications, Inc. acquisition. As of December 31, 2006, we complied
      with the requirements, including all covenants, of the credit facility. The
      key
      features of this credit facility are as follows:




·
            A
                $175 million term loan facility was made available to inVentiv in
                a single
                drawing at the time of the inVentiv Communications, Inc. transaction.
                The
                credit agreement also includes a $50 million revolving credit facility,
                of
                which $5 million is available for the issuance of letters of credit,
                and a
                $5 million swingline facility.




·
            The
                term loan will mature on the sixth anniversary of the Credit Agreement,
                with scheduled quarterly amortization of 1% per year during years
                one
                through five and 95% during year six. The revolving loans will mature
                on
                the sixth anniversary of the Credit
                Agreement.




·
            Amounts
                advanced under the credit agreement must be prepaid with a percentage,
                determined based on a leverage test set forth in the credit agreement,
                of
                Excess Cash Flow (as defined in the credit agreement) and the proceeds
                of
                certain non-ordinary course asset sales and certain issuances of
                debt
                obligations or equity securities of inVentiv and its subsidiaries,
                subject
                to certain exceptions. We may elect to prepay the loans, in whole
                or in
                part at any time, in certain minimum principal amounts, without penalty
                or
                premium (other than normal LIBOR break funding costs). Amounts borrowed
                under the credit agreement that are repaid or prepaid may not be
                reborrowed.




·
            Interest
                on the loans accrue, at our election, at either (1) the Alternate
                Base
                Rate (which is the greater of UBS’s prime rate and federal funds effective
                rate plus 1/2 of 1%) or (2) the Adjusted LIBOR Rate, with interest
                periods
                determined at our option of 1, 2, 3 or 6 months (or, if the affected
                lenders agree, 9 months), in each case plus a spread based on the
                type of
                loan and method of interest rate determination
                elected.




·
            The
                credit agreement contains, among other things, conditions precedent,
                representations and warranties, covenants and events of default customary
                for facilities of this type. Such covenants include certain limitations
                on
                indebtedness, liens, sale-leaseback transactions, guarantees, fundamental
                changes, dividends, acquisitions and transactions with affiliates.
                The
                credit agreement also includes covenants under which we are required
                to
                maintain a maximum leverage ratio and minimum interest rate coverage
                and
                fixed charge coverage ratios that vary based on the amount of time
                elapsed
                since the initial extension of credit. We are in compliance with
                all
                covenants.





Effective
      October 2005, we entered into a three- year swap arrangement for $175 million
      to
      hedge against the six-year $175 million loan arrangement entered into to
      facilitate the acquisition of inVentiv Communications, Inc.





We
      believe that our cash and equivalents, cash to be provided by operations and
      available credit under our credit facility will be sufficient to fund our
      current operating requirements over the next 12 months. However, we cannot
      assure you that these sources of liquidity will be sufficient to fund all
      internal growth initiatives, investments and acquisition activities that we
      may
      wish to pursue. If we pursue significant internal growth initiatives or if
      we
      wish to acquire additional businesses in transactions that include cash payments
      as part of the purchase price, we may pursue additional debt or equity sources
      to finance such transactions and activities, depending on market conditions. The
      acquisition agreements entered into in connection with our 2004, 2005 and 2006
      acquisitions include earn-out
      provisions pursuant to which the sellers will become entitled to additional
      consideration, which may be material, if the acquired businesses achieve
      specified performance measurements. See footnote 3 to our consolidated financial
      statements included in Part II, Item 8 of this Annual Report on Form 10-K.





**Commitments
      and Contractual Obligations**





A
      summary
      of our current contractual obligations and commercial commitments is as follows:





**(Amounts
                in thousands)**
            
            
            
            
            **Amounts
                Due In****Contractual
                Obligations**
            
            
            Total
                Obligation
            
            
            Less
                than 1 Year
            
            
            1
                - 3 years
            
            
            3
                -5 years
            
            More
                than 5 yearsLong
                term debt obligations (a)
            
            $
            210,796
            
            $
            11,807
            
            $
            24,406
            
            $
            174,583
            
            
            --Capital
                lease obligations (b)
            
            
            37,601
            
            
            13,692
            
            
            20,185
            
            
            3,724
            
            
            --Operating
                leases (c)
            
            
            65,332
            
            
            15,638
            
            
            21,150
            
            
            15,450
            
            
            13,094Acquisition-related
                incentive (d)
            
            
            11,025
            
            
            --
            
            
            11,025
            
            
            --
            
            
            --Total
                obligations
            
            $
            324,754
            
            $
            41,137
            
            $
            76,766
            
            $
            193,757
            
            $
            13,094




(a)
            These
                future commitments represent the principal and interest payments
                under the
                $175 million term loan under our credit
                facility.


(b)
            These
                future commitments include interest and management fees, which are
                not
                recorded on the Consolidated Balance Sheet as of December 31, 2006
                but
                will be recorded as incurred.


(c)
            Operating
                leases include facility lease obligations in which the lease agreement
                may
                expire during the five-year period, but are expected to continue
                on a
                monthly basis beyond the lease term, as provided for in the leasing
                arrangements.


(d)
            The
                former stockholders of inVentiv Communications, Inc. are contractually
                obligated to reimburse us for $5.0 million of this
                amount.




The
      acquisition agreements entered into in connection with all of our acquisitions
      include earn-out
      provisions pursuant to which the sellers will become entitled to additional
      consideration, which may be material, if the acquired businesses achieve
      specified performance measurements. See footnote 3 to our consolidated financial
      statements included in Part II, Item 8 of this Annual Report on Form
      10-K.





**Effect
      of Inflation**




Because
      of
      the relatively low level of inflation experienced in the United States,
      inflation did not have a material impact on our consolidated results of
      operations for 2006, 2005 or 2004.





**Off-Balance
      Sheet Arrangements**




As
      of
      December 31, 2006, we did not have any off-balance-sheet arrangements, as
      defined in Item 303(a)(4)(ii) of SEC Regulation S-K.





**Item
      7A.*****Quantitative
      and Qualitative Disclosures About Market Risk.***





**Long-Term
      Debt Exposure**





At
      December 31, 2006, we had $164.6 million debt outstanding under our unsecured
      term loan. See Liquidity and Capital Resources section for further detail on
      our
      credit agreement. We will incur variable interest expense with respect to its
      outstanding loan. This interest rate risk may be partially offset by our
      derivative financial instrument, as described below. Based on our debt
      obligation outstanding at December 31, 2006, a hypothetical increase or decrease
      of 10% in the variable interest rate would have an immaterial effect on interest
      expense due to the fixed rate associated with the derivative financial
      instrument.





**Derivative
      Financial Instrument**





Effective
      October 2005, we entered into an amortizing three-year interest rate swap
      arrangement with a notional amount of $175 million at inception to apply a
      fixed
      interest rate against the six-year $175 million loan arrangement entered into
      to
      facilitate the acquisition of inChord. We entered into this interest rate swap
      agreement to modify the interest rate characteristics of our outstanding
      long-term debt. At the inception of the hedged item’s designation, and at least
      quarterly thereafter, we assess whether derivatives used to hedge transactions
      are highly effective in offsetting changes in the cash flow of the hedged item.
      To the extent the instruments are considered to be effective, changes in fair
      value are recorded as a component of other comprehensive income (loss). To
      the
      extent there is any hedge ineffectiveness, changes in fair value relating to
      the
      ineffective portion are immediately recognized in earnings (interest expense).





From
      October 2005 to July 2006, we did not qualify for hedge accounting and recorded
      a $2.9 million reduction to interest expense relating to the mark-to-market
      adjustment, and a corresponding derivative asset of approximately $2.9 million,
      which was recorded in Deposits and Other Assets on the Consolidated Balance
      Sheet. The fair values of the interest rate swaps were obtained from dealer
      quotes. These values represent the estimated amount we would receive or pay
      to
      terminate the agreement taking into consideration the difference between the
      contract rate of interest and rates currently quoted for agreements of similar
      terms and maturities.





On
      July
      17, 2006, we formally designated the interest rate swap as a cash flow hedge
      pursuant to SFAS No. 133, *Accounting
      for Derivative Instruments and Hedging Activities* .
      We
      employed the dollar offset method by performing a shock test to assess
      ineffectiveness and utilized the hypothetical derivative model to measure
      ineffectiveness. The hypothetical derivative contains the same terms and
      conditions as the original derivative, but was initiated in July 2006. From
      July
      2006 to December 2006, the fair market value of the derivative asset decreased
      to approximately $1.1 million, resulting in a $1.8 million decrease in the
      derivative asset; approximately $1.2 million (approximately $0.7 million, net
      of
      taxes) adjustment to Other Comprehensive Income; and $0.6 million of interest
      expense due to ineffectiveness of the hedged item.





**Foreign
      Currency Exchange Rate Exposure**





We
      are
      not currently affected by foreign currency exchange rate exposure, except for
      any fluctuations in the foreign bank accounts remaining from the divestitures
      of
      our European business units and our Canadian subsidiary, equity investments
      and
      minority interests in inVentiv Communications’ foreign business units, which are
      not material to its consolidated financial statements. Our treatment of foreign
      subsidiaries is consistent with the guidelines set forth in SFAS 52, *Foreign
      Currency Translations* .
      The
      financial statements of our subsidiaries expressed in foreign currencies
      are translated from the respective functional currencies to U.S. Dollars, with
      results of operations and cash flows translated at average exchange rates during
      the period, and assets and liabilities translated at end of the period exchange
      rates. At December 31, 2006, the accumulated other comprehensive earnings
      related to foreign currency translations was approximately $0.2 million. Foreign
      currency transaction gains and (losses) are included in the results of
      operations and are not material.





**Item
      8.*****Financial
      Statements and Supplementary Data.***





**INDEX
      TO FINANCIAL STATEMENTS**





Report
                of ManagementReport
                of Independent Registered Public Accounting
                FirmConsolidated
                Balance Sheets as of December 31, 2006 and
                2005Consolidated
                Statements of Operations for the years ended
                December 31, 2006, 2005 and 2004Consolidated
                Statements of Stockholders' Equity for the
                years ended December 31, 2006, 2005, and 2004Consolidated
                Statements of Cash Flows for the years ended
                December 31, 2006, 2005 and 2004Notes
                to Consolidated Financial
                Statements










REPORT
      OF MANAGEMENT






**Management's
      Report on Financial Statements**




Our
      management is responsible for the preparation, integrity and fair presentation
      of information in our consolidated financial statements, including estimates
      and
      judgments. The consolidated financial statements presented in this report have
      been prepared in accordance with accounting principles generally accepted in
      the
      United States of America. Our management believes the consolidated financial
      statements and other financial information included in this report fairly
      present, in all material respects, our consolidated financial condition,
      consolidated results of operations and consolidated cash flows as of and for
      the
      periods presented in this report. The consolidated financial statements have
      been audited by Deloitte & Touche LLP, an independent registered public
      accounting firm, as stated in their report, which is included herein.




**Management's
      Report on Internal Control Over Financial Reporting**




Our
      management is responsible for establishing and maintaining an adequate system
      of
      internal control over financial reporting. Our system of internal control over
      financial reporting is designed to provide reasonable assurance regarding the
      reliability of financial reporting and the preparation of financial statements
      for external purposes in accordance with accounting principles generally
      accepted in the United States of America.




Our
      internal control over financial reporting includes those policies and procedures
      that:




·
              pertain
                    to the maintenance of records that, in reasonable detail, accurately
                    and
                    fairly reflect our transactions and dispositions of our
                    assets;
  ·
              provide
                    reasonable assurance that our transactions are recorded as necessary
                    to
                    permit preparation of our consolidated financial statements in
                    accordance
                    with accounting principles generally accepted in the United States
                    of
                    America, and that our receipts and expenditures are being made
                    only in
                    accordance with authorizations of our management and our directors;
                    and
  ·
              provide
                    reasonable assurance regarding prevention or timely detection
                    of
                    unauthorized acquisition, use, or disposition of our assets that
                    could
                    have a material effect on the consolidated financial
                    statements.


Our
      management, including the Chief Executive Officer and Chief Financial Officer,
      does not expect that our internal control over financial reporting will prevent
      or detect all error and all fraud. A control system, no matter how well designed
      and operated, can provide only reasonable, not absolute, assurance that the
      control system’s objectives will be met. The design of a control system must
      reflect the fact that there are resource constraints, and the benefits of
      controls must be considered relative to their costs. Further, because of the
      inherent limitations in all control systems, no evaluation of controls can
      provide absolute assurance that misstatements due to error or fraud will not
      occur or that all control issues and instances of fraud, if any, within the
      company have been detected. The design of any system of controls is based in
      part on certain assumptions about the likelihood of future events, and there
      can
      be no assurance that any design will succeed in achieving its stated goals
      under
      all potential future conditions. Projections of any evaluation of controls
      effectiveness to future periods are subject to risks. Over time, controls may
      become inadequate because of changes in conditions or deterioration in the
      degree of compliance with policies or procedures. Our system contains self
      monitoring mechanisms, and actions are taken to correct deficiencies as they
      are
      identified.





Our
      management conducted an evaluation of the effectiveness of the system of
      internal control over financial reporting based on the framework in *Internal
      Control—Integrated Framework* issued
      by
      the Committee of Sponsoring Organizations of the Treadway Commission. Our
      assessment excludes the Adheris, JSAI, Synergos, MedConference and DialogCoach
      businesses we acquired in 2006 as allowed under the rules and clarifications
      provided by the Securities and Exchange Commission and the Public Company
      Accounting Oversight Board (United States). The financial statements of these
      acquired businesses constitute 8% and 15% of revenues and total assets,
      respectively, of the consolidated financial statement amounts as of and for
      the
      year ended December 31, 2006. Based on this evaluation, our management concluded
      that our system of internal control over financial reporting was effective
      as of
      December 31, 2006. Our management's assessment of the effectiveness of our
      internal control over financial reporting has been audited by
      Deloitte & Touche LLP, an independent registered public accounting
      firm, as stated in their report which is included herein.







REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





Board
      of
      Directors and Stockholders of inVentiv Health, Inc.


Somerset,
      New Jersey





We
      have
      audited the accompanying consolidated balance sheets of inVentiv Health, Inc.
      and subsidiaries (the "Company") as of December 31, 2006 and 2005, and the
      related consolidated statements of operations, stockholders' equity and cash
      flows for each of the three years in the period ended December 31, 2006.
      Our audits also included the financial statement schedules listed in the Index
      at Item 15 (a). We also have audited management's assessment, included in the
      accompanying *Management's
      Report on Internal Control Over Financial Reporting* ,
      that
      the Company maintained effective internal control over financial reporting
      as of
      December 31, 2006, based on criteria established in *Internal
      Control—Integrated Framework* issued
      by
      the Committee of Sponsoring Organizations of the Treadway Commission. As
      described in *Management's
      Report on Internal Control Over Financial Reporting* ,
      management excluded from their assessment the internal control over financial
      reporting at Adheris, JSAI, Synergos, MedConference and DialogCoach, which
      were acquired in 2006, and whose financial statements reflect total assets
      and
      revenues constituting 15% and 8% of the related consolidated financial statement
      amounts as of and for the year ended December 31, 2006. Accordingly, our audit
      did not include the internal control over financial reporting at the
      aforementioned Adheris, JSAI, Synergos, MedConference and DialogCoach. The
      Company's management is responsible for these consolidated financial statements
      and financial statement schedules, for maintaining effective internal control
      over financial reporting, and for its assessment of the effectiveness of
      internal control over financial reporting. Our responsibility is to express
      an
      opinion on these consolidated financial statements and financial statement
      schedule, an opinion on management's assessment, and an opinion on the
      effectiveness of the Company's internal control over financial reporting based
      on our audits.





We
      conducted our audits in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audit to obtain reasonable assurance about whether the
      consolidated financial statements are free of material misstatement and whether
      effective internal control over financial reporting was maintained in all
      material respects. Our audit of the consolidated financial statements included
      examining, on a test basis, evidence supporting the amounts and disclosures
      in
      the consolidated financial statements, assessing the accounting principles
      used
      and significant estimates made by management, and evaluating the overall
      consolidated financial statement presentation. Our audit of internal control
      over financial reporting included obtaining an understanding of internal control
      over financial reporting, evaluating management's assessment, testing and
      evaluating the design and operating effectiveness of internal control, and
      performing such other procedures as we considered necessary in the
      circumstances. We believe that our audits provide a reasonable basis for our
      opinions.





A
      company's internal control over financial reporting is a process designed by,
      or
      under the supervision of, the company's principal executive and principal
      financial officers, or persons performing similar functions, and effected by
      the
      company's board of directors, management, and other personnel to provide
      reasonable assurance regarding the reliability of financial reporting and the
      preparation of financial statements for external purposes in accordance with
      generally accepted accounting principles. A company's internal control over
      financial reporting includes those policies and procedures that (1) pertain
      to the maintenance of records that, in reasonable detail, accurately and fairly
      reflect the transactions and dispositions of the assets of the company;
      (2) provide reasonable assurance that transactions are recorded as
      necessary to permit preparation of financial statements in accordance with
      generally accepted accounting principles and that receipts and expenditures
      of
      the company are being made only in accordance with authorizations of management
      and directors of the company; and (3) provide reasonable assurance
      regarding prevention or timely detection of unauthorized acquisition, use,
      or
      disposition of the company's assets that could have a material effect on the
      financial statements.





Because
      of the inherent limitations of internal control over financial reporting,
      including the possibility of collusion or improper management override of
      controls, material misstatements due to error or fraud may not be prevented
      or
      detected on a timely basis. Also, projections of any evaluation of the
      effectiveness of the internal control over financial reporting to future periods
      are subject to the risk that the controls may become inadequate because of
      changes in conditions, or that the degree of compliance with the policies or
      procedures may deteriorate.





In
      our
      opinion, the consolidated financial statements referred to above present fairly,
      in all material respects, the consolidated financial position of inVentiv
      Health, Inc. as of December 31, 2006 and 2005, and the results of its
      operations and its cash flows for each of the three years in the period ended
      December 31, 2006, in conformity with accounting principles generally
      accepted in the United States of America. Also, in our opinion, such financial
      statement schedules, when considered in relation to basic consolidated financial
      statements taken as a whole, presents fairly, in all material respects, the
      information set forth therein. Also, in our opinion, management's assessment
      that the Company maintained effective internal control over financial reporting
      as of December 31, 2006, is fairly stated, in all material respects, based
      on the criteria established in *Internal
      Control—Integrated Framework* issued
      by
      the Committee of Sponsoring Organizations of the Treadway Commission.
      Furthermore, in our opinion, the Company maintained, in all material respects,
      effective internal control over financial reporting as of December 31,
      2006, based on the criteria established in *Internal
      Control—Integrated Framework* issued
      by
      the Committee of Sponsoring Organizations of the Treadway Commission.





As
      discussed in Note 2 to the financial statements, in 2006 the Company changed
      its
      method of accounting for stock compensation to conform to Statement of Financial
      Accounting Standards No. 123 (revised 2004) *Share
      Base Payment* .





/s/
      Deloitte & Touche LLP


Parsippany,
      New Jersey


February
      27, 2007








**INVENTIV
      HEALTH, INC.**


**CONSOLIDATED
      BALANCE SHEETS**


**(in
      thousands, except share amounts)**








**December
                31,****2006**
            
            
            **2005****ASSETS**Current
                assets:Cash
                and equivalents
            
            $
            79,835
            
            $
            73,102Restricted
                cash
            
            
            50
            
            
            3,878Accounts
                receivable, net of allowances for doubtful accounts of $3,583 and
                $3,979
                atDecember
                31, 2006 and 2005, respectively
            
            
            124,283
            
            
            112,782Unbilled
                services
            
            
            75,691
            
            
            41,206Prepaid
                expenses and other current assets
            
            
            8,524
            
            
            5,737Current
                deferred tax assets
            
            
            834
            
            
            4,029Total
                current assets
            
            
            289,217
            
            
            240,734Property
                and equipment, net
            
            
            43,380
            
            
            36,637Equity
                investments
            
            
            5,076
            
            
            5,183Goodwill
            
            
            266,827
            
            
            173,777Other
                intangibles, net
            
            
            152,637
            
            
            117,606Deferred
                tax assets
            
            
            --
            
            
            3,428Deposits
                and other assets
            
            
            13,917
            
            
            6,529Total
                assets
            
            $
            771,054
            
            $
            583,894**LIABILITIES
                AND STOCKHOLDERS’ EQUITY**Current
                liabilities:Current
                portion of capital lease obligations
            
            $
            11,708
            
            $
            10,859Current
                portion of long-term debt
            
            
            1,667
            
            
            1,750Accrued
                payroll, accounts payable and accrued expenses
            
            
            123,175
            
            
            77,816Current
                income tax liabilities
            
            
            1,475
            
            
            7,359Client
                advances and unearned revenue
            
            
            64,508
            
            
            29,393Total
                current liabilities
            
            
            202,533
            
            
            127,177Capital
                lease obligations, net of current portion
            
            
            21,800
            
            
            17,695Long-term
                debt
            
            
            162,917
            
            
            172,813Deferred
                tax liabilities
            
            
            6,756
            
            
            --Other
                non-current liabilities
            
            
            18,471
            
            
            12,994Total
                liabilities
            
            
            412,477
            
            
            330,679Commitments
                and contingenciesMinority
                interests
            
            
            115
            
            
            (4
            )Stockholders’
                Equity:Preferred
                stock, $.001 par value, 10,000,000 shares authorized, none issued
                and
                outstanding atDecember
                31, 2006 and 2005, respectively
            
            
            --
            
            
            --Common
                stock, $.001 par value, 50,000,000 shares authorized; 29,975,710
                and
                27,862,436Shares
                issued and outstanding at December 31, 2006 and 2005,
                respectively
            
            
            30
            
            
            28Additional
                paid-in-capital
            
            
            284,331
            
            
            233,441Deferred
                compensation
            
            
            --
            
            
            (3,563
            )Accumulated
                other comprehensive (losses) income
            
            
            (226
            )
            
            221Accumulated
                earnings
            
            
            74,327
            
            
            23,092Total
                stockholders’ equity
            
            
            358,462
            
            
            253,219Total
                liabilities and stockholders’ equity
            
            $
            771,054
            
            $
            583,894





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





**INVENTIV
      HEALTH, INC.**





**CONSOLIDATED
      STATEMENTS OF OPERATIONS**


**(in
      thousands, except per share amounts)**





**For
                the Years Ended December 31,****2006**
            
            
            **2005**
            
            
            **2004**Net
                Revenues
            
            $
            631,620
            
            $
            467,013
            
            $
            312,892Reimbursable
                out-of-pockets
            
            
            134,625
            
            
            89,299
            
            
            39,292Revenues
            
            
            766,245
            
            
            556,312
            
            
            352,184Operating
                expenses:Cost
                of services
            
            
            410,184
            
            
            327,648
            
            
            241,468Reimbursed
                out-of-pocket expenses
            
            
            136,565
            
            
            89,377
            
            
            38,265Selling,
                general and administrative expenses
            
            
            141,418
            
            
            79,313
            
            
            38,539Other
                operating income
            
            
            --
            
            
            --
            
            
            (264
            )Total
                operating expenses
            
            
            688,167
            
            
            496,338
            
            
            318,008Operating
                income
            
            
            78,078
            
            
            59,974
            
            
            34,176Interest
                expense
            
            
            (11,361
            )
            
            (3,955
            )
            
            (922
            )Interest
                income
            
            
            2,694
            
            
            1,409
            
            
            678Income
                from continuing operations before income tax provision, minority
                interest
                in
              income
                of subsidiary and income from equity investments
            
            
            69,411
            
            
            57,428
            
            
            33,932Income
                tax provision
            
            
            (19,166
            )
            
            (14,229
            )
            
            (3,802
            )Income
                from continuing operations before minority interest in income of
                subsidiary and
              income
                from equity investments
            
            
            50,245
            
            
            43,199
            
            
            30,130Minority
                interest in income of subsidiaries
            
            
            (1,207
            )
            
            (224
            )
            
            --Equity
                earnings in investments
            
            
            160
            
            
            107
            
            
            --Income
                from continuing operations
            
            
            49,198
            
            
            43,082
            
            
            30,130Income
                from discontinued operations:Gains
                on disposals of discontinued operations, net of tax benefit (expense)
                of
              $749,
                ($442) and ($547) for the years ended December 31, 2006, 2005 and
                2004,
                respectively
            
            
            2,037
            
            
            781
            
            
            1,002Income
                from discontinued operations
            
            
            2,037
            
            
            781
            
            
            1,002Net
                income
            
            $
            51,235
            
            $
            43,863
            
            $
            31,132Earnings
                per share:Continuing
                operations:Basic
            
            $
            1.69
            
            $
            1.60
            
            $
            1.26Diluted
            
            $
            1.64
            
            $
            1.53
            
            $
            1.18Discontinued
                operations:Basic
            
            $
            0.07
            
            $
            0.03
            
            $
            0.04Diluted
            
            $
            0.06
            
            $
            0.03
            
            $
            0.04Net
                income:Basic
            
            $
            1.76
            
            $
            1.63
            
            $
            1.30Diluted
            
            $
            1.70
            
            $
            1.56
            
            $
            1.22Weighted
                average common shares outstanding:Basic
            
            
            29,159
            
            
            26,875
            
            
            23,951Diluted
            
            
            30,058
            
            
            28,165
            
            
            25,437





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





**INVENTIV
      HEALTH, INC.**





**CONSOLIDATED
      STATEMENTS OF STOCKHOLDERS'
      EQUITY**


**For
      the years ended December 31, 2006, 2005 and 2004**


**(in
      thousands)**





**Common
                Stock**
            
            **Additional
                Paid-In**
              **Capital**
            
            **Accumulatedearnings**
              **(deficit)**
            
            **Deferred
                Compen-**
              **sation**
            
            **Compre-hensive**
              **Income**
              **(Losses)**
            
            **Accumulated
                Other Comprehen-sive Income (Losses)**
            
            **Total**Balance
                at January 1, 2004
            
            $
            23
            
            $
            159,359
            
            $
            (51,675
            )
            $
            (85
            )
            
            
            
            $
            103
            
            
            107,725Net
                income
            
            
            --
            
            
            --
            
            
            31,132
            
            
            --
            
            $
            31,132
            
            
            --
            
            
            31,132Foreign
                currency translation adjustment
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            217
            
            
            217
            
            
            217$
            31,349Vesting
                of restricted shares
            
            
            --
            
            
            --
            
            
            --
            
            
            64
            
            
            
            
            
            --
            
            
            64Compensation
                expense
            
            
            --
            
            
            74
            
            
            --
            
            
            --
            
            
            
            
            
            --
            
            
            74Exercise
                of stock options
            
            
            2
            
            
            3,196
            
            
            --
            
            
            --
            
            
            
            
            
            --
            
            
            3,198Issuance
                of restricted shares
            
            
            --
            
            
            399
            
            
            --
            
            
            (399
            )
            
            
            
            
            --
            
            
            --Tax
                benefit from exercise of employee stock options and vesting of restricted
                stock
            
            
            --
            
            
            4,493
            
            
            --
            
            
            --
            
            
            
            
            
            --
            
            
            4,493Issuance
                of shares in connection with acquisitions
            
            
            1
            
            
            25,540
            
            
            --
            
            
            --
            
            
            
            
            
            --
            
            
            25,541Balance
                at December 31, 2004
            
            
            26
            
            
            193,061
            
            
            (20,543
            )
            
            (420
            )
            
            
            
            
            320
            
            
            172,444Net
                income
            
            
            --
            
            
            --
            
            
            43,863
            
            
            --
            
            $
            43,863
            
            
            --
            
            
            43,863Foreign
                currency translation adjustment
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            (99
            )
            
            (99
            )
            
            (99
            )$
            43,764Vesting
                of restricted shares
            
            
            --
            
            
            --
            
            
            --
            
            
            694
            
            
            
            
            
            --
            
            
            694Compensation
                expense
            
            
            --
            
            
            435
            
            
            --
            
            
            --
            
            
            
            
            
            --
            
            
            435Exercise
                of stock options
            
            
            1
            
            
            6,831
            
            
            --
            
            
            --
            
            
            
            
            
            --
            
            
            6,832Issuance
                of restricted shares
            
            
            --
            
            
            3,858
            
            
            --
            
            
            (3,858
            )
            
            
            
            
            --
            
            
            --Cancellation
                of restricted shares
            
            
            --
            
            
            (21
            )
            
            --
            
            
            21
            
            
            
            
            
            --
            
            
            --Tax
                benefit from exercise of employee stock options and vesting of restricted
                stock
            
            
            --
            
            
            9,772
            
            
            --
            
            
            --
            
            
            
            
            
            --
            
            
            9,772Issuance
                of shares in connection with acquisitions
            
            
            1
            
            
            19,505
            
            
            --
            
            
            --
            
            
            
            
            
            --
            
            
            19,506Cash
                distribution TSP
            
            
            --
            
            
            --
            
            
            (228
            )
            
            --
            
            
            
            
            
            --
            
            
            (228
            )Balance
                at December 31, 2005
            
            
            28
            
            
            233,441
            
            
            23,092
            
            
            (3,563
            )
            
            
            
            
            221
            
            
            253,219Net
                income
            
            
            --
            
            
            --
            
            
            51,235
            
            
            --
            
            $
            51,235
            
            
            --
            
            
            51,235Foreign
                currency translation adjustment
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            225
            
            
            225
            
            
            225Net
                change in effective portion of derivative, net of taxes
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            (672
            )
            
            (672
            )
            
            (672
            )$
            50,788Reclassification
                of unvested restricted shares to additional paid in
                capital
            
            
            --
            
            
            (3,563
            )
            
            --
            
            
            3,563
            
            
            
            
            
            --
            
            
            --Vesting
                of restricted shares
            
            
            --
            
            
            3,089
            
            
            --
            
            
            --
            
            
            
            
            
            --
            
            
            3,089Withhold
                shares for taxes
            
            
            --
            
            
            (190
            )
            
            --
            
            
            --
            
            
            
            
            
            --
            
            
            (190
            )Consultant
                compensation
            
            
            --
            
            
            728
            
            
            --
            
            
            --
            
            
            
            
            
            --
            
            
            728Exercise
                of stock options
            
            
            1
            
            
            6,525
            
            
            --
            
            
            --
            
            
            
            
            
            --
            
            
            6,526Stock
                option expense
            
            
            --
            
            
            4,450
            
            
            --
            
            
            --
            
            
            
            
            
            --
            
            
            4,450Tax
                benefit from exercise of employee stock options and vesting of restricted
                stock
            
            
            --
            
            
            8,959
            
            
            --
            
            
            --
            
            
            
            
            
            --
            
            
            8,959Issuance
                of shares in connection with acquisitions
            
            
            1
            
            
            30,892
            
            
            --
            
            
            --
            
            
            
            
            
            --
            
            
            30,893Balance
                at December 31, 2006
            
            $
            30
            
            $
            284,331
            
            $
            74,327
            
            $
            --
            
            
            
            
            $
            (226
            )
            $
            358,462








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





**INVENTIV
      HEALTH, INC.**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


**(in
      thousands)**





**For
                the Years Ended** **December
                31,****2006**
            
            
            **2005**
            
            
            **2004**Cash
                flows from operating activities:Net
                income
            
            $
            51,235
            
            $
            43,863
            
            $
            31,132Income
                from discontinued operations
            
            
            (2,037
            )
            
            (781
            )
            
            (1,002
            )Income
                from continuing operations
            
            
            49,198
            
            $
            43,082
            
            $
            30,130Adjustments
                to reconcile net income to net cash provided by operating
                activities:Depreciation
            
            
            15,130
            
            
            15,491
            
            
            15,602Amortization
            
            
            5,610
            
            
            1,934
            
            
            306Earnings
                of equity investments
            
            
            (160
            )
            
            (107
            )
            
            --Minority
                interest in income of subsidiary
            
            
            1,207
            
            
            224
            
            
            --Fair
                market value adjustment on derivative financial instrument
            
            
            (2,069
            )
            
            (269
            )
            
            --Deferred
                taxes
            
            
            13,379
            
            
            4,352
            
            
            (4,711
            )Stock
                compensation expense
            
            
            7,539
            
            
            694
            
            
            138Tax
                benefit from stock option exercises and vesting of restricted
                shares
            
            
            9,831
            
            
            9,772
            
            
            4,493Changes
                in assets and liabilities, net of effects from discontinued
                operations:Accounts
                receivable, net
            
            
            2,257
            
            
            (20,204
            )
            
            (1,186
            )Unbilled
                services
            
            
            (32,576
            )
            
            10,348
            
            
            (9,522
            )Prepaid
                expenses and other current assets
            
            
            (197
            )
            
            6,521
            
            
            (1,208
            )Accrued
                payroll, accounts payable and accrued expenses
            
            
            7,154
            
            
            (6,401
            )
            
            8,413Current
                income tax liabilities
            
            
            (6,754
            )
            
            (4,754
            )
            
            2,948Client
                advances and unearned revenue
            
            
            21,715
            
            
            (8,186
            )
            
            4,286Excess
                tax benefits from stock based compensation
            
            
            (8,641
            )
            
            --
            
            
            --Other
            
            
            2,403
            
            
            3,757
            
            
            397Net
                cash provided by continuing operations
            
            
            85,026
            
            
            56,254
            
            
            50,086Net
                cash provided by (used in) discontinued operations
            
            
            624
            
            
            (951
            )
            
            (1,125
            )Net
                cash provided by operating activities
            
            
            85,650
            
            
            55,303
            
            
            48,961Cash
                flows from investing activities:Restricted
                cash balances
            
            
            3,828
            
            
            (1,332
            )
            
            (816
            )Investment
                in cash value of life insurance policies
            
            
            (2,911
            )
            
            (1,382
            )
            
            --Cash
                paid for acquisitions, net of cash acquired
            
            
            (61,461
            )
            
            (187,002
            )
            
            (44,943
            )Acquisition
                earn-out payments
            
            
            (8,267
            )
            
            (5,181
            )
            
            --Equity
                investments
            
            
            267
            
            
            (115
            )
            
            --Purchases
                of property and equipment
            
            
            (6,704
            )
            
            (5,936
            )
            
            (5,697
            )Proceeds
                from manufacturers rebates on leased vehicles
            
            
            3,630
            
            
            3,093
            
            
            3,799Net
                cash used in continuing operations
            
            
            (71,618
            )
            
            (197,855
            )
            
            (47,657
            )Net
                cash provided by discontinued operations
            
            
            1,413
            
            
            1,732
            
            
            2,141Net
                cash (used in) provided by investing activities
            
            
            (70,205
            )
            
            (196,123
            )
            
            (45,516
            )Cash
                flows from financing activities:Borrowings
                on credit agreement
            
            
            --
            
            
            175,000
            
            
            --Repayments
                on credit agreement
            
            
            (9,979
            )
            
            (437
            )
            
            --Repayments
                of capital lease obligations
            
            
            (12,948
            )
            
            (14,624
            )
            
            (11,021
            )Fees
                to establish credit agreement
            
            
            --
            
            
            (3,330
            )
            
            --Withholding
                shares for taxes
            
            
            (190
            )
            
            --
            
            
            --Proceeds
                from exercise of stock options
            
            
            6,525
            
            
            6,831
            
            
            3,198Excess
                tax benefits from stock-based compensation
            
            
            8,641
            
            
            --
            
            
            --Distributions
                to minority interests in affiliated partnership
            
            
            (1,087
            )
            
            (228
            )
            
            --Net
                cash (used in) provided by continuing operations
            
            
            (9,038
            )
            
            163,212
            
            
            (7,823
            )Net
                cash provided by discontinued operations
            
            
            --
            
            
            --
            
            
            --Net
                cash (used in) provided by financing activities
            
            
            (9,038
            )
            
            163,212
            
            
            (7,823
            )Effect
                of exchange rate changes
            
            
            326
            
            
            (99
            )
            
            217Net
                increase (decrease) in cash and equivalents
            
            
            6,733
            
            
            22,293
            
            
            (4,161
            )Cash
                and equivalents, beginning of year
            
            
            73,102
            
            
            50,809
            
            
            54,970Cash
                and equivalents, end of year
            
            $
            79,835
            
            $
            73,102
            
            $
            50,809Supplemental
                disclosures of cash flow information:Cash
                paid for interest
            
            $
            12,798
            
            $
            4,090
            
            $
            857Cash
                paid for income taxes
            
            $
            8,077
            
            $
            5,296
            
            $
            1,641Supplemental
                disclosure of non-cash activities:Vehicles
                acquired through capital lease agreements
            
            $
            21,871
            
            $
            10,845
            
            $
            16,581Stock
                issuance related to acquisitions
            
            $
            30,893
            
            $
            19,506
            
            $
            25,541


(1)
            See
                footnote 2 for further details.





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








**INVENTIV
      HEALTH, INC.**


**NOTES
      TO CONSOLIDATED FINANCIAL
      STATEMENTS**





**1.
      Organization and Business:**





inVentiv
      Health Inc. (together with its subsidiaries, “inVentiv”, or the “Company”,
      formerly Ventiv Health, Inc.) is a leading provider of value-added services
      to
      the pharmaceutical and life sciences industries. The Company supports a broad
      range of clinical development, communications and commercialization activities
      that are critical to its customers' ability to complete the development of
      new
      drug products and medical devices and successfully bring them to market. The
      Company’s goal is to assist its customers in meeting their objectives in each of
      its operational areas by providing our services on a flexible and cost-effective
      basis that permits the Company to provide discrete service offerings in focused
      areas as well as integrated multidisciplinary solutions. The Company provides
      services to over 200 client organizations, including all top 20 global
      pharmaceutical companies and numerous emerging and specialty biotechnology
      companies.





The
      Company’s service offerings reflect the changing needs of its clients as their
      products move through the late-stage development and regulatory approval
      processes and into product launch. The Company has established expertise and
      leadership in providing the services its clients require at each of these stages
      of product development and commercialization and seek to address their
      outsourced service needs on a comprehensive basis throughout the product life
      cycle through both standalone and integrated solutions.





On
      June
      14, 2006, the Company changed its name to inVentiv Health, Inc. as part of
      a
      re-branding initiative that began when the Company acquired inVentiv
      Communications, Inc. (then known as inChord Communications, Inc.) (“inVentiv
      Communications, Inc.” or "inChord"), a healthcare marketing and communications
      company.




*Business
      Segments*





The
      Company currently serves its clients primarily through three business segments,
      which correspond to its reporting segments for 2006:





·
            inVentiv
                Clinical,
                which provides services related to permanent placement, clinical
                staffing,
                data collection and management and functional outsourcing. This segment
                includes the Smith Hanley group of companies (which includes Smith
                Hanley
                Associates, Smith Hanley Consulting Group and MedFocus) and HHI Clinical
                & Statistical Research Services (“HHI”), which the Company acquired
                during the fourth quarter of 2004, and Synergos, LLP ("Synergos"),
                a
                clinical services provider with expertise in clinical trial management
                services, which the Company acquired in the second quarter of
                2006.





·
            inVentiv
                Communications,
                which provides services related to pharmaceutical advertising, branding,
                interactive communication development and patient and physician education.
                This segment includes inVentiv Communications, Inc., Adheris, Inc.
                ("Adheris"), a patient compliance and persistence communications
                company,
                which the Company acquired in the first quarter of 2006, and Jeffrey
                Simbrow Associates ("JSAI"), a leading healthcare marketing and
                communications agency, which the Company acquired in the second quarter
                of
                2006, as more fully discussed below.





·
            inVentiv
                Commercial,
                which consists of the Company’s outsourced sales and marketing teams,
                planning and analytics services, sample accountability and patient
                assistance businesses, marketing support services, professional
                development and training, and recruitment of sales representatives
                in the
                commercial services area. This segment includes inVentiv Pharma Teams,
                inVentiv Analytics and inVentiv Pharma Solutions.





The
      Company’s services are designed to develop, execute and monitor strategic and
      tactical sales and marketing plans and programs for the promotion of
      pharmaceutical, biotechnology and other life sciences products.




**2.
      Summary of Significant Accounting Policies:**





*Basis
      of Presentation*





The
      consolidated financial statements include the accounts of inVentiv Health,
      Inc.,
      its wholly owned subsidiaries and its 53% owned subsidiary, Taylor Search
      Partners (“TSP”), which was acquired in conjunction with the acquisition of
      inVentiv Communications, Inc. Our continuing operations consist primarily of
      three business segments: in Ventiv
      Clinical, inVentiv Communications and inVentiv Commercial. All
      significant intercompany transactions have been eliminated in
      consolidation.




As
      a
      result of the acquisition of inVentiv Communications, Inc., the Company has
      a
      15% ownership interest in Heart Reklambyra AB (“Heart”), an advertising agency
      located in Sweden and a 44% interest in Angela Liedler GmbH (“Liedler”), a
      service provider of communication and marketing tools for technical, medical
      and
      pharmaceutical products, located in Germany. Both of these investments are
      accounted for by using the equity method of accounting.





In
      December 2005, the Company entered into an exclusive joint venture agreement
      with SIRO Clinpharm Pvt. Ltd., India's largest domestic contract research
      organization, to offer pharmaceutical companies India-based clinical data
      management services. This project is in the development stage and has not
      commenced providing client services.





*Cash
      and Equivalents*





Cash
      and
      equivalents are comprised principally of amounts in operating accounts, money
      market investments and other short-term instruments. These accounts are stated
      at cost, which approximates market value, and have original maturities of three
      months or less. See footnote 5 for a description of restricted cash
      balances.





*Revenue
      Recognition*





The
      following is a summary of the Company’s revenue recognition policy, based on the
      segment and services the Company provides:





**inVentiv
      Clinical**





·
            Clinical
                Staffing and Recruiting-
                Revenues are recognized and recorded when services are rendered.





·
            Functional
                Outsourcing-
                Revenues are recognized and recorded when milestones are achieved,
                in
                accordance with the terms of the
                contracts.





·
            Executive
                Placement-
                Revenues are recognized and recorded at the time a candidate begins
                full-time employment. Any write-offs due to cancellations and/or
                billing
                adjustments historically have been insignificant.





**inVentiv
      Communications**





·
            Advertising
                and Communication support-
                Revenues are recognized and recorded under the proportional performance
                method, by relating the actual hours of work performed to date to
                the
                current estimated total hours of the respective projects. Any anticipated
                losses on projects are recognized when such losses are anticipated.
                Time
                and production billings are billed as incurred for actual time and
                expenses.





·
            Branding
                Consultation-
                Revenues are recognized and recorded on a fee for service basis,
                in
                accordance with the terms of the
                contracts.






**INVENTIV
        HEALTH, INC.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**


·
            Patient
                and Physician Education-
                Revenues are recognized and recorded using either the completed contract
                method or when milestones are achieved, depending on the terms of
                the
                specific contracts.





·
            Interactive
                Communication Development-
                Revenues are recognized and recorded as time and production billings
                are
                billed as incurred for actual time and
                expenses.





**inVentiv
      Commercial**





·
            Sales
                and Marketing Teams-
                Revenues and associated costs are recognized and recorded under
                pharmaceutical detailing contracts based on the number of physician
                calls
                made or the number of sales representatives utilized. Most of our
                Sales
                and Marketing Teams’ contracts involve two phases, a “deployment phase”,
                typically three months, in which the Company performs initial recruiting,
                training and preparation for deployment of the field force at the
                start of
                a new contract, and the “Promotion phase” in which our deployed field
                force actively promotes specified products for clients through
                face-to-face interactions with physicians referred to as
                “detailing”.





Our
      inVentiv Pharma Teams contracts specify a separate fee for the initial
“deployment phase” of a project. The Company considers the deployment phase to
      be a separate and distinct earnings process and recognize the related revenues
      throughout the deployment phase, which typically spans a period of two to three
      months at the beginning of the first year of a contract. The Company generally
      recognizes revenue during the “promotion phase” of our inVentiv Pharma Teams
      contracts on a straight-line basis based on the size of the deployed field
      force. The accounting for the two phases is based on our analysis of Emerging
      Issues Task Force (“EITF”) Issue No. 00-21, *Revenue
      Arrangements with Multiple Deliverables,* in
      which
      the Company has concluded that the deployment and promotion phases are being
      sold separately and therefore qualify as separate units of accounting within
      the
      meaning of paragraph 9 of EITF 00-21.





Many
      of
      the product detailing contracts allow for additional periodic incentive fees
      to
      be earned once agreed upon performance benchmarks have been attained. Revenue
      from incentive fees is recognized and recorded when the Company is reasonably
      assured that payment will be made, and is typically based upon verification
      through calculation of achievement, third party data or client verification.
      Many contracts also stipulate penalties if agreed upon performance benchmarks
      have not been met. These penalties are recognized upon verification of
      performance shortfalls.





Non-refundable
      conversion fees are recognized and recorded as revenue when one of our sales
      professionals accepts a firm offer of permanent employment from a customer
      during the term of a contract.





·
            Planning
                and Analytics-
                Revenues for HPR generally include fixed fees, which are recognized
                and
                recorded when monthly services are performed based on the proportional
                performance method and when payment is reasonably assured. HPR’s initial
                contracts typically range from one month to one year. Revenues for
                additional services are recognized and recorded when the services
                are
                provided and payment is reasonably
                assured.





·
            Regulatory
                Compliance and Patient Assistance-
                Regulatory compliance revenues for both fixed fees services and fees
                for
                specific compliance related services are recognized and recorded
                when
                monthly services are performed. Patient assistance programs revenues
                depend on the number of patients served and are recognized and recorded
                as
                each service is performed.





·
            Marketing
                Support Services-
                Revenues are recognized and recorded based on time incurred and
                fulfillment requirements in accordance with the terms of the contracts
                .





·
            Professional
                Development and Training-
                Revenues are generally recognized and recorded as training courses
                are
                completed.





**General
      Revenue Recognition**





Reimbursable
      Costs


Reimbursable
      costs, including those relating to travel and out-of pocket expenses, sales
      force bonuses tied to individual or product revenues, and other similar costs,
      are generally included in revenues, and an equivalent amount of reimbursable
      expenses is included in costs of services in the period in which such amounts
      have been finalized. In certain cases, based on the Company’s analysis of EITF
      Issue No. 99-19, *Reporting
      Revenue Gross as a Principal versus Net as an Agent* ,
      and
      related accounting literature, the Company may also record certain reimbursable
      transactions, such as the placement of media advertisements where the Company
      acts as an agent, as net revenues.





Loss
      Contracts


The
      Company periodically analyzes its contracts to determine the likelihood and
      amount of any potential loss on a contract resulting from lower than anticipated
      product, field force or other performance. In the event that current information
      illustrates a loss is likely to be incurred over the remaining life of the
      contract, the Company accrues that loss at the time it becomes probable. The
      Company did not have any material loss contracts in 2006, 2005 or
      2004.





Billing


Customers
      are invoiced according to agreed upon billing terms. Contracts that are invoiced
      prior to performance of related services are recorded as client advances and
      unearned revenue and are not recognized as revenues until earned, in accordance
      with our revenue recognition policies. Amounts earned for revenues recognized
      before the agreed upon billing terms have been met are recorded as revenue
      and
      included in unbilled services. Upon billing, these amounts are transferred
      to
      billed accounts receivable.




*Receivables*





Receivables
      consist of amounts billed and currently due from customers and unbilled amounts
      which have been earned but not yet billed. With the exception of amounts
      relating to certain contracts with pre-determined billing intervals, all amounts
      that are unbilled at the end of each monthly period are billed during the
      immediately succeeding monthly period.





*Property
      and Equipment*





Property
      and equipment is stated at cost. The Company depreciates furniture, fixtures
      and
      office equipment on a straight-line basis over three to seven years; computer
      equipment over two to five years; leasehold improvements over the shorter of
      the
      term of the lease or the estimated useful lives of the improvements. The Company
      amortizes the cost of vehicles under capital leases on a straight-line basis
      over the term of the lease.





*Goodwill
      and Other Intangible Assets*





Goodwill
      and other indefinite-life intangibles are assessed for potential impairment
      pursuant to the guidelines of Statement of Financial Accounting Standards
      (“SFAS”) No. 142, *Goodwill
      and Other Intangible Assets* , ** o n
      an
      annual basis (at June 30) or when management determines that the carrying value
      of goodwill or an indefinite-lived intangible asset may not be recoverable
      based
      upon the existence of certain indicators of impairment. Goodwill
      is tested for impairment at least annually using a two-step process that begins
      with an estimation of the fair value of a reporting unit. The first step screens
      for potential impairment, and the second step measures the amount of impairment,
      if any. The
      Company calculates the fair value of the goodwill and indefinite-lived
      intangible asset and compares this to its carrying value. If the carrying value
      exceeds the fair value, an impairment loss will be recognized in an amount
      equal
      to the difference. If the Company deems the useful life to be no longer
      indefinite after testing for impairment in accordance with the applicable rules
      stated above, the Company amortizes the intangible asset over its remaining
      estimated useful life, following the pattern in which the expected benefits
      will
      be consumed or otherwise used up and the Company continues to review for
      impairment on an annual basis.





The
      Company performed annual impairment tests as of June 2006 and concluded that
      the
      existing goodwill and indefinite lived intangible tradename balances were not
      impaired and continue to maintain this position as of December 31, 2006, based
      on various factors, including updated forecasts and the current condition of
      the
      Company. As of December 31, 2006, the Company had goodwill of approximately
      $266.8 million and other intangibles (net) of $152.6 million in the
      Consolidated Balance Sheet.




**INVENTIV
        HEALTH, INC.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**


*Impairment
      of Long-Lived Assets*





SFAS
      No.
      144,  *Accounting
      for the Impairment or Disposal of Long-Lived Assets* ,  establishes
      accounting standards for the impairment of long-lived assets. The Company
      reviews its long-lived assets, including property and equipment, for impairment
      whenever events or circumstances indicate that the carrying amount of an asset
      may not be recoverable. Events or circumstances that would result in an
      impairment review primarily include operations reporting sustained losses or
      a
      significant change in the use of an asset. An impairment loss would be
      recognized based on the amount by which the carrying value of the asset exceeds
      its fair value. There were no material impairment losses in 2006, 2005 or
      2004.





*Claims
      and Insurance Accruals*




The
      Company
      maintains self-insured retention limits for certain insurance policies. The
      liabilities associated with the risk retained by us are estimated in part based
      on historical experience, third-party actuarial analysis, demographics, nature
      and severity, past experience and other assumptions. The liabilities for
      self-funded retention are included in claims and insurance reserves based on
      claims incurred, with liabilities for unsettled claims and claims incurred
      but
      not yet reported being actuarially determined with respect to workers’
compensation and auto liability claims and with respect to all other
      liabilities, estimated based on management’s evaluation of the nature and
      severity of individual claims and historical experience. However, these
      estimated accruals could be significantly affected if the Company’s actual costs
      differ from these assumptions. A significant number of these claims typically
      take several years to develop and even longer to ultimately settle. These
      estimates tend to be reasonably accurate over time; however, assumptions
      regarding severity of claims, medical cost inflation, as well as specific case
      facts can create short-term volatility in estimates.





*Earnings
      Per Share (“EPS”)*




Basic
      net
      earnings per share excludes the effect of potentially dilutive securities and
      is
      computed by dividing earnings attributable to common shareholders by the
      weighted average number of common shares outstanding during the period. 
Diluted earnings per share reflect the potential dilution that could occur
      if
      securities or other instruments to issue common stock were exercised or
      converted into common stock. Potentially dilutive securities are excluded from
      the computation of diluted earnings per share when their inclusion would be
      antidilutive. A summary of the computation of basic and diluted earnings per
      share from continuing operations is as follows:





**Year
                Ended December 31,****2006**
            
            
            **2005**
            
            
            **2004****(in
                thousands, except per share data)**Basic
                EPS from Continuing Operations ComputationIncome
                from continuing operations
            
            $
            49,198
            
            $
            43,082
            
            $
            30,130Weighted
                average number of common shares outstanding
            
            
            29,159
            
            
            26,875
            
            
            23,951Basic
                EPS from continuing operations
            
            $
            1.69
            
            $
            1.60
            
            $
            1.26Diluted
                EPS from Continuing Operations ComputationIncome
                from continuing operations
            
            $
            49,198
            
            $
            43,082
            
            $
            30,130Adjustments
            
            
            --
            
            
            --
            
            
            --Adjusted
                income from continuing operations
            
            $
            49,198
            
            $
            43,082
            
            $
            30,130Weighted
                average number of common shares outstanding
            
            
            29,159
            
            
            26,875
            
            
            23,951Stock
                options(1)
            
            
            780
            
            
            1,265
            
            
            1,482Restricted
                awards(2)
            
            
            119
            
            
            25
            
            
            4Total
                diluted common shares outstanding
            
            
            30,058
            
            
            28,165
            
            
            25,437Diluted
                EPS from continuing operations
            
            $
            1.64
            
            $
            1.53
            
            $
            1.18





(1)
            For
                the years ended December 31, 2006, December 31, 2005 and December
                31,
                2004, 362,479 shares, 55,911 shares, and 377,121 shares, respectively,
                were excluded from the calculation of diluted EPS due to the fact
                that the
                shares are considered anti-dilutive because the number of potential
                buyback shares is greater than the number of weighted shares outstanding.


(2)
            For
                the years ended December 31, 2006, December 31, 2005 and December
                31,
                2004, 7,336 shares and 9,770 shares, and 3,826 shares, respectively,
                were
                excluded from the calculation of diluted EPSdue
                to the fact that the shares are considered anti-dilutive because
                the
                number of potential buyback shares is greater than the number of
                weighted
                shares outstanding.





*Income
      Taxes*





Deferred
      tax assets and liabilities are determined based on the difference between the
      financial reporting and the tax bases of assets and liabilities and are measured
      using the tax rates and laws that are expected to apply to taxable income in
      the
      years in which those temporary differences are expected to be recovered or
      settled.  A
      valuation allowance is established, when necessary, to reduce deferred income
      tax assets to the amount that is more likely than not to be realized. Realization
      is dependent on generating sufficient taxable income of a specific nature prior
      to the expiration of any loss carryforwards or capital losses. The asset may
      be
      reduced if estimates of future taxable income during the carryforward period
      are
      reduced. In addition, the Company maintains reserves for certain tax items,
      which are included in income taxes payable on its consolidated balance sheet.
      The Company periodically reviews these reserves to determine if adjustments
      to
      these balances are necessary.





*Foreign
      Currency Translations*





The
      Company is not currently affected by foreign currency exchange rate exposure,
      except for any fluctuations in the foreign bank accounts remaining from the
      divestitures of inVentiv’s European business units and our Canadian subsidiary,
      equity investments and minority interests in inVentiv Communications’ foreign
      business units, which are not material to its consolidated financial statements.
      The Company’s treatment of foreign subsidiaries is consistent with the
      guidelines set forth in SFAS 52, *Foreign
      Currency Translations* .
      The
      financial statements of the Company’s subsidiaries expressed in foreign
      currencies are translated from the respective functional currencies to
      U.S. Dollars, with results of operations and cash flows translated at average
      exchange rates during the period, and assets and liabilities translated at
      end
      of the period exchange rates. At December 31, 2006, the accumulated other
      comprehensive losses related to foreign currency translations was approximately
      $0.2 million. Foreign currency transaction gains and (losses) are included
      in
      the results of operations and are not material.





**INVENTIV
      HEALTH, INC.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**




*Use
      of Estimates*




The
      consolidated financial statements are prepared in conformity with accounting
      principles generally accepted in the United States of America. The consolidated
      financial statements include certain amounts that are based on management's
      best
      estimates and judgments.  Estimates are used in determining items such as
      revenue recognition, reserves for accounts receivable, certain assumptions
      related to goodwill and intangible assets, deferred tax valuation, claims and
      insurance accruals, derivative financial instruments, stock based compensation
      and amounts recorded for contingencies and other reserves.  Because of the
      uncertainty inherent in such estimates, actual results may differ from these
      estimates.  The Company is not aware of reasonably likely events or
      circumstances that would result in different amounts being reported that would
      have a material impact on its consolidated results of operations or consolidated
      financial condition.





*Fair
      Value of Liquid Financial Instruments*




The
      carrying
      amount of our cash and cash equivalents, accounts receivable, unbilled services
      and accounts payable approximate fair value because of the relatively short
      maturity of these instruments.





*Derivative
      Financial Instruments*




The
      Company
      enters into interest rate swap agreements to modify the interest rate
      characteristics of our outstanding long-term debt. At hedge inception, and
      at
      least quarterly thereafter, the Company assesses whether derivatives used to
      hedge transactions are highly effective in offsetting changes in the cash flow
      of the hedged item. To the extent the instruments are considered to be
      effective, changes in fair value are recorded as a component of other
      comprehensive income (loss). To the extent there is any hedge ineffectiveness,
      changes in fair value relating to the ineffective portion are immediately
      recognized in earnings (interest expense). The fair values of the Company’s
      interest rate swaps are obtained from dealer quotes. These values represent
      the
      estimated amount the Company would receive or pay to terminate the agreement
      taking into consideration the difference between the contract rate of interest
      and rates currently quoted for agreements of similar terms and
      maturities.





*Concentration
      of Credit Risk*




Financial
      instruments that potentially subject us to concentration of credit risk consist
      of accounts receivable and unbilled services. The Company places its investments
      in highly rated financial institutions, U.S. Treasury bills, money market
      accounts, investment grade short-term debt instruments. The Company is subject
      to credit exposure to the extent the Company maintains cash balances at one
      institution in excess of the Federal Depository Insurance Company limit of
      $100,000. Its receivables are concentrated with its major pharmaceutical
      clients. The Company does not require collateral or other security to support
      clients' receivables.





*Accounting
      for Stock Options*




The
      Financial
      Accounting Standards Board (“FASB”) revised SFAS No. 123 (“SFAS 123R”), *Share-Based
      Payment* ,
      which
      establishes accounting for share-based awards exchanged for employee services
      and requires companies to expense the estimated fair value of these awards
      over
      the requisite employee service period. On April 14, 2005, the SEC adopted a
      new rule amending the effective dates for SFAS 123R. In accordance with the
      new
      rule, the Company adopted the accounting provisions of SFAS 123R as of January
      1, 2006.




On
      January 1, 2006, the Company adopted SFAS 123R using the modified
      prospective application method, as permitted under SFAS 123R, which requires
      measurement of compensation cost of all stock-based awards at fair value on
      the
      date of grant and recognition of compensation over the service periods for
      awards expected to vest. Under this method, compensation cost in 2006 includes
      the portion vesting in the period for (1) all stock-based awards granted prior
      to, but not vested as of, January 1, 2006, based on the grant date fair value
      estimated in accordance with the original provisions of SFAS No. 123, *Accounting
      for Stock-Based Compensation* (“SFAS
      123”), and (2) all stock-based awards granted subsequent to January 1, 2006,
      based on the grant date fair value estimated in accordance with the provisions
      of SFAS 123R. The Company will recognize the cost of all employee stock awards
      on a straight-line basis over their respective vesting periods, net of estimated
      forfeitures. Accordingly, prior periods amounts have not been restated. Under
      this method, the Company is required to record compensation expense for all
      awards granted after the date of adoption and for the unvested portion of
      previously granted awards that remain outstanding at the date of
      adoption.




The
      adoption of SFAS 123R resulted in incremental stock-based compensation expense
      of $7.5 million, of which $2.4 million was recorded in cost of services and
      $5.1
      million recorded as Selling, General and Administrative expenses (“SG&A”)
      for the year ended December 31, 2006. The incremental stock-based compensation
      expense caused income before income tax provision, minority interest in income
      of subsidiary and income from equity investments to decrease by $7.5 million
      for
      the year ended December 31, 2006, respectively, net income to decrease by $4.5
      million for the year ended December 31, 2006, and basic and diluted earnings
      per
      share to decrease by $0.15 per share for the year ended December 31, 2006.
      Cash
      from operating activities decreased and cash from financing activities increased
      by $8.6 million related to excess tax benefits from the exercise of stock-based
      awards.




On
      November 10, 2005, the FASB issued FASB Staff Position No. 123R-3, *Transition
      Election Related to Accounting for Tax Effects of Share-Based Payment
      Awards* .
      The
      Company has elected to adopt the alternative transition method provided in
      this
      FASB Staff Position for calculating the tax effects of share-based compensation
      pursuant to SFAS 123R. The alternative transition method includes a simplified
      method to establish the beginning balance of the additional paid-in capital
      pool
      (APIC pool) related to the tax effects of employee share-based compensation,
      which is available to absorb tax deficiencies recognized subsequent to the
      adoption of SFAS 123R.





In
      March
      2005, the SEC issued SAB No. 107 (“SAB 107”) that provides additional guidance
      in applying the provisions of SFAS No. 123 (revised 2004), *Share-Based
      Payment* (“SFAS
      No. 123R”). SFAS No. 123R requires that compensation cost relating to
      share-based payment transactions be recognized in the financial statements
      based
      on the fair value of the equity or liability instruments issued. SFAS No. 123R
      covers a wide range of share-based compensation arrangements, including share
      options, restricted share plans, performance-based awards, share appreciation
      rights and employee share purchase plans. SAB 107 describes the SEC staff's
      expectations in determining the assumptions that underlie fair value estimates
      and discusses the interaction of SFAS No. 123R with certain existing SEC
      guidance. For the year ended December 31, 2006, the company has elected to
      use
      the simplified method of determining the expected term as permitted by SAB
      107.




Pro
      forma Information for Periods Prior to the Adoption of
      SFAS 123R





Prior
      to
      the adoption of SFAS 123R, the Company applied Accounting Principles Board
      No.
      25 (“APB 25”) to account for its stock-based awards. Under ABP 25, the Company
      only recorded stock-based compensation expense for restricted stock units.
      Under
      the provisions of APB 25, the Company was not required to recognize compensation
      expense for the cost of stock options issued under its equity compensation
      plans
      as all options were granted with an exercise price equal to the market value
      of
      the underlying common stock on the date of grant. In addition, forfeitures
      of
      awards were recognized as they occurred. The Company has not changed its
      valuation model used for estimating the fair value of options granted after
      January 1, 2006, from the Black-Scholes option-pricing model previously used
      for
      pro forma presentation purposes as required under SFAS 123, as amended by SFAS
      No. 148, *Accounting
      for Stock-Based Compensation - Transition and Disclosures* .




**INVENTIV
        HEALTH, INC.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**


The
      following table details the effect on net income and earnings per share had
      compensation expense for the employee stock-based awards been recorded based
      on
      the fair value method under SFAS 123:





**Years
                Ended December 31,**(in
                thousands, except per share data)
            
            
            **2005**
            
            
            **2004**Net
                income attributable to common shareholders, as reported
            
            $
            43,863
            
            $
            31,132Add:
                total stock-based compensation expense included in reported net income
                attributable to common shareholders, net of tax
            
            
            422
            
            
            39Less:
                stock-based employee compensation expense determined under the fair
                value
                method, net of related income tax
            
            
            (3,663
            )
            
            (2,637
            )Pro
                forma net earnings
            
            $
            40,622
            
            $
            28,534As
                reported: Basic
            
            $
            1.63
            
            $
            1.30As
                reported: Diluted
            
            $
            1.56
            
            $
            1.22Pro
                forma: Basic
            
            $
            1.51
            
            $
            1.19Pro
                forma: Diluted
            
            $
            1.44
            
            $
            1.12




**Recent
      Accounting Pronouncements**




In
      February
      2007, the FASB issued SFAS No. 159, *The
      Fair Value Option for Financial Assets and Financial Liabilities—Including an
      amendment of FASB Statement No. 115.* SFAS
      No.
      159 provides
      companies with an option to report selected financial assets and liabilities
      at
      fair value. This statement is effective as of the beginning of an entity’s first
      fiscal year that begins after November 15, 2007. Early adoption is permitted
      as
      of the beginning of a fiscal year that begins on or before November 15, 2007,
      provided the entity also elects to apply the provisions of FASB Statement No.
      157, *Fair
      Value Measurements.* The
      Company has not yet determined the impact SFAS 159 will have on our consolidated
      balance sheets, results of operations or cash flows.




In
      September
      2006, the FASB issued SFAS No. 157, " *Fair
      Value Measurements* ".
      SFAS
      157 defines fair value, establishes a framework for measuring fair value in
      accordance with generally accepted accounting principles, and expands
      disclosures about fair value measurements. The provisions of SFAS 157 are
      effective for the fiscal year beginning January 1, 2008. The Company has not
      yet
      determined the impact SFAS 157 will have on our consolidated balance sheets,
      results of operations or cash flows.




In
      September
      2006, the Securities and Exchange Commission issued Staff Accounting Bulletin
      (“SAB”) No. 108, *Considering
      the Effects of Prior Year Misstatements when Quantifying Current Year
      Misstatements.* SAB
      No. 108 requires analysis of misstatements using both an income statement
      (rollover) approach and a balance sheet (iron curtain) approach in assessing
      materiality and provides for a one-time cumulative effect transition adjustment.
      SAB No. 108 is effective for the Company’s 2006 annual financial
      statements. The adoption of SAB No. 108 did not have a material impact on
      our consolidated balance sheets, results of operations or cash
      flows.




In
      July 2006,
      the FASB issued FASB Interpretation No. 48 (“FIN 48”), *Accounting
      for Uncertainty in Income Taxes, an interpretation of FASB Statement
      No. 109* .
      FIN 48
      clarifies the accounting for income taxes by prescribing the minimum recognition
      threshold a tax position is required to meet before being recognized in the
      consolidated financial statements. FIN 48 also provides guidance on
      derecognition, measurement, classification, interest and penalties, accounting
      in interim periods, disclosure and transition. FIN 48 applies to all tax
      positions related to income taxes subject to FASB Statement No. 109, *Accounting
      for Income Taxes* (“FASB
      No. 109”). FIN 48 is effective for fiscal years beginning after
      December 15, 2006; as such, the Company will adopt FIN 48 as of January 1,
      2007, as required. Differences between the amounts recognized in the
      consolidated financial statements prior to the adoption of FIN 48 and the
      amounts reported after adoption should be accounted for as a cumulative-effect
      adjustment recorded to the beginning balance of retained earnings. The Company
      evaluated the impact of the adoption of FIN 48 and does not expect it to have
      a
      material impact on our consolidated balance sheets, results of operations or
      cash flows, or other significant matters, such as debt covenants or the
      Company’s normal business practices.




On
      November 10, 2005, the FASB issued Interpretation No. 45-3, *Application
      of FASB Interpretation No. 45 to Minimum Revenue Guarantees Granted to a
      Business or Its Owners* (“FIN
      45-3”). FIN 45-3 amends FIN 45, Guarantor’s Accounting and Disclosure
      Requirements for Guarantees, Including Indirect Guarantees of Indebtedness
      of
      Others, to expand the scope to include guarantees granted to a business, such
      as
      a physician’s practice, or its owner(s), that the revenue of the business for a
      period will be at least a specified amount. Under FIN 45-3, the accounting
      requirements of FIN 45 are effective for any new revenue guarantees issued
      or
      modified on or after January 1, 2006 and the disclosure of all revenue
      guarantees, regardless of whether they were recognized under FIN 45, is required
      for all interim and annual periods beginning after January 1, 2006. The
      adoption of FIN 45-3 did not have a material impact on our consolidated balance
      sheets, results of operations or cash flows.




In
      June 2005,
      the Financial
      Accounting Standards Board (“FASB”) issued
      Statement of Financial Account Standard (“SFAS”) No. 154, *Accounting
      Changes and Error Corrections* ,
      (“SFAS
      No.154”) a replacement of Accounting
      Principles Board ("APB") Opinion
      No. 20, *Accounting
      Changes* ,
      and
      Statement No. 3, *Reporting
      Accounting Changes in Interim Financial Statements* .
      SFAS
      No. 154 changes the requirements for the accounting for and the reporting of
      a
      change in accounting principle. Previously, most voluntary changes in accounting
      principles required recognition by recording a cumulative effect adjustment
      within net income in the period of change. SFAS No. 154 requires retrospective
      application to prior periods’ financial statements, unless it is impracticable
      to determine either the specific period effects or the cumulative effect of
      the
      change. SFAS No. 154 is effective for accounting changes made in fiscal years
      beginning after December 15, 2005. The implementation of SFAS No. 154 did not
      have a material impact on our consolidated balance sheets, results of operations
      or cash flows.




In
      March
      2005, the SEC issued Staff Accounting Bulletin No. 107 (“SAB 107”) that provides
      additional guidance in applying the provisions of SFAS No. 123 (revised 2004), *Share-Based
      Payment* (“SFAS
      No. 123R”). SFAS No. 123R requires that compensation cost relating to
      share-based payment transactions be recognized in the financial statements
      based
      on the fair value of the equity or liability instruments issued. SFAS No. 123R
      covers a wide range of share-based compensation arrangements, including share
      options, restricted share plans, performance-based awards, share appreciation
      rights and employee share purchase plans. SAB 107 describes the SEC staff's
      expectations in determining the assumptions that underlie fair value estimates
      and discusses the interaction of SFAS No. 123R with certain existing SEC
      guidance. The provisions of SAB 107 have been applied upon adoption of SFAS
      No.
      123R. In April 2005, the SEC adopted a new rule that allows companies to
      implement SFAS No. 123R at the beginning of their next fiscal year, instead
      of
      the next reporting period that begins after June 15, 2005. As such, the Company
      was required to adopt SFAS No. 123R in the first quarter of 2006, beginning
      January 1, 2006. Under SFAS No. 123R, we must determine the appropriate
      fair value model to be used for valuing share-based payments, the amortization
      method for compensation cost and the transition method to be used at the date
      of
      adoption. The transition alternatives include prospective and retroactive
      adoption methods. Under the retroactive methods, prior periods may be restated
      either as of the beginning of the year of adoption or for all periods presented.
      The prospective method requires that compensation expense be recorded for all
      unvested stock options and share awards at the beginning of the first quarter
      of
      adoption of SFAS No. 123R, while the retroactive methods would record
      compensation expense for all unvested stock options and share awards beginning
      with the first period restated.




In
      December 2004, the FASB issued SFAS No. 123R, which replaces SFAS
      No. 123, *Accounting
      for Stock-Based Compensation* (“SFAS
      No. 123”) and supercedes APB Opinion No. 25, *Accounting
      for Stock Issued to Employees* (“APB
      25”). SFAS No. 123R requires all share-based payments to employees,
      including grants of employee stock options, to be recognized in the financial
      statements based on their fair values, beginning with the first interim or
      annual period after December 31, 2005, with early adoption encouraged. In
      addition, SFAS No. 123R will cause unrecognized expense (based on the
      amounts in our pro forma footnote disclosure) related to options vesting after
      the date of initial adoption to be recognized as a charge to results of
      operations over the remaining vesting period.





**3.
      Acquisitions:**




**Ignite** - In
        February 2007, we signed a definitive agreement to acquire ignite comm.net
        and
        Incendia Health, Inc. (collectively, “Ignite”) for approximately $20.0 million
        in cash and stock, excluding post-closing adjustments and direct acquisition
        costs, which have yet to be finalized. We will be obligated to make certain
        earn-out payments, which may be material, contingent on Ignite's performance
        measurements during 2007 through 2009. Ignite is based in Irvine, California,
        and specializes in medical advertising and interactive communications targeting
        patients and caregivers. Ignite’s financial results were not included in the
        consolidated financial statements since the definitive agreement was signed
        after December 31, 2006. Ignite is expected to be included in the inVentiv
        Communications segment.
 
 **Chamberlain** - In
        February 2007, we signed a definitive agreement to acquire Chamberlain
        Communications Group, Inc. (“Chamberlain”) for approximately $13.0 million in
        cash and stock, excluding post-closing adjustments and direct acquisition
        costs,
        which have yet to be finalized. We will be obligated to make certain earn-out
        payments, which may be material, contingent on Chamberlain's performance
        measurements during 2007 through 2009. Chamberlain is based in New York,
        and
        specializes in public relations in the healthcare industry. Chamberlain’s
        financial results were not included in the consolidated financial statements
        since the definitive agreement was signed after December 31, 2006. Chamberlain
        is expected to be included in the inVentiv Communications
        segment.




**MedConference** - In
      November 2006, the Company completed the acquisition of the net assets of The
      Maxwell Group, Inc. and its MedConference brand of services (“MedConference”)
      for approximately $8.1 million in cash and stock, including post-closing
      adjustments and direct acquisition costs, which have yet to be finalized.
      MedConference, based in Norristown, PA, was founded in 1989 and is a leading
      provider of live and on-demand virtual event services to the pharmaceutical
      industry. The Company will be obligated to make certain earn-out payments,
      which
      may be material, contingent on MedConference's performance measurements during
      2006 through 2008. The amount due with respect to MedConference for 2006 is
      expected to be approximately $1.6 million in cash and stock, which the Company
      accrued at December 31, 2006, but is subject to review mechanisms set forth
      in
      the acquisition agreement and may change materially based on such review. The
      results of MedConference have been reflected in the inVentiv Commercial segment
      since the date of its acquisition. Pro forma financial information was not
      required to be disclosed under the Securities and Exchange Commission’s
      Regulation S-X because none of the specific thresholds were met for this
      acquisition as MedConference was not material to the consolidated operations
      of
      the Company.




**INVENTIV
        HEALTH, INC.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**


**DialogCoach** - In
      November 2006, the Company completed the acquisition of the net assets of ASERT
      LLC and DialogCoach LLC (collectively, “DialogCoach”) for approximately $5.7
      million in cash and stock, including post-closing adjustments and direct
      acquisition costs, which have yet to be finalized. DialogCoach, based in
      Coopersburg, PA, is an education and training company focused on customized
      solutions in specialty markets and building training and educational programs.
      The Company will be obligated to make certain earn-out payments, which may
      be
      material, contingent on DialogCoach's performance measurements during 2006
      through 2008. The results of DialogCoach have been reflected in the inVentiv
      Commercial segment since the date of its acquisition. Pro forma financial
      information was not required to be disclosed under the Securities and Exchange
      Commission’s Regulation S-X because none of the specific thresholds were met for
      this acquisition as DialogCoach was not material to the consolidated operations
      of the Company.





**Synergos** - In
      April 2006, the Company acquired the net assets of Synergos for approximately
      $6.4 million in cash and stock, including certain post-closing adjustments
      and
      direct acquisition costs. Synergos, based in The Woodlands, Texas, is a focused
      clinical services provider with expertise in clinical trial management services,
      particularly project management and monitoring, as well as investigator and
      patient recruitment. The Company will be obligated to make certain earn-out
      payments, which may be material, contingent on Synergos’s performance
      measurements during 2006 and 2007. The amount due with respect to Synergos
      for
      2006 is expected to be approximately $0.8 million in cash and stock, which
      the
      Company accrued at December 31, 2006, but is subject to review mechanisms set
      forth in the acquisition agreement and may change materially based on such
      review. The results of Synergos have been reflected in the inVentiv Clinical
      segment from the date of its acquisition. Pro forma financial information was
      not required to be disclosed under the Securities and Exchange Commission’s
      Regulation S-X because none of the specific thresholds were met for this
      acquisition as Synergos was not material to the consolidated operations of
      the
      Company.





**JSAI** - In
      April 2006, the Company acquired JSAI for approximately $8.8 million in cash
      and
      stock, including certain post-closing adjustments and direct acquisition costs.
      JSAI is Canada's leading healthcare marketing and communications agency. The
      Company will be obligated to make certain earn-out payments, which may be
      material, contingent on JSAI’s performance measurements during the 12-month
      periods ending March 31, 2007, 2008 and 2009. The results of JSAI have been
      reflected in the inVentiv Communications segment from the date of its
      acquisition. Pro forma financial information was not required to be disclosed
      under the Securities and Exchange Commission’s Regulation S-X because none of
      the specific thresholds were met for this acquisition as JSAI was not material
      to the consolidated operations of the Company.





**Adheris** - In
      February 2006, the Company acquired Adheris for approximately $69.9 million
      in
      cash and stock, including certain post-closing adjustments and direct
      acquisition costs; the Company acquired approximately $10.1 million of net
      tangible assets in the transaction. Adheris is a Massachusetts-based industry
      leader in the area of patient compliance and persistency programs. The Company
      will be obligated to make certain earn-out payments, which may be material,
      contingent on Adheris's performance measurements during 2006 through 2008.
      The
      amount due with respect to Adheris for 2006 is expected to be approximately
      $7.9
      million in cash and stock, which the Company accrued at December 31, 2006,
      but
      is subject to review mechanisms set forth in the acquisition agreement and
      may
      change materially based on such review. The results of Adheris have been
      reflected in the inVentiv Communications segment from the date of its
      acquisition. Pro forma financial information was not required to be disclosed
      under the Securities and Exchange Commission’s Regulation S-X because none of
      the specific thresholds were met for this acquisition as Adheris was not
      material to the consolidated operations of the Company.





**inChord** -
      In
      October 2005, the Company acquired all of the outstanding capital stock of
      inVentiv Communications, Inc. (then known as inChord Communications, Inc.)
      for
      approximately $196.8 million of cash and stock, including certain post-closing
      adjustments and direct acquisition costs; the Company acquired approximately
      $23.6 million of net tangible assets in the transaction. To help finance the
      transaction, the Company entered into a Credit Agreement, dated October 5,
      2005,
      as more fully described in footnote 8. The Company acquired inVentiv
      Communications, Inc. to vastly expand its service portfolio in the marketing
      and
      communications arena, expand its market position in the pharmaceutical services
      market and achieve cross-selling opportunities by leveraging its existing
      businesses. The Company will be obligated to make certain earn-out payments,
      which may be material, contingent on inVentiv Communications, Inc.’s performance
      measurements from 2005 through 2007. inVentiv Communications, Inc.’s 2005
      earnout of $3.8 million in cash and stock, of which $3.6 million was accrued
      at
      December 31, 2005, was paid in 2006. The portion adjusted in the subsequent
      year
      mainly relate to the finalization of the earn-outs for the previous year, as
      allowed under the contract. The amount due with respect to inVentiv
      Communications, Inc. for 2006 is expected to be approximately $25.0 million
      in
      cash and stock, which the Company accrued at December 31, 2006, but is subject
      to review mechanisms set forth in the acquisition agreement and may change
      materially based on such review. The results of inVentiv Communications, Inc.
      have been reflected in the inVentiv Communications segment since the date of
      acquisition. Pro forma financial information was disclosed as required under
      the
      Securities and Exchange Commission’s Regulation S-X as inChord was material to
      the consolidated operations of the Company.





**PRS
      -** In
      August
      2005, the Company acquired the net assets of PRS, a provider of compliance
      management and marketing support services based in Horsham, Pennsylvania. PRS
      specializes in pharmaceutical sample management and compliance services; its
      operations are similar in nature to the business of Franklin Group, Inc. and
      Lincoln Ltd, Inc. (together, “Franklin”), which was acquired in June 2004. The
      closing consideration for the transaction was approximately $13.6 million in
      cash and stock (taking into account post-closing adjustments and direct
      acquisition costs); the Company acquired approximately $1.0 million of net
      assets in the transaction. The Company will be obligated to make certain
      earn-out payments, which may be material, contingent on PRS’s performance
      measurements in 2005 and 2006. The amount due with respect to PRS for 2005
      was
      approximately $0.3 million, which was accrued for as of December 31, 2005 and
      paid in April 2006. The amount due with respect to PRS for 2006 is expected
      to
      be approximately $1.7 million in cash and stock, which the Company accrued
      at
      December 31, 2006, but is subject to review mechanisms set forth in the
      acquisition agreement and may change materially based on such review. The
      results of PRS have been reflected in the inVentiv Commercial segment since
      the
      date of acquisition. Pro forma financial information was not required to be
      disclosed under the Securities and Exchange Commission’s Regulation S-X because
      none of the specific thresholds were met for this acquisition as PRS was not
      material to the consolidated operations of the Company.





**HHI** - In
      November 2004, the Company acquired the net assets of HHI. HHI, based in
      Baltimore, Maryland, is a specialized statistical analysis and data management
      provider to the U.S. pharmaceutical industry. HHI complements the Smith Hanley
      business by offering clients the option of outsourced clinical support services
      as an alternative to internal staffing. The closing consideration for the
      transaction was approximately $6.2 million in cash and stock (taking into
      account post-closing adjustments and direct acquisition costs); the Company
      acquired approximately $0.8 million of net tangible assets in the transaction.
      The Company is obligated to make certain earn-out payments, which may be
      material, contingent on HHI’s performance measurements in 2005 and 2006. HHI’s
      2005 earn-out was approximately $5.4 million, which $5.0 million was previously
      accrued for at December 31, 2005, and paid during the first quarter of 2006.
      The
      amount due with respect to HHI for 2006 is expected to be approximately $5.1
      million in cash and stock, which the Company accrued at December 31, 2006,
      but
      is subject to review mechanisms set forth in the acquisition agreement and
      may
      change materially based on such review. The results of HHI have been reflected
      in the inVentiv Clinical segment since the date of acquisition.





**Smith
      Hanley** - In
      October 2004, the Company acquired the net assets of Smith Hanley. Smith Hanley
      specializes primarily in providing late-stage clinical staffing and recruiting
      services to the U.S. pharmaceutical industry. The Company acquired Smith Hanley
      to expand its service portfolio in the clinical services and recruitment areas,
      expand its market position in the pharmaceutical services market and achieve
      cross-selling opportunities by leveraging our existing sales force and
      relationships. The Company acquired approximately $9.5 million of net tangible
      assets for consideration of approximately $52.9 million in cash and stock
      (taking into account post-closing adjustments and direct acquisition costs)
      and
      was obligated to make certain earn-out payments, contingent on Smith Hanley’s
      performance measurements in 2004 and 2005. Smith Hanley’s 2004 earn-out paid in
      2005 was approximately $6.6 million, for which $6.8 million was previously
      accrued for at December 31, 2004. Smith Hanley’s 2005 earn-out paid in 2006 was
      approximately $4.6 million, of which $4.0 million was previously accrued for
      at
      December 31, 2005. The portions adjusted in the subsequent years mainly relate
      to the finalization of the earn-outs for the respective years. The results
      of
      Smith Hanley have been reflected in the inVentiv Clinical segment since the
      date
      of acquisition.





**Franklin** - In
      June 2004, the Company acquired the net assets of Franklin, based in Somerville,
      New Jersey. Franklin specializes primarily in conducting patient assistance
      programs and pharmaceutical compliance services. The Company paid approximately
      $11.3 million in cash and stock (taking into account post-closing adjustments
      and direct acquisition costs) to acquire approximately $2.7 million of net
      tangible assets. The Company is obligated to make certain earn-out payments,
      which may be material, contingent on Franklin’s performance measurements during
      2004 through 2006. Franklin’s 2004 earn-out paid in 2005 was approximately $1.8
      million, $1.7 million of which was accrued for at December 31, 2004. Franklin’s
      2005 earn-out paid in April 2006 was approximately $3.2 million, which was
      accrued for at December 31, 2005. The portions adjusted in the subsequent years
      mainly relate to the finalization of the earn-outs for the respective years.
      The
      amount due with respect to Franklin for 2006 is expected to be approximately
      $1.8 million in cash and stock, which the Company accrued at December 31, 2006,
      but is subject to review mechanisms set forth in the acquisition agreement
      and
      may change materially based on such review. Franklin’s financial results have
      been reflected in the inVentiv Commercial segment since the date of acquisition.




**INVENTIV
        HEALTH, INC.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**


A
      summary
      of the purchase price consideration for the acquisitions is as follows:





**2004
      & 2005 Acquisitions**


Purchase
                price consideration
            
            
            **Franklin**
            
            
            **Smith
                Hanley**
            
            
            **HHI**
            
            
            **PRS**
            
            
            **inChord**Cash
                *
            
            $
            6,667
            
            $
            30,000
            
            $
            5,000
            
            $
            9,100
            
            $
            172,500Stock
            
            
            3,580
            
            
            21,215
            
            
            747
            
            
            4,105
            
            
            12,145Direct
                acquisition and other
              Post-closing
                adjustments
            
            
            1,064
            
            
            1,685
            
            
            478
            
            
            440
            
            
            12,160Contingent
                consideration for completed measurement periods
            
            
            6,788
            
            
            11,209
            
            
            10,517
            
            
            1,989
            
            
            28,741Total
            
            $
            18,099
            
            $
            64,109
            
            $
            16,742
            
            $
            15,634
            
            $
            225,546


*
      - Cash
      provided for the acquisition of inVentiv Communications, Inc. is pursuant to
      the
      credit agreement entered into on October 5, 2005.





**2006
      Acquisitions**


Purchase
                price consideration
            
            
            **Adheris**
            
            
            **JSAI**
            
            
            **Synergos**
            
            
            **MedConference**
            
            
            **DialogCoach**Cash
            
            $
            45,349
            
            $
            6,903
            
            $
            4,000
            
            $
            4,900
            
            $
            3,500Stock
            
            
            14,617
            
            
            1,684
            
            
            1,929
            
            
            2,168
            
            
            1,548Direct
                acquisition and other
              Post-closing
                adjustments
            
            
            15,341
            
            
            1,376
            
            
            500
            
            
            1,025
            
            
            667Contingent
                consideration for completed measurement periods
            
            
            7,911
            
            
            --
            
            
            847
            
            
            1,595
            
            
            --Total
            
            $
            83,218
            
            $
            9,963
            
            $
            7,276
            
            $
            9,688
            
            $
            5,715





The
      following represents the allocation of the purchase price to the acquired assets
      of the 2004, 2005 and 2006 acquisitions. The allocations are based upon the
      estimated fair value of the assets acquired and liabilities assumed as of the
      respective acquisition date.





Allocation
                of purchase price (2004-2005 acquisitions)
            
            
            **Franklin**
            
            
            **Smith
                Hanley**
            
            
            **HHI**
            
            
            **PRS**
            
            
            **inChord**Current
                assets
            
            $
            3,165
            
            $
            13,859
            
            $
            1,005
            
            $
            1,368
            
            $
            66,223Property
                and equipment, and other noncurrent assets
            
            
            432
            
            
            670
            
            
            48
            
            
            183
            
            
            13,533Goodwill
            
            
            12,856
            
            
            37,237
            
            
            14,317
            
            
            10,798
            
            
            107,670Identifiable
                intangible assets
            
            
            2,557
            
            
            17,400
            
            
            1,610
            
            
            3,870
            
            
            94,300Liabilities
                assumed
            
            
            (911
            )
            
            (5,057
            )
            
            (238
            )
            
            (585
            )
            
            (56,165
            )Minority
                interest
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            (15
            )Total
            
            $
            18,099
            
            $
            64,109
            
            $
            16,742
            
            $
            15,634
            
            $
            225,546








Allocation
                of purchase price (2006 acquisitions)
            
            
            **Adheris**
            
            
            **JSAI**
            
            
            **Synergos**
            
            
            **MedConference**
            
            
            **DialogCoach**Current
                assets
            
            $
            23,492
            
            $
            6,215
            
            $
            900
            
            $
            1,200
            
            $
            790Property
                and equipment, and other noncurrent assets
            
            
            810
            
            
            558
            
            
            49
            
            
            238
            
            
            --Goodwill
            
            
            44,937
            
            
            5,257
            
            
            4,186
            
            
            5,571
            
            
            3,398Identifiable
                intangible assets
            
            
            28,170
            
            
            4,990
            
            
            2,411
            
            
            3,000
            
            
            2,070Liabilities
                assumed
            
            
            (14,191
            )
            
            (7,057
            )
            
            (270
            )
            
            (321
            )
            
            (543
            )Total
            
            $
            83,218
            
            $
            9,963
            
            $
            7,276
            
            $
            9,688
            
            $
            5,715




Goodwill
      represents the excess of the purchase price over the fair value of tangible
      and
      identifiable intangible assets. Goodwill and other intangible assets are more
      fully described in Footnote 7.





**4.
      Significant Clients:**




During
      the
      year ended December 31, 2006, the Company had no clients that accounted for
      more
      than 10%, individually, of the Company's total revenues across our inVentiv
      Clinical, inVentiv Communications and inVentiv Commercial segments. During
      the
      year ended December 31, 2005, two clients accounted for approximately 14% and
      11%, individually, of the Company’s total revenues spread across the inVentiv
      Commercial, inVentiv Communications and inVentiv Clinical segments. For the
      year
      ended December 31, 2004, two clients serving the inVentiv Commercial segment
      accounted for approximately 16% and 14%, individually, of the total revenues.





**5.
      Restricted Cash:**




Restricted
      cash balances as of December 31, 2006 and 2005 were $0.1 million and $3.9
      million, respectively. During the first two quarters of 2006, the Company
      replaced most of its existing letters of credit with letters of credit under
      UBS
      AG Stamford Branch. These letters of credit were previously cash collateralized
      for various obligations and represented cash restricted from use for general
      purposes as of December 31, 2005. The new letters of credit are no longer fully
      cash collateralized and do not represent restricted cash.




**6.
      Property and Equipment, net:**





Property
      and equipment consist of the following:





**As
                  of December 31,****2006**
            
            
            **2005****(in
                thousands)**Land
            
            $
            ---
            
            $
            ---Buildings
                and leasehold improvements
            
            
            7,513
            
            
            6,797Computer
                equipment and software
            
            
            23,061
            
            
            18,036Vehicles
            
            
            35,965
            
            
            34,525Furniture
                and fixtures
            
            
            4,743
            
            
            4,03171,282
            
            
            63,389Accumulated
                depreciation
            
            
            (27,902
            )
            
            (26,752
            )$
            43,380
            
            $
            36,637




The
      vehicles
      have been recorded under the provisions of a capital lease. The inVentiv
      Commercial segment has entered into a lease agreement to provide fleets of
      automobiles for sales representatives for certain client
      engagements.




Depreciation
      expense of property and equipment totaled $15.1 million, $15.5 million and
      $15.6
      million in 2006, 2005 and 2004, respectively. In 2006, 2005, and 2004 inVentiv
      recorded $8.7 million, $10.5 million and $11.0 million of depreciation,
      respectively, on vehicles under capital lease.




**INVENTIV
        HEALTH, INC.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**


**7** . **Goodwill
      and Other Intangible Assets:**





Goodwill
      consists of the following:




(in
                  thousands)
              
              
              **January
                  1,**
                **2006**
              
              
              **Acquisitions**
              
              
              **Contingent****(1)****Consideration**
              
              
              **Other**
              
              
              **December
                  31,**
                **2006**inVentiv
                  Clinical
              
              $
              45,427
              
              $
              3,340
              
              $
              6,975
              
              $
              --
              
              $
              55,742inVentiv
                  Communications
              
              
              87,538
              
              
              42,292
              
              
              33,033
              
              
              (5,000(2
              ))
              
              157,863inVentiv
                  Commercial
              
              
              40,812
              
              
              7,375
              
              
              5,035
              
              
              --
              
              
              53,222Total
              
              $
              173,777
              
              $
              53,007
              
              $
              45,043
              
              $
              (5,000
              )
              $
              266,827






(1)
            The
                contingent consideration represents adjustments relating to the
                finalization of the 2005 earnouts as well as 2006 earnouts that are
                subject to finalization. (see Note 3 for further
                details).


(2)
            The
                $5.0 million reduction of goodwill relates to amounts previously
                recorded
                as a liability ofinVentiv
                Communications, Inc.prior to the acquisition by inVentiv. Prior to the acquisition, historical
                management ofinVentiv
                Communications, Inc.recorded a liability of $7.5 million related to an acquisition-related
                incentive plan more fully discussed in Note 12. Certain provisions
                in the
                stock purchase agreement of inVentiv Communications, Inc. obligate
                the
                former sellers to reimburse the Company for the first $5 million
                of the
                payment of the acquisition-related incentive. As such, the amount
                has been
                adjusted to reclassify $5 million from Goodwill and Other Intangible
                Assets to Deposits and Other Assets in the Consolidated Balance Sheet
                as
                of December 31, 2006.




Other
      intangible assets consist of the following:





**December
                31, 2006**
            **December
                31, 2005**(in
                thousands)
            
            
            
            
            
            **Accumulated**
            
            
            
            
            
            
            
            
            **Accumulated****Gross**
            
            
            **Amortization**
            
            
            **Net**
            
            
            **Gross**
            
            
            **Amortization**
            
            
            **Net**Customer
                relationships
            
            $
            59,987
            
            $
            (7,240
            )
            $
            52,747
            
            $
            37,787
            
            $
            (2,098
            )
            $
            35,689Noncompete
                agreement
            
            
            880
            
            
            (372
            )
            
            508
            
            
            690
            
            
            (103
            )
            
            587Tradenames
                subject to amortization
            
            
            911
            
            
            (66
            )
            
            845
            
            
            --
            
            
            --
            
            
            --Other
            
            
            2,600
            
            
            (323
            )
            
            2,277
            
            
            260
            
            
            (190
            )
            
            70Total
                definite-life intangibles
            
            
            64,378
            
            
            (8,001
            )
            
            56,377
            
            
            38,737
            
            
            (2,391
            )
            
            36,346Tradenames
                not subject to amortization(1)
            
            
            96,260
            
            
            --
            
            
            96,260
            
            
            81,260
            
            
            --
            
            
            81,260Total
                other intangibles(2)
            
            $
            160,638
            
            $
            (8,001
            )
            $
            152,637
            
            $
            119,997
            
            $
            (2,391
            )
            $
            117,606





(1)
            These
                indefinite-life tradenames arose primarily from the acquisitions
                of
                Franklin, Smith Hanley, inChord and Adheris, where the brand names
                of the
                entities acquired are very strong and longstanding. These tradenames
                are
                also supported annually in the Company’s impairment test for goodwill and
                tradenames conducted in June of every year, as mentioned at the end
                of
                this note.


(2)
            The
                $40.6 million increase in total gross other intangibles arises from
                the
                acquisitions of Adheris, JSAI, Synergos, MedConference and Dialog
                Coach.





The
      2004,
      2005 and 2006 business combinations discussed in footnote 3 above resulted
      in
      approximately $246.2 million of goodwill and the following gross intangible
      assets:





Intangible
                asset
            
            
            **Amount**
              **(in
                thousands)**
            
            
            **Weighted
                average amortization period**Tradename
            
            $
            97,171
            
            
            (1
            )Customer
                relationships
            
            
            59,987
            
            
            11.0
                yearsNoncompete
                agreement
            
            
            880
            
            
            4.1
                yearsTechnology
            
            
            2,340
            
            
            7.2
                yearsTotal
            
            $
            160,378
            
            
            (2
            )





(1)
            $0.9
                million of the tradenames are definite-life intangibles, which have
                a
                weighted average amortization period of 6 years.


(2)
            Excludes
                $0.3 million of a definite-life intangible asset established prior
                to the
                2004-2006 acquisitions.




Amortization
      expense, based on intangibles subject to amortization held at December 31,
      2006,
      is expected to be $6.6 million in 2007, $6.5 million in 2008, $6.1 million
      in
      2009, $5.7 million in 2010, $5.6 million in 2011 and $25.8 million
      thereafter.





As
      more
      fully described in footnote 2, the Company performed its annual impairment
      tests
      as of June 30, 2006 and concluded that the existing goodwill and indefinite
      lived intangible tradename balances were not impaired and continue to maintain
      this position as of December 31, 2006, based on various factors, including
      updated forecasts and the current condition of the Company.





**8.
      Debt:**




The
      Company’s principal external source of liquidity is its syndicated, secured
      credit agreement, which the Company entered into with UBS AG, Stamford Branch,
      and others in connection with the inVentiv Communications, Inc . acquisition. The key features of this credit facility are as
      follows:




·
            A
                $175 million term loan facility was made available to us in a single
                drawing at the time of theinVentiv
                Communications, Inc.transaction. The credit agreement also includes a $50 million revolving
                credit facility, of which $5 million is available for the issuance
                of
                letters of credit, and a $5 million swingline
                facility.




·
            The
                term loan will mature on the sixth anniversary of the Credit Agreement,
                with scheduled quarterly amortization of 1% per year during years
                one
                through five and 95% during year six. The revolving loans will mature
                on
                the sixth anniversary of the Credit
                Agreement.




·
            Amounts
                advanced under the credit agreement must be prepaid with a percentage,
                determined based on a leverage test set forth in the credit agreement,
                of
                Excess Cash Flow (as defined in the credit agreement) and the proceeds
                of
                certain non-ordinary course asset sales and certain issuances of
                our debt
                obligations or equity securities, subject to certain exceptions.
                The
                Company may elect to prepay the loans, in whole or in part at any
                time, in
                certain minimum principal amounts, without penalty or premium (other
                than
                normal LIBOR break funding costs). Amounts borrowed under the credit
                agreement that are repaid or prepaid may not be
                reborrowed.




·
            Interest
                on the loans accrue, at our election, at either (1) the Alternate
                Base
                Rate (which is the greater of UBS’s prime rate and federal funds effective
                rate plus 1/2 of 1%) or (2) the Adjusted LIBOR Rate, with interest
                periods
                determined at our option of 1, 2, 3 or 6 months (or, if the affected
                lenders agree, 9 months), in each case plus a spread based on the
                type of
                loan and method of interest rate determination
                elected.




·
            The
                credit agreement contains, among other things, conditions precedent,
                representations and warranties, covenants and events of default customary
                for facilities of this type. Such covenants include certain limitations
                on
                indebtedness, liens, sale-leaseback transactions, guarantees, fundamental
                changes, dividends, acquisitions and transactions with affiliates.
                The
                credit agreement also includes covenants under which the Company
                is
                required to maintain a maximum leverage ratio and minimum interest
                rate
                coverage and fixed charge coverage ratios that vary based on the
                amount of
                time elapsed since the initial extension of credit. As of the date
                of this
                report, the Company complies with the requirements and covenants
                of its
                credit facility.




**INVENTIV
        HEALTH, INC.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**




The
      three-month LIBOR base rate as of December 31, 2006 and December 31, 2005 was
      5.36% and 4.53%, respectively. As mentioned in footnote 11, the Company entered
      into a derivative financial instrument to hedge against this $175 million term
      loan facility.




During
      2005, the Company incurred costs of approximately $3.3 million related to the
      credit agreement. These amounts are classified as deferred financing costs
      and
      $2.7 million and $3.2 million are included as Deposits and Other Assets on
      the
      December 31, 2006 and December 31, 2005 consolidated balance sheets,
      respectively. These deferred financing costs are amortized as interest expense
      over the life of the loan using the effective interest rate method. At December
      31, 2006 and December 31, 2005, the Company had approximately $164.6 million
      and
      $174.6 million outstanding on the secured term loan and no amounts outstanding
      under the credit facility. The following table displays the required future
      commitment of the principal payment on the loan.





Years
                Ending December 31,2007
            
            $
            1,6672008
            
            
            1,6672009
            
            
            1,6672010
            
            
            40,8332011
            
            
            118,750Thereafter
            
            
            --Total
                minimum lease payments
            
            $
            164,584





**9.
      Accrued Payroll, Accounts Payable and Accrued Expenses:**





Accrued
      payroll, accounts payable and accrued expenses consist of the
      following:





December
                31,2006
            
            
            2005(in
                thousands)Accrued
                payroll and related employee benefits
            
            $
            28,411
            
            $
            24,236Accounts
                payable
            
            
            11,867
            
            
            7,295Accrued
                media liability
            
            
            10,632
            
            
            1,100Accrued
                insurance
            
            
            4,604
            
            
            5,872Accrued
                commissions
            
            
            4,359
            
            
            3,979Accrued
                professional fees
            
            
            2,597
            
            
            2,441Accrued
                meeting fees
            
            
            1,154
            
            
            1,511Contingent
                consideration from acquisitions
            
            
            44,049
            
            
            16,120Accrued
                expenses
            
            
            15,502
            
            
            15,262$
            123,175
            
            $
            77,816





**10.
      Leases:**





The
      Company leases certain facilities, office equipment and other assets under
      non-cancelable operating leases. The operating leases are expensed on a
      straight-line basis and may include certain renewal options and escalation
      clauses.





The
      following is a schedule of future minimum lease payments for these operating
      leases at December 31, 2006 (in thousands):







Years
                Ending December 31,2007
            $15,6382008
            11,8562009
            9,2942010
            8,0142011
            7,436Thereafter
            13,094Total
                minimum lease payments
            $65,332





Rental
      expense charged to operations was approximately $8.7 million, 5.6 million,
      and
      $2.5 million for the years ended December 31, 2006, 2005 and 2004, respectively.
      In February 2003, the Company started to receive sublease payments for one
      of
      its facilities, which was formerly occupied by one of its divested units. In
      2006, 2005 and 2004, approximately $1.5 million, $0.9 million and $0.9 million,
      respectively, of sublease income was received and offset against the
      obligation . The
      Company expects to collect for the year ending December 31, 2007, approximately
      $1.5 million, under the sublease agreement, and an additional $0.4 million
      through the contract expiration in March 2008.




The
      Company also has commitments under capital leases. The following is a schedule
      of future minimum lease payments for these capital leases at December 31, 2006
      (in thousands):


(a)Years
                  Ending December 31,2007
              
              $
              13,6922008
              
              
              11,5722009
              
              
              8,6132010
              
              
              3,7212011
              
              
              3Total
                  minimum lease payments
              
              
              37,601Amount
                  representing interest andmanagement
                  fees
              
              
              (4,093
              )Current
                  portion
              
              
              (11,708
              )Non-current
                  lease obligations
              
              $
              21,800


(a) These
      future commitments include interest and management fees, which are not recorded
      on the Consolidated Balance Sheet as of December 31, 2006 but will be recorded
      as incurred.




**INVENTIV
        HEALTH, INC.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**





**11.
      Derivative Financial Instruments:**




Effective
      October 2005, the Company entered into an amortizing three-year interest rate
      swap arrangement with a notional amount of $175 million at inception to apply
      a
      fixed interest rate against the six-year $175 million loan arrangement entered
      into to facilitate the acquisition of inVentiv
      Communications, Inc. The
      Company entered into this interest rate swap agreement to modify the interest
      rate characteristics of its outstanding long-term debt. At the inception of
      the
      hedged item’s designation, and at least quarterly thereafter, the Company
      assesses whether derivatives used to hedge transactions are highly effective
      in
      offsetting changes in the cash flow of the hedged item. To the extent the
      instruments are considered to be effective, changes in fair value are recorded
      as a component of other comprehensive income (loss). To the extent there is
      any
      hedge ineffectiveness, changes in fair value relating to the ineffective portion
      are immediately recognized in earnings (interest expense).




From
      October
      2005 to July 2006, the Company did not qualify for hedge accounting and recorded
      a $2.9 million reduction to interest expense relating to the mark-to-market
      adjustment, and a corresponding derivative asset of approximately $2.9 million,
      which was recorded in Deposits and Other Assets on the Consolidated Balance
      Sheet. The fair values of the interest rate swaps were obtained from dealer
      quotes. These values represent the estimated amount the Company would receive
      or
      pay to terminate the agreement taking into consideration the difference between
      the contract rate of interest and rates currently quoted for agreements of
      similar terms and maturities.




On
      July 17,
      2006, the Company formally designated the interest rate swap as a cash flow
      hedge pursuant to SFAS No. 133, *Accounting
      for Derivative Instruments and Hedging Activities* .
      The
      Company employed the dollar offset method by performing a shock test to assess
      ineffectiveness and utilized the hypothetical derivative model to measure
      ineffectiveness. The hypothetical derivative contains the same terms and
      conditions as the original derivative, but was initiated in July 2006. From
      July
      2006 to December 2006, the fair market value of the derivative asset decreased
      to approximately $1.1 million, resulting in a $1.8 million decrease in the
      derivative asset; approximately $1.2 million (approximately $0.7 million, net
      of
      taxes) adjustment to Other Comprehensive Income; and $0.6 million of interest
      expense due to ineffectiveness of the hedged item.





**12.
      Commitments and Contingencies:**




The
      Company
      is subject to lawsuits, investigations and claims arising out of the conduct
      of
      its business, including those related to commercial transactions, contracts,
      government regulation and employment matters. Certain claims, suits and
      complaints have been filed or are pending against the Company.  We
      do not
      believe that any action will have a material adverse effect on our consolidated
      balance sheets, results of operations or cash flows.The
      following action is pending against our Adheris business unit: 
 Utility
        Consumer Action Network v. Albertson’s Inc.(Case No. GIC
        830069). This
        action was filed on May 17, 2004 in California Superior Court against
        Albertson’s Inc. three other drug store chains and 17 pharmaceutical companies
        alleging, among other things, violations of the California Unfair Competition
        Law and the California Confidentiality of Medical Information Act arising
        from
        the operation of manufacturer-sponsored, pharmacy-based compliance programs
        similar to Adheris's programs. The plaintiff is seeking "equitable monetary
        relief", disgorgement, statutory damages and penalties, injunctive relief
        and
        reimbursement of attorneys' fees in this lawsuit. An amended complaint was
        filed
        on November 4, 2004 naming Adheris as an additional defendant. Three demurrers
        are in the briefing stage and are expected to be ruled on shortly. Our insurer
        is defending this action under reservation of rights. We do not believe that
        this action will have a material adverse effect on our consolidated balance
        sheets, results of operations or cash flows.




Pursuant
      to
      the acquisition of inChord, the
      Company assumed a $7.5 million existing incentive plan liability (out of a
      potential $15.0 million liability) on inChord’s balance sheet relating to
      certain performance thresholds of the segment over a three-year period from
      2005
      through 2007. The first $5.0 million of this obligation is to be paid by or
      for
      the account of the former shareholders of inChord; as such, this amount was
      recorded as a long-term receivable from the former shareholders. The Company
      has
      monitored these performance thresholds on a quarterly basis. At December 31,
      2006, as a result of new business and the strengthened outlook for inChord’s
      business during 2007, management felt it was appropriate to record an additional
      $3.5 million (of which $1.2 million is recorded in cost of services and $2.3
      million is recorded in SG&A) of the potential $15 million liability since
      the likelihood of achieving the next threshold is probable and the amount is
      estimable, pursuant to SFAS No. 5, Accounting for Contingencies. The Company
      will continue to monitor these performance thresholds, which may result in
      up to
      an additional $3.7 million of expenses, but currently the Company does not
      believe that it is probable that the final threshold will be met.




**13.
      Common Stock and Stock Incentive Plans:**




As
      of June
      14, 2006, the Company’s 2006 Long-Term Incentive Plan (“LTIP”) authorizes it to
      grant incentive stock options, nonqualified stock options, restricted stock
      awards, restricted stock units, stock appreciation rights ("SARs”) and
      performance awards. The aggregate number of shares of the Company’s common stock
      that may be issued under the Stock Plan upon exercise of options, SARs or in
      the
      form of restricted stock is 9.1 million shares. Prior to the adoption of the
      LTIP, the Company was authorized to grant equity incentive awards under its
      1999
      Stock Incentive Plan (together with the LTIP, the "Equity incentive Plans"),
      which was terminated at the time the LTIP was adopted.




The
      exercise
      price of options granted under the LTIP may not be less than 100% of the fair
      market value per share of the Company’s common stock on the date of the option
      grant. The vesting and other provisions of the options are determined by the
      Compensation Committee of our Board of Directors.




The
      following
      table summarizes activity under the Company’s equity incentive plan (in
      thousands, except per share amounts):




**Shares**
            
            
            **Weighted
                Average Exercise Price**
            
            
            **Weighted
                Average Remaining Contractual Term (in years)**
            
            
            **Aggregate
                Intrinsic Value**Outstanding
                at January 1, 2004
            
            
            3,864
            
            $
            3.76Granted
                and assumed
            
            
            1,467
            
            
            16.51Exercised
            
            
            (1,059
            )
            
            3.02Forfeited/expired/cancelled
            
            
            (64
            )
            
            3.63Outstanding
                at December 31, 2004
            
            
            4,208
            
            $
            8.39
            
            
            6.70
            
            $
            50,149Granted
                and assumed
            
            
            175
            
            
            24.41Exercised
            
            
            (1,282
            )
            
            5.33Forfeited/expired/cancelled
            
            
            (130
            )
            
            12.54Outstanding
                at December 31, 2005
            
            
            2,971
            
            $
            10.47
            
            
            6.32
            
            $
            39,401Granted
                and assumed
            
            
            366
            
            
            26.34Exercised
            
            
            (971
            )
            
            6.72Forfeited/expired/cancelled
            
            
            (172
            )
            
            14.75Outstanding
                at December 31, 2006
            
            
            2,194
            
            $
            14.43
            
            
            7.24
            
            $
            45,900Vested
                and expected to vest at December 31, 2006
            
            
            2,116
            
            $
            14.15
            
            
            7.19
            
            $
            44,847Options
                exercisable at December 31, 2004
            
            
            1,681
            
            $
            4.64
            
            
            5.25
            
            $
            26,356Options
                exercisable at December 31, 2005
            
            
            1,470
            
            $
            7.82
            
            
            5.43
            
            $
            23,239Options
                exercisable at December 31, 2006
            
            
            1,246
            
            $
            9.82
            
            
            6.41
            
            $
            31,813




The
      weighted-average grant-date fair value of stock options granted was $13.02,
      $13.24 and $10.95 at December 31, 2006, 2005 and 2004, respectively. The total
      intrinsic value of options exercised during the years ended December 31, 2006,
      2005 and 2004, was $6.5 million, $6.8 million, and $3.2 million, respectively.
      As of December 31, 2006, there was approximately $8.9 million of total
      unrecognized compensation cost related to nonvested share-based compensation
      arrangements granted; that cost is expected to be recognized over a weighted
      average of 2.4 years.




The
      actual
      tax benefit realized for the tax deductions from option exercise of the
      share-based payment arrangements totaled $9.2 million, $9.7 million and $4.5
      million for the years ended December 31, 2006, 2005 and 2004,
      respectively.




**INVENTIV
        HEALTH, INC.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**


Options
      outstanding and exercisable have exercise price ranges and weighted average
      remaining contractual lives of:




Outstanding
                  Options
              Exercisable
                  Options**Exercise
                  Price Range**
              **Numbers
                  of Options**
              **Weighted
                  Average Exercise Price**
              **Weighted
                  Average**
                **Remaining
                  Life**
                **(years)**
              **Number
                  of Options**
              **Weighted
                  Average**
                **Exercise
                  Price**$1.48
              To
              $1.48
              500
              $1.48
              5.85
              500
              $1.48$1.66
              To
              $1.66
              288,225
              $1.66
              5.95
              288,225
              $1.66$1.72
              To
              $7.94
              253,462
              $4.50
              5.39
              237,812
              $4.64$8.06
              To
              $8.45
              228,624
              $8.28
              5.07
              178,562
              $8.23$9.15
              To
              $15.48
              61,362
              $12.95
              7.22
              18,888
              $12.76$15.96
              To
              $15.96
              420,000
              $15.96
              7.73
              320,000
              $15.96$16.86
              To
              $17.25
              294,927
              $17.06
              7.75
              103,137
              $17.01$17.57
              To
              $25.06
              334,516
              $21.36
              8.30
              71,876
              $18.81$25.62
              To
              $26.77
              277,500
              $26.68
              9.16
              24,375
              $26.52$30.64
              To
              $30.64
              35,000
              $30.64
              9.64
              2,916
              $30.642,194,116
              
              
              1,246,291


Assumptions





The
      fair
      value of each option grant is estimated on the date of grant using a
      Black-Scholes option pricing model with the following weighted average
      assumptions:





2006
            2005
            2004Expected
                life of option
            5.5-6
                yrs
            4.78
                yrs
            4.42
                yrsRisk-free
                interest rate
            4.90%
            4.27%
            3.52%Expected
                volatility
            45%
            63.62%
            87.3%Expected
                dividend yield
            0.00%
            0.00%
            0.00%




With
      the
      adoption of SFAS 123R in 2006, the Company has limited its issuance of stock
      options to senior executives, while granting restricted shares to employees
      at
      various levels. During
      the fourth quarter of 2005, prior to the adoption of SFAS 123R, management
      analyzed its expected volatility and expected life of stock options and
      concluded that the expected volatility for options granted during the fourth
      quarter of 2005 should be 45% and the expected life of the options granted
      should range between 5.5 and 6.0 years, depending on the grantee’s employee
      status. In
      2006,
      the Company analyzed historical trends in these variables on a quarterly basis,
      resulting in a decrease in the Company’s expected volatility to 39% during the
      fourth quarter of 2006. For the
      year ended December 31, 2006 the Company elected to use the simplified method
      of
      determining the expected term as permitted by SAB 107 the
      range
      of the expected term remained unchanged at 5.5 to 6 years. The
      Company continues to base the estimate of risk-free rate on the U.S. Treasury
      yield curve in effect at the time of grant. The Company has never paid cash
      dividends and does not currently intend to pay cash dividends, and has certain
      restrictions under its credit facility to pay dividends and thus has assumed
      a
      0% dividend yield. These conclusions were based on several factors, including
      past company history, current and future trends, comparable benchmarked data
      and
      other key metrics.





As
      part
      of the requirements of SFAS 123R, the Company is required to estimate potential
      forfeitures of stock grants and adjust compensation cost recorded accordingly.
      The forfeiture rate was estimated based on historical forfeitures. The estimate
      of forfeitures will be adjusted over the requisite service period to the extent
      that actual forfeitures differ, or are expected to differ, from such estimates.
      Changes in estimated forfeitures will be recognized through a cumulative
      catch-up adjustment in the period of change and will also impact the amount
      of
      stock compensation expense to be recognized in future periods. The forfeiture
      rate utilized in 2006 was 3.25%.




A
      summary
      of the status and changes of the Company’s nonvested shares related to our
      equity incentive plan is presented below:





(in
                thousands, except per share amounts)
            
            
            **Shares**
            
            
            **Weighted
                Average Grant-Date Fair Value**Nonvested
                at January 1, 2004
            
            
            10
            
            $
            8.45Granted
            
            
            23
            
            $
            17.27Released
            
            
            (5
            )
            $
            8.45Forfeited
            
            
            --
            
            $
            --Nonvested
                at December 31, 2004
            
            
            28
            
            $
            15.70Granted
            
            
            186
            
            $
            20.70Released
            
            
            (5
            )
            $
            8.45Forfeited
            
            
            (1
            )
            $
            19.88Nonvested
                at December 31, 2005
            
            
            208
            
            $
            20.31Granted
            
            
            401
            
            $
            26.33Released
            
            
            (62
            )
            $
            20.66Forfeited
            
            
            (27
            )
            $
            24.67Nonvested
                at December 31, 2006
            
            
            520
            
            $
            24.66




As
      of
      December 31, 2006, there was approximately $9.2 million of total unrecognized
      compensation cost related to nonvested share-based compensation arrangements
      granted under the Stock Plan; that cost is expected to be recognized over a
      weighted average of 3.3 years. The total fair value of shares vested during
      the
      years ended December 31, 2006, 2005 and 2004 were $1.8 million, $0.1 million,
      and $0.1 million, respectively.




**14.
      Benefit Plans:**




inVentiv
      Health, Inc. and certain of its subsidiaries maintain a defined contribution
      benefit plans. Costs incurred by the Company related to this plan amounted
      to
      approximately $2.2 million, $1.1 million and $0.7 million for 2006, 2005 and
      2004, respectively.




On
      November
      22, 2004, the Company adopted the Ventiv Health, Inc. Deferred Compensation
      Plan
      (the "Plan"), which was approved by its Board of Directors. The Plan provides
      eligible management and other highly compensated employees with the opportunity
      to defer, on a pre-tax basis, their salary, bonus, and other specified cash
      compensation and to receive the deferred amounts, together with a deemed
      investment return (positive or negative), either at a pre-determined time in
      the
      future or upon termination of employment with inVentiv Health, Inc. or an
      affiliated employer participating in the Plan. The compensation deferrals were
      initiated in 2005. The deferred compensation liability of approximately $4.2
      million and $1.9 million were included in other liabilities in our Consolidated
      Balance Sheets as of December 31, 2006 and 2005, respectively. The Plan does
      not
      provide for the payment of above-market interest to participants.




To
      assist in
      the funding of the Plan obligation, we participate in a corporate-owned life
      insurance program in a rabbi trust whereby it purchases life insurance policies
      covering the lives of certain employees, with inVentiv Health, Inc. named as
      beneficiary. Rabbi trusts are grantor trusts generally set up to fund
      compensation for a select group of management or highly paid executives. The
      cash value of the life insurance policy as of December 31, 2006 and 2005 were
      approximately $2.9 million and $1.4 million, respectively and are currently
      classified in Deposits and other assets on our Consolidated Balance Sheets.
      In
      addition, approximately $1.1 million and $0.5 million as of December 31, 2006
      and 2005, respectively, were invested in mutual funds and classified in other
      current assets on our Consolidated Balance Sheets.




**INVENTIV
        HEALTH, INC.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**




**15.
      Income Taxes:**





Our
      income tax provision included the following components:





**For
                the Years Ended****December
                31,****2006**
            
            
            **2005**
            
            
            **2004****(in
                thousands)**Current:U.S.—Federal
            
            $
            22,900
            
            $
            10,854
            
            $
            7,808U.S.—State
                and local
            
            
            2,811
            
            
            1,721
            
            
            1,707Foreign
            
            
            837
            
            
            --
            
            
            --$
            26,548
            
            $
            12,575
            
            $
            9,515Deferred:U.S.—Federal
            
            $
            (7,183
            )
            $
            1,739
            
            $
            (5,050
            )U.S.—State
                and local
            
            
            (77
            )
            
            (85
            )
            
            (663
            )Foreign
            
            
            (122
            )
            
            --
            
            
            --$
            (7,382
            )
            $
            1,654
            
            $
            (5,713
            )Income
                tax provision
            
            $
            19,166
            
            $
            14,229
            
            $
            3,802





The
      provision for taxes on net income differs from the amount computed by applying
      the U.S. federal income tax rate as a result of the following:





**For
                the Years Ended****December
                31,****2006**
            
            
            **2005**
            
            
            **2004**Taxes
                at statutory U.S. federal income tax rate
            
            
            35.0
            %
            
            35.0
            %
            
            35.0
            %Foreign
                taxes
            
            
            1.0
            
            
            --
            
            
            --State
                and local income taxes, net of federal tax benefit
            
            
            4.5
            
            
            4.6
            
            
            4.7Release
                of valuation allowance/ Utilization of net operating losses / other
                tax
                benefits
            
            
            (13.5
            )
            
            (15.3
            )
            
            (29.2
            )Other
                permanent differences
            
            
            0.6
            
            
            0.5
            
            
            0.7Effective
                tax rate
            
            
            27.6
            %
            
            24.8
            %
            
            11.2
            %




In
      June
      2006, the Company recognized a tax benefit of approximately $9.1 million related
      to net operating losses associated with a previously-divested unit, as
      management determined that it is more likely than not that this deferred tax
      asset will be realized.





Deferred
      income taxes are recorded based upon differences between the financial statement
      and tax bases of assets and liabilities. As of December 31, 2006 and 2005,
      the
      deferred tax assets and liabilities consisted of the following:





**As
                of December 31,****2006**
            
            
            **2005****Current
                Deferred Assets****:**
            
            **(in
                thousands)**Accrued
                expenses
            
            $
            3,200
            
            $
            2,669Deferred
                rent
            
            
            410
            
            
            131Net
                operating loss carryforwards
            
            
            136
            
            
            3,546Deferred
                revenue
            
            
            377
            
            
            331Other
            
            
            598
            
            
            297Subtotal
            
            
            4,721
            
            
            6,974


**** **Non-Current
      Deferred Assets:**


Deferred
                Compensation
            
            
            3,128
            
            
            232Intangible
                Assets
            
            
            --
            
            
            1,774Net
                operating loss carryforwards
            
            
            2,827
            
            
            12,235Fixed
                Assets
            
            
            6,152
            
            
            16,481Other
            
            
            688
            
            
            1,257Subtotal
            
            
            12,795
            
            
            31,979**Gross
                Deferred Assets**
            
            
            17,516
            
            
            38,953**Current
                Deferred Liabilities**:Accrued
                Expenses
            
            
            (2,595
            )
            
            (2,075
            )Other
            
            
            (584
            )
            
            (870
            )Subtotal
            
            
            (3,179
            )
            
            (2,945
            )**Non-Current
                Deferred Liabilities:**Property
                and Equipment
            
            
            (4,688
            )
            
            (16,847
            )Intangible
                Assets
            
            
            (11,402
            )
            
            (1,643
            )Other
            
            
            (1,541
            )
            
            (14
            )Subtotal
            
            
            (17,631
            )
            
            (18,504
            )**Gross
                Deferred
                Liabilities**
            
            
            (20,810
            )
            
            (21,449
            )**Valuation
                Allowance**
            
            
            (2,628
            )
            
            (10,047
            )**Net
                deferred
                (liabilities) assets**
            
            $
            (5,922
            )
            $
            7,457




**INVENTIV
        HEALTH, INC.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**




During
      2004, a deferred tax asset in the amount of $23.6 million was established for
      net operating loss carryforwards primarily related to the divestiture of certain
      subsidiaries. A valuation allowance of $20 million was established at that
      time
      related to net operating loss carryforwards for which the Company had concluded
      it was more likely than not that these loss carryforwards would not be realized
      in future periods. Management revised its assessment in the third quarter of
      2005 and recorded a tax benefit of approximately $6.7 million primarily related
      to the reversal of a previously recorded valuation allowance as the Company
      determined an additional portion of its deferred tax asset was more likely
      than
      not expected to be realized. This and other items resulted in a reduction in
      the
      overall valuation allowance for deferred tax assets. The deferred tax asset
      related to loss carryforwards was also reduced for such assets utilized during
      the year ended December 31, 2005. For financial statement purposes, federal
      net
      operating loss carryforwards of approximately $45 million existed at December
      31, 2005.




During
      2006,
      the Company re-evaluated its Federal income tax net operating loss carryforward
      position reported for financial statement purposes and concluded that it was
      probable that the Federal income tax net operating loss would be fully utilized
      in 2006. The Company determined that the deferred tax asset recorded for the
      Federal income tax net operating loss carryforward of $15.8 million and an
      offsetting valuation allowance of $9.1 million reported for financial statement
      purposes were no longer required. Accordingly, the Company reversed the December
      31, 2005 balances which resulted in a balance sheet reclassification with no
      income statement tax effect, other than the reversal of approximately $9.1
      million of valuation allowance as discussed above.




A
      capital tax
      loss carryover in the amount of approximately $2.1 million and $2.8 million
      existed at December 31, 2006 and December 31, 2005, respectively, and will
      begin
      to expire in 2007. A valuation allowance has been recorded against the capital
      loss carryovers as management believes it is more likely than not that the
      associated deferred tax asset will not be realized in the future.




During
      2006,
      a deferred tax asset in the amount of $2.3 million was established primarily
      related to state net operating loss carryforwards. A valuation allowance of
      $1.9
      million has been recorded against a portion of the state net operating loss
      carryforwards as management believes it is more likely than not that the
      associated deferred tax asset will not be realized in the future.  The
      gross amount of the state net operating losses is approximately $27.2 million
      and expires in varying amounts beginning in 2008 and continuing through
      2026.




**16.
      Discontinued Operations:**




For
      the years
      ended December 31, 2006, 2005 and 2004, income from discontinued operations,
      net
      of taxes, were $2.0 million, $0.8 million and $1.0 million, respectively. For
      the years ended December 31, 2006, 2005 and 2004, income from discontinued
      operations, net of taxes, mainly consisted of contingency payments due from
      our
      previously divested Germany and Hungary-based operations. In addition,
      approximately $1.2 million of tax liability was reversed since the receivership
      of the previously-divested France-based unit was finalized during the fourth
      quarter of 2006.




**17.
      Related Parties:**




The
      Company
      is currently in a lease with Olde Worthington Road LLC for inVentiv
      Communications’ Services’ current headquarters facility in Westerville, Ohio.
      This facility is partially owned by the current inVentiv Communications’ Chief
      Executive Officer (who is also a member of the Board of Directors), his brothers
      and other current employees of inVentiv Communications through their ownership
      in GSW Capital LLC. GSW Capital LLC is a 50% owner of Olde Worthington Road
      LLC.
      The term of the lease is fifteen years, and expires on September 30, 2015.





**18.
      Segment Information:**




The
      Company
      currently manages three operating segments: inVentiv Clinical, inVentiv
      Communications and inVentiv Commercial, and its non-operating reportable
      segment, “Other”, which is based on the way management makes operating decisions
      and assesses performance. The following represents the Company’s reportable
      segments:





·
            inVentiv
                Clinical,
                which provides services related to permanent placement, clinical
                staffing,
                data collection and management and functional
                outsourcing





·
            inVentiv
                Communications,
                which provides services related to pharmaceutical advertising, branding,
                interactive communication development and patient and physician education





·
            inVentiv
                Commercial,
                which consists of the Company’s outsourced sales and marketing teams,
                planning and analytics services, sample accountability and patient
                assistance businesses, marketing support services, professional
                development and training, and recruitment of sales representatives
                in the
                commercial services area.





·
            Other,
                which encompasses the activities of the corporate management group.




In
      August
      2005, the Company acquired PRS, which is reported in the inVentiv Commercial
      segment from the date of its acquisition. In October 2005, the Company acquired
      inVentiv Communications, Inc., which created the operating segment, inVentiv
      Communications, from the date of its acquisition. In February 2006, the Company
      acquired Adheris, which is reported in the inVentiv Communications segment
      from
      the date of its acquisition. In April 2006, the Company acquired Synergos,
      which
      is reported in the inVentiv Clinical segment from the date of its acquisition
      and JSAI, which is reported in the inVentiv Communications segment from the
      date
      of its acquisition. During the fourth quarter of 2006, the Company acquired
      MedConference and DialogCoach, which are both reported in the inVentiv
      Commercial segment from the dates of their acquisitions.




For
      the
      year ended December 31, 2006 (in thousands):





**inVentiv**
              **Clinical**
            
            
            **inVentiv**
              **Communications**
            
            
            **inVentiv
                Commercial**
            
            
            **Other**
            
            
            **Total**Revenues
            
            $
            150,317
            
            $
            258,063
            
            $
            363,934
            
            $
            --
            
            $
            772,314Less:
                Intersegment revenues
            
            
            531
            
            
            1,008
            
            
            4,530
            
            
            --
            
            
            6,069Reported
                Revenues
            
            
            149,786
            
            
            257,055
            
            
            359,404
            
            
            --
            
            
            766,245Depreciation
                and amortization
            
            
            1,527
            
            
            5,035
            
            
            14,090
            
            
            88
            
            
            20,740Interest
                expense
            
            
            --
            
            
            95
            
            
            1,781
            
            
            9,485
            
            
            11,361Interest
                income
            
            
            61
            
            
            722
            
            
            --
            
            
            1,911
            
            
            2,694Segment
                income (loss)(1)
            
            
            11,623
            
            
            35,587
            
            
            42,477
            
            
            (20,276
            )
            
            69,411





For
      the
      year ended December 31, 2005 (in thousands):





**inVentiv**
              **Clinical**
            
            
            **inVentiv**
              **Communications**
            
            
            **inVentiv
                Commercial**
            
            
            **Other**
            
            
            **Total**Revenues
            
            $
            113,717
            
            $
            48,901
            
            $
            394,552
            
            $
            --
            
            $
            557,170Less:
                Intersegment revenues
            
            
            17
            
            
            175
            
            
            666
            
            
            --
            
            
            858Reported
                Revenues
            
            
            113,700
            
            
            48,726
            
            
            393,886
            
            
            --
            
            
            556,312Depreciation
                and amortization
            
            
            1,241
            
            
            679
            
            
            15,420
            
            
            85
            
            
            17,425Interest
                expense
            
            
            --
            
            
            19
            
            
            1,275
            
            
            2,661
            
            
            3,955Interest
                income
            
            
            35
            
            
            47
            
            
            114
            
            
            1,213
            
            
            1,409Segment
                income (loss)(1)
            
            $
            9,563
            
            $
            5,677
            
            $
            54,271
            
            $
            (12,083
            )
            $
            57,428




**INVENTIV
        HEALTH, INC.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**


For
      the
      year ended December 31, 2004 (in thousands):





**inVentiv**
              **Clinical**
            
            
            **inVentiv**
              **Communications**
            
            
            **inVentiv
                Commercial**
            
            
            **Other**
            
            
            **Total**Revenues
            
            $
            21,694
            
            
            --
            
            $
            330,953
            
            $
            --
            
            $
            352,647Less:
                Intersegment revenues
            
            
            6
            
            
            --
            
            
            457
            
            
            
            
            
            463Reported
                revenues
            
            
            21,688
            
            
            --
            
            
            330,496
            
            
            
            
            
            352,184Depreciation
                and amortization
            
            
            219
            
            
            --
            
            
            15,613
            
            
            76
            
            
            15,908Restructuring
            
            
            --
            
            
            --
            
            
            249
            
            
            15
            
            
            264Interest
                expense
            
            
            --
            
            
            --
            
            
            627
            
            
            295
            
            
            922Interest
                income
            
            
            5
            
            
            --
            
            
            51
            
            
            622
            
            
            678Segment
                income (loss)(1)
            
            $
            1,709
            
            
            --
            
            $
            40,873
            
            $
            (8,650
            )
            $
            33,932








(1) Income
      from continuing operations before income tax provision, minority interest in
      income of subsidiary and income from equity investments








(in
                thousands)
            
            **December
                31,****2006**
            
            
            **2005**Total
                Assets:inVentiv
                Clinical
            
            $
            105,253
            
            $
            84,731inVentiv
                Communications
            
            
            408,859
            
            
            248,986inVentiv
                Commercial
            
            
            192,975
            
            
            171,468Other
            
            
            63,967
            
            
            78,709Total
                assets
            
            $
            771,054
            
            $
            583,894


.







**INVENTIV
        HEALTH, INC.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**


**19.
      Selected Quarterly Financial Data (unaudited, in
      thousands):**





The
      following table summarizes financial data by quarter for inVentiv for 2006
      and
      2005.





**2006
                Quarter Ended (b)****March
                31**
            
            
            **June
                30**
            
            
            **Sept.
                30**
            
            
            **Dec.
                31**
            
            
            **Total
                (a()****(in
                thousands, except per share amounts)**Revenues
            
            $
            173,677
            
            $
            182,979
            
            $
            197,780
            
            $
            211,809
            
            $
            766,245Gross
                profit
            
            
            48,869
            
            
            55,119
            
            
            56,372
            
            
            59,136
            
            
            219,496Income
                from continuing operations
            
            
            10,143
            
            
            19,864
            
            
            10,195
            
            
            8,996
            
            
            49,198Income
                from discontinued operations
            
            
            105
            
            
            1,115
            
            
            49
            
            
            768
            
            
            2,037Net
                income
            
            
            10,248
            
            
            20,979
            
            
            10,244
            
            
            9,764
            
            
            51,235Earnings
                (losses) per share (a)Continuing
                operations:Basic
            
            $
            0.36
            
            $
            0.68
            
            $
            0.35
            
            $
            0.30
            
            $
            1.69Diluted
            
            $
            0.35
            
            $
            0.66
            
            $
            0.34
            
            $
            0.29
            
            $
            1.64Discontinued
                operations:Basic
            
            $
            0.00
            
            $
            0.04
            
            $
            0.00
            
            $
            0.03
            
            $
            0.07Diluted
            
            $
            0.00
            
            $
            0.03
            
            $
            0.00
            
            $
            0.03
            
            $
            0.06Net
                income:Basic
            
            $
            0.36
            
            $
            0.72
            
            $
            0.35
            
            $
            0.33
            
            $
            1.76Diluted
            
            $
            0.35
            
            $
            0.69
            
            $
            0.34
            
            $
            0.32
            
            $
            1.70





**2005
                Quarter Ended (b)****March
                31**
            
            
            **June
                30**
            
            
            **Sept.
                30**
            
            
            **Dec.
                31**
            
            
            **Total
                (a)****(in
                thousands, except per share amounts)**Revenues
            
            $
            120,859
            
            $
            131,788
            
            $
            128,359
            
            $
            175,306
            
            $
            556,312Gross
                profit
            
            
            27,147
            
            
            32,027
            
            
            30,595
            
            
            49,518
            
            
            139,287Income
                from continuing operations
            
            
            9,192
            
            
            9,032
            
            
            15,033
            
            
            9,825
            
            
            43,082Income
                (losses) from discontinued operations
            
            
            99
            
            
            1,463
            
            
            78
            
            
            (859
            )
            
            781Net
                income (losses)
            
            
            9,291
            
            
            10,495
            
            
            15,111
            
            
            8,966
            
            
            43,863Earnings
                (losses) per share (a)Continuing
                operations:Basic
            
            $
            0.35
            
            $
            0.34
            
            $
            0.56
            
            $
            0.35
            
            $
            1.60Diluted
            
            $
            0.33
            
            $
            0.32
            
            $
            0.53
            
            $
            0.35
            
            $
            1.53Discontinued
                operations:Basic
            
            $
            0.01
            
            $
            0.05
            
            $
            0.00
            
            $
            (0.03
            )
            $
            0.03Diluted
            
            $
            0.01
            
            $
            0.06
            
            $
            0.01
            
            $
            (0.05
            )
            $
            0.03Net
                income (losses):Basic
            
            $
            0.36
            
            $
            0.39
            
            $
            0.56
            
            $
            0.32
            
            $
            1.63Diluted
            
            $
            0.34
            
            $
            0.38
            
            $
            0.54
            
            $
            0.30
            
            $
            1.56





(a) The
      sum
      of the net earnings per share do not add up to the full year amount due to
      rounding and because the quarterly calculations are based on varying numbers
      of
      shares outstanding.





(b)  The
      above
      tables have been reclassified as per SFAS No. 144 for the effects of
      discontinued operations. See Note 16 for a further description.







**SCHEDULE
      II VALUATION AND QUALIFYING ACCOUNTS**


**YEARS
      ENDED DECEMBER 31, 2006, 2005 and 2004**


(in
      thousands)





**Additions**
            
            **Deductions****Balance
                at**
              **Beginning**
              **Of
                Year**
            
            
            **Charged
                to Cost and Expense**
            
            
            **Charged
                to other Accounts****(1)**
            
            
            **from
                Reserve for Purpose for which Reserve was Created**
            
            
            **Balance
                at End**
              **Of
                Year**Allowances
                for Doubtful Accounts:Year
                ended December 31, 2006
            
            $
            3,979
            
            $
            2,257
            
            $
            145
            
            $
            2,798
            
            $
            3,583Year
                ended December 31, 2005
            
            $
            1,980
            
            $
            1,404
            
            $
            2,039
            
            $
            1,444
            
            $
            3,979Year
                ended December 31, 2004
            
            $
            2,019
            
            $
            643
            
            $
            141
            
            $
            823
            
            $
            1,980


(1) Reserves
      acquired through acquisitions.





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




None.




**Item
      9A.*****Controls
      and Procedures.***




**Evaluation
      of Disclosure Controls and Procedures**




An
      evaluation was performed under the supervision and with the participation of
      our
      management, including our Chief Executive Officer and Chief Financial Officer,
      of the effectiveness of our disclosure controls and procedures (as defined
      in
      Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)),
      as of the end of the period covered by this annual report on Form 10-K. Based
      on
      this evaluation, our Chief Executive Officer and Chief Financial Officer have
      concluded that, as of December 31, 2006 our disclosure controls and procedures
      are effective to provide reasonable assurance that information required to
      be
      disclosed in our Exchange Act reports is recorded, processed, summarized and
      reported within the time periods specified by the Securities and Exchange
      Commission and that material information relating to us and our consolidated
      subsidiaries is made known to management, including the Chief Executive Officer
      and Chief Financial Officer during the period when our periodic reports are
      being prepared. There were no changes in our internal controls over financial
      reporting during the year ended December 31, 2006 that have materially affected,
      or are reasonably likely to materially affect, our internal controls over
      financial reporting.




Please
      refer to the Report of Independent Registered Public Accounting Firm for further
      details of the auditor’s opinion on the audit of our consolidated balance sheets
      as of December 31, 2006 and 2005; the related consolidated statements of
      operations, stockholders' equity and cash flows for each of the three years
      in
      the period ended December 31, 2006; the financial statement schedule listed
      in the Index at Item 15(a); and also management's assessment, included under
      the
      caption *Management's
      Report on Internal Control Over Financial Reporting* ,
      that we
      maintained effective internal control over financial reporting as of
      December 31, 2006, based on criteria established in *Internal
      Control—Integrated Framework* issued
      by
      the Committee of Sponsoring Organizations of the Treadway
      Commission.




**Management’s
      Report on Internal Control over Financial Reporting**




Management’s
      Report on Internal Control Over Financial Reporting and the corresponding Report
      of Independent Registered Public Accounting Firm are included in Item 8,
      Financial Statements and Supplementary Data, of this report. See page
      32.




**Item
      9B.*****Other
      Information.***




At
      its
      meeting on February 23, 2007, our Compensation Committee approved an increase
      in
      Eran Broshy's miminum target bonus from 50% of base salary to 100% of base
      salary retroactive to 2006 and made a corresponding modification in the target
      level for Mr. Broshy under our cash bonus plan. Accordingly, for fiscal years
      commencing with 2006, with respect to Mr. Broshy, the cash bonus plan provides
      for payment of a 100% target bonus amount based on 70% on the achievement of
      budgeted EBIT targets and a 30% discretionary component based on individual
      performance.




As
        part
        of the closing under our definitive agreement to acquire Chamberlain, which
        we
        entered into on February 26, 2007, we will be obligated to issue for the
        account
        of the selling stockholders of Chamberlain 85,179 unregistered shares of
        our
        common stock in partial consideration for Chamberlain. The closing is expected
        to occur on or about March 1, 2007, subject to the satisfaction of closing
        conditions. The issuance is exempt from registration pursuant to
        Section 4(2) of the Securities Act of 1933, as amended, because there was
        no general solicitation or advertising, the number of recipients of such
        unregistered shares is limited and such recipients are accredited and/or
        sophisticated.
 
 As
        part
        of the closing under our definitive agreement to acquire Ignite, which we
        entered into on February 26, 2007, we will be obligated to issue for the
        account
        of Ignite 108,992 unregistered shares of our common stock in partial
        consideration for Ignite. The closing is expected to occur on or about March
        1,
        2007, subject to the satisfaction of closing conditions. The issuance is
        exempt
        from registration pursuant to Section 4(2) of the Securities Act of 1933,
        as amended, because there was no general solicitation or advertising, the
        number
        of recipients of such unregistered shares is limited and such recipients
        are
        accredited and/or sophisticated.











**PART
      III**





The
        information required by Items 10, 11, 12, 13 and 14 of Firm 10-K will be
        set
        forth in our Proxy Statement (to be filed within 120 days after our fiscal
        year
        ended December 31, 2006) relating to the 2007 Annual Meeting of Stockholders
        and
        is incorporated by reference herein.





**PART
      IV**


**Item
        15. Financial Statement Schedules*****.***
  *1.
      The following Consolidated Financial Statements of inVentiv Health, Inc. are
      filed under "Item 8. Financial Statements and Supplementary
      Data."*





Consolidated
      Balance Sheets as of December 31, 2006 and 2005





Consolidated
      Statements of Operations for the years ended December 31, 2006, 2005 and
      2004.





Consolidated
      Statements of Stockholders' Equity for the years ended December 31, 2006, 2005
      and 2004.





Consolidated
      Statements of Cash Flows for the years ended December 31, 2006, 2005 and
      2004.





Notes
      to
      Consolidated Financial Statements





*2.
      The following financial statement schedule is filed under "Item 8. Financial
      Statements and Supplementary Data* ."





Schedule
      II--Valuation and Qualifying Accounts





All
      other
      schedules are omitted because they are not applicable or are not required under
      Regulation S-X.





*3.
      The following exhibits are filed herewith or are incorporated herein by
      reference, as indicated* .


Exhibit
                Description3.1
                Amended
                    and Restated Certificate of Incorporation of the Registrant (filed
                    as
                    Exhibit 3.1 to the Registrant's Form 10 filed with the Securities
                    and
                    Exchange Commission under the Securities Act of 1934, as amended).
                    *3.2
                Amended
                    and Restated By-Laws of the Registrant (filed as Exhibit 3.1
                    to the
                    Registrant's Current Report on Form 8-K filed December 18, 2006).
                    *4.1
                Specimen
                    form of certificate representing the Registrant’s common stock (filed as
                    Exhibit 4.1 to the Registrant's Form 10 filed with the Securities
                    and
                    Exchange Commission under the Securities Act of 1934, as amended).
                    *10.1
                Form
                    of Distribution Agreement between Snyder Communications, Inc.
                    and the
                    Registrant (filed as Exhibit 10.1 to the Registrant's Form 10
                    filed with
                    the Securities and Exchange Commission under the Securities Act
                    of 1934,
                    as amended). *10.2
                Form
                    of Tax Sharing Agreement between Snyder Communications, Inc.
                    and the
                    Registrant (filed as Exhibit 10.2 to the Registrant's Form 10
                    filed with
                    the Securities and Exchange Commission under the Securities Act
                    of 1934,
                    as amended). *10.4
                inVentiv
                    Health, Inc. 1999 Stock Incentive Plan, as amended. (filed as
                    Appendix A
                    to the Registrant’s 2004 Proxy Statement filed with the Securities and
                    Exchange Commission under the Securities Act of 1934, as
                    amended).*10.4.1
                Form
                    of Executive Officer Stock Option Agreement. (filed as Exhibit
                    10.4.1 to
                    the Registrant's Annual Report on Form 10-K filed for the fiscal
                    year
                    ended December 31, 2004 with the Securities and Exchange Commission
                    under
                    the Securities Act of 1934, as amended). *10.4.2
                Form
                    of Director Stock Option Agreement. (filed as Exhibit 10.4.2
                    to the
                    Registrant's Annual Report on Form 10-K filed for the fiscal
                    year ended
                    December 31, 2004 with the Securities and Exchange Commission
                    under the
                    Securities Act of 1934, as amended). *10.4.3
                Form
                    of Restricted Stock Agreement. (filed as Exhibit 10.4.3 to the
                    Registrant's Annual Report on Form 10-K filed for the fiscal
                    year ended
                    December 31, 2004 with the Securities and Exchange Commission
                    under the
                    Securities Act of 1934, as amended). *10.4.4
                Form
                    of Director Restricted Stock Agreement. (filed as Exhibit 10.4.4
                    to the
                    Registrant's Annual Report on Form 10-K filed for the fiscal
                    year ended
                    December 31, 2004 with the Securities and Exchange Commission
                    under the
                    Securities Act of 1934, as amended). *10.4.5
                inVentiv
                    Health, Inc. 2006 Long-Term Incentive Plan. (filed as Exhibit
                    10.21 to the
                    Registrant's Current Report on Form 8-K filed June 19, 2006 with
                    the
                    Securities and Exchange Commission under the Securities Act of
                    1934, as
                    amended).*10.4.6
                Form
                    of Executive Officer Stock Option Award Notice.10.4.7
                Form
                    of Executive Officer Restricted Stock Award Notice.10.4.8
                Form
                    of Director Stock Option Award Notice.10.4.9
                Form
                    of Director Restricted Stock Award Notice.10.5
                Employment
                    Agreement, dated May 9, 2006 by and between Eran Broshy and inVentiv
                    Health, Inc. (filed as Exhibit 10.21 to the Registrant's Quarterly
                    Report
                    on Form 10-Q for the three months ended March 31, 2006 filed
                    with the
                    Securities and Exchange Commission under the Securities Act of
                    1934, as
                    amended). *10.5.1
                Amendment
                    dated February 23, 2007 to Employment Agreement, dated May 9,
                    2006, by and
                    between Eran Broshy and the Registrant.10.9
                Employment
                    Agreement, dated August 13, 2001 by and between John R. Emery
                    and the
                    Registrant
                  (filed
                    as Exhibit 10.9 to the Registrant's Annual Report on Form 10-K
                    for the
                    fiscal year ended December 31, 2001 filed with the Securities
                    and Exchange
                    Commission under the Securities Act of 1934, as amended).
                    *10.9.1
                Amendment
                    dated January 1, 2004 to Employment Agreement, dated August 13,
                    2001, by
                    and between John R. Emery and the Registrant (filed as Exhibit
                    10.9.1 to
                    the Registrant's Annual Report on Form 10-K for the fiscal year
                    ended
                    December 31, 2003 filed with the Securities and Exchange Commission
                    under
                    the Securities Act of 1934, as amended). *10.11
                Employment
                    Agreement, dated April 8, 2002 by and between Terrell Herring
                    and the
                    Registrant
                  (filed
                    as Exhibit 10.11 to the Registrant's Annual Report on Form 10-K
                    for the
                    fiscal year ended December 31, 2002 filed with the Securities
                    and Exchange
                    Commission under the Securities Act of 1934, as amended).
                    *10.11.1
                Amendment
                    dated January 1, 2004 to Employment Agreement, dated April 8,
                    2002, by and
                    between Terrell Herring and the Registrant (filed as Exhibit
                    10.11.1 to
                    the Registrant's Annual Report on Form 10-K for the fiscal year
                    ended
                    December 31, 2003 filed with the Securities and Exchange Commission
                    under
                    the Securities Act of 1934, as amended). *10.12
                Asset
                    Purchase Agreement dated as of September 21, 2004 among the Registrant,
                    Smith Hanley Holding Corporation and the other parties thereto
                    (filed as
                    Exhibit 2.1 to the Registrant's Form 8-K/A filed with the Securities
                    and
                    Exchange Commission under the Securities Act of 1934, as amended,
                    on
                    December 29, 2004). * #10.13
                The
                    Registrant 2005 Deferred Compensation Plan (filed as Exhibit
                    10.1 to the
                    Registrant's Form 8-K filed with the Securities and Exchange
                    Commission
                    under the Securities Act of 1934, as amended, on November 29,
                    2004).
                    *10.14
                Asset
                    Purchase Agreement dated as of November 19, 2004 among the Registrant,
                    HHI, L.L.C. and the other parties thereto (filed as Exhibit 10.14
                    to the
                    Registrant's Quarterly Report on Form 10-Q for the three months
                    ended
                    March 31, 2005 filed with the Securities and Exchange Commission
                    under the
                    Securities Act of 1934, as amended). *#10.15
                Asset
                    Purchase Agreement dated as of August 5, 2005 among the Registrant,
                    Pharmaceutical Resource Solutions LLC and the other parties thereto
                    (filed
                    as Exhibit 10.15 to the Registrant's Quarterly Report on Form
                    10-Q for the
                    three months ended September 30, 2005 filed with the Securities
                    and
                    Exchange Commission under the Securities Act of 1934, as amended).
                    *#10.16
                Acquisition
                    Agreement dated September 6, 2005 by and among inChord Communications,
                    Inc., the shareholders of inChord Communications, Inc., the Registrant
                    and
                    Accordion Holding Corporation (filed as Exhibit 2.1 to the Registrant's
                    Current Report on Form 8-K filed October 11, 2006 with the Securities
                    and
                    Exchange Commission under the Securities Act of 1934, as
                    amended).*10.17
                Form
                    of Indemnification Agreement entered into with each executive
                    officer and
                    director of Ventiv (filed as Exhibit 10.1 to the Registrant's
                    Current
                    Report on Form 8-K filed October 11, 2006 with the Securities
                    and Exchange
                    Commission under the Securities Act of 1934, as amended).*10.18
                Employment
                    Agreement dated as of September 6, 2005 between inChord Communications,
                    Inc. and R. Blane Walter (filed as Exhibit 10.2 to the Registrant's
                    Current Report on Form 8-K filed October 11, 2006 with the Securities
                    and
                    Exchange Commission under the Securities Act of 1934, as
                    amended).*10.19
                Credit
                    Agreement dated as of October 5, 2005 among the Registrant, the
                    Subsidiary
                    Guarantors,the
                    lenders party thereto, UBS Securities LLC, as bookmanager, as
                    joint lead
                    arranger, and as documentation agent, UBS Loan Finance LLC, as
                    swingline
                    lender, UBS AG, Stamford Branch, as issuing bank, as administrative
                    agent
                    for the Lenders and as collateral agent, Banc of America Securities
                    LLC,
                    as joint lead arranger, and Bank of America, N.A., as syndication
                    agent(filed
                    as Exhibit 10.3 to the Registrant's Current Report on Form 8-K
                    filed
                    October 11, 2006 with the Securities and Exchange Commission
                    under the
                    Securities Act of 1934, as amended).*10.20
                Acquisition-Related
                    Incentive Plan21.1
                Subsidiaries
                    of inVentiv Health, Inc.23
                Consent
                    of Deloitte & Touche LLP.31.1
                Chief
                    Executive Officer’s Certification Pursuant to Rule 13a-14(a) of the
                    Exchange Act31.2
                Chief
                    Financial Officer’s Certification Pursuant to Rule 13a-14(a) of the
                    Exchange Act32.1
                Chief
                    Executive Officer's Certification of Financial Statements Pursuant
                    to 18
                    U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
                    Sarbanes-Oxley Act of 200232.2
                Chief
                    Financial Officer's Certification of Financial Statements Pursuant
                    to 18
                    U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
                    Sarbanes-Oxley Act of 2002
 *
          Incorporated by reference.
 #
          Certain
          portions omitted pursuant to a request for confidential treatment. The
          omitted
          material has been filed separately with the Securities and Exchange
          Commission.

























**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.





**INVENTIV
      HEALTH, INC.**






Date:  
              February 28, 2007
            By:
            /s/ John
              R. EmeryJohn R. EmeryTitle: Chief
              Financial 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.





***Signature***
            ***Title***
            ***Date****/s/
                ERAN BROSHY*
            *Chief
                Executive Officer and Director*
            *February
                28, 2007**Eran
                Broshy*
            *(Chairman
                of the Board and Principal Executive Officer)**/s/
                JOHN R. EMERY*
            *Chief
                Financial Officer*
            *February
                28, 2007**John
                R. Emery*
            *(Principal
                Financial Officer and Principal Accounting Officer)**/s/
                TERRELL G. HERRING*
            *President
                and CEO, inVentiv Commercial*
            *February
                28, 2007**Terrell
                G. Herring*
            *(Director)**/s/
                BLANE WALTER*
            *President
                and CEO, inVentiv Communications*
            *February
                28, 2007**Blane
                Walter*
            *(Director)**/s/
                DONALD CONKLIN*
            *Director*
            *February
                28, 2007**Donald
                Conklin**/s/
                JOHN R. HARRIS*
            *Director*
            *February
                28, 2007**John
                R. Harris*/s/*MARK
                E. JENNINGS*
            *Director*
            *February
                28, 2007**Mark
                E.Jennings*/s/*PER
                G.H. LOFBERG*
            *Director*
            *February
                28, 2007**Per
                G.H. Lofberg**/s/
                A. CLAYTON PERFALL*
            *Director*
            *February
                28, 2007**A.
                Clayton Perfall**/s/
                DR.. CRAIG SAXTON*
            *Director*
            *February
                28, 2007**Dr.
                Craig Saxton*