**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, 2004
 
 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*
 
 **VENTIV
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(g) of the Act:**
 
 **Securities
registered pursuant to Section 12(g) of the Act: Common
Stock**
 **(Title
of Class)**
 
 Indicate
by check mark whether the registrant: (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes [X] No [_]
 
 Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information 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 an accelerated filer (as defined in
Exchange Act Rule 12b-2). Yes [X] No [ ]
 
 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 $287,600,993. 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 28, 2005, there were 26,129,138 outstanding shares of the registrant's
common stock.
 
 **DOCUMENTS
INCORPORATED BY REFERENCE**
 Certain
portions of the Registrant's Definitive Proxy Statement to be filed with the
Commission for use in connection with the 2005 Annual Meeting of Stockholders
are incorporated by reference into Part III of this Form 10-K.
 
 
 
 **TABLE
OF CONTENTS**
 
 Item
    Description
    PagePART
      I1
    Business
    22
    Properties
    93
    Legal
      Proceedings
    94
    Submission
      of Matters to a Vote of Securities Holders
    9PART
      II5
    Market
      for the Registrant’s Common Stock and Related Stockholder
      Matters
    106
    Selected
      Financial Data
    117
    Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
    127A
    Quantitative
      and Qualitative Disclosures About Market Risk
    278
    Financial
      Statements and Supplementary Data
    289
    Changes
      in and Disagreements with Accountants on Accounting and Financial
      Disclosures
    529A
    Controls
      and Procedures
    529B
    Other
      Information
    52PART
      III10
    Directors
      and Executive Officers of the Registrant
    5311
    Executive
      Compensation
    5312
    Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters
    5313
    Certain
      Relationships and Related Transactions
    5314
    Principal
      Accounting Fees and Services
    53PART
      IV15
    Exhibits,
      Financial Statement Schedules, and Reports on Form 8-K
    54
  
 
   **CAUTIONARY
STATEMENT**
 
 All
statements included or incorporated by reference in this Annual Report on Form
10-K (the “Report”), other than statements or characterizations of historical
fact, are forward-looking statements. Examples of forward-looking statements
include, but are not limited to, statements concerning future revenues,
operating expenses, capital requirements, growth rates, cash flows, operational
performance, sources and uses of funds and acquisitions, our accounting
estimates, assumptions and judgments, the competitive nature of and anticipated
growth in our markets, the need for additional capital, changes in the
pharmaceutical and life sciences industries, uncertainty related to the
continued growth of outsourcing in those industries, changes in the competitive
climate in which we operate, our ability to maintain large client contracts or
enter into new contracts, uncertainties related to future incentive payments and
earnings generated through revenue sharing arrangements and the emergence of
future opportunities and other factors. These forward-looking statements are
based on our current expectations, estimates and projections about our industry,
management’s beliefs, and certain assumptions made by us. Forward-looking
statements can often be identified by words such as “anticipates,” “expects,”
“intends,” “plans,” “predicts,” “believes,” “seeks,” “estimates,” “may,” “will,”
“should,” “would,” “potential,” “continue,” “assuming,” similar expressions and
variations or negatives of these words. In addition, any statements that refer
to expectations, projections or other characterizations of future events or
circumstances, including any underlying assumptions, are forward-looking
statements. These statements are not guarantees of future performance and are
subject to risks, uncertainties and assumptions that are difficult to predict.
Therefore, our actual results could differ materially and adversely from those
expressed in any forward-looking statements as a result of various factors, some
of which are listed under the section “Risks Related to Our Business” in Item 7
of this Report.
 
 The
forward-looking statements contained in this Report speak only as of the date
hereof and are based upon information available to us at this time. Such
information is subject to change, and we will not necessarily inform you of such
changes. Except as required by applicable laws or regulations, we undertake no
obligation to revise or update any forward-looking statements for any
reason.
 
 1
  **PART
I**
 
 **Item
1** ***.
Business.***
 
 **Overview**
 
 Ventiv
Health Inc. and subsidiaries (collectively “Ventiv”) is a diversified
pharmaceutical services company spanning late-stage clinical through
commercialization services, with leading market positions in outsourced sales
teams, clinical staffing, compliance, patient assistance and analytical
planning. We provide these services to the world's largest pharmaceutical
organizations as well as to emerging and specialty pharmaceutical and life
sciences organizations. Over almost three decades, our businesses have provided
excellence in customized solutions and helped our clients achieve their business
objectives.
 
 We make
available on our website, located at www.ventiv.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.
 
 **Services**
 
 We offer
a broad range of integrated and stand alone services, in a context of
consultative partnership that identifies strategic goals and applies targeted,
tailored solutions. These programs include:
 
  ·
    sales
      and marketing teams;
  ·
    clinical
      staffing;
  ·
    planning
      and analytics;
  ·
    sample
      accountability and patient assistance;
  ·
    marketing
      support services;
  ·
    recruitment;
  ·
    professional
      development and training;
  ·
    data
      collection and management; and
  ·
    clinical
      support;
  Our
organization and service offerings reflect the changing needs of our clients as
their new products move through late-stage development and regulatory approval
process and through commercialization. As a potential drug or device advances
through the clinical trial process, a number of key professionals are needed
within the clients’ clinical organization, including statisticians, data
managers, statistical programmers and clinical research associates, to support
the creation of the New Drug Applications (“NDA”). As the drug advances beyond
clinical trials towards commercialization, our clients must plan and design a
focused launch campaign to maximize product profitability upon regulatory
approval of their product, decide upon the optimal promotional approach, and
upon launch, support the product(s) with the appropriate product detailing and
other promotional resources. In addition, there are a number of regulatory and
compliance requirements that clients must adhere to. All along this lifecycle,
Ventiv offers a range of services that support client needs, from late-stage
clinical, through marketing and sales, and into compliance.
 
 **Ventiv's
Business Units**
 
 We
currently serve our clients primarily through three business units, which
correspond to our reporting segments for 2004:
 
 ·
    Ventiv
      Commercial Services,
      formerly known as Ventiv Pharma Services and previous to that as Ventiv
      Health Sales and Marketing, which includes our outsourced sales and
      marketing teams, compliance and patient assistance businesses, marketing
      support services, professional development and training, and recruitment
      of sales representatives in the commercial services
  area;
 ·
    Ventiv
      Analytic Services,
      comprising Health Products Research ("HPR"), which provides planning and
      analytics services; and
  
 2
 
 ·
    Ventiv
      Clinical Services,
      which consists of the newly acquired businesses of Smith Hanley
      Associates, Smith Hanley Consulting Group and MedFocus (collectively
      “Smith Hanley”) and HHI Clinical & Statistical Research Services
      (“HHI”). This segment provides services related to recruitment, clinical
      staffing, and data collection and
management.

Our clients may
choose either to work with us across our full spectrum of services or narrowly
focus their service needs within one of these units. Given the nature of the
services provided by each business unit in relation to marketing needs
throughout a product's life cycle, ample opportunities exist for cross-selling
to current clients. Many of our larger clients utilize the services of all three
units.
 
 Our
strategic goal is to provide the pharmaceutical and life sciences industries
with value-added clinical, marketing, sales and compliance services that will
enable our clients to achieve accelerated development and superior product sales
through higher market penetration. Our business units possess significant
combined experience, as each has developed and conducted successful clinical
and/or commercialization programs for hundreds of individual pharmaceutical and
life science products. Our expertise spans most therapeutic categories,
including the significant markets of cardiology, anti-infectives, oncology,
gastroenterology, respiratory, allergy, dermatology, and neurology. Our core
competencies and track record of proven success enable us to establish strong
relationships with our clients' senior personnel, which greatly contributes to
client retention.
 
 During
2004 we modified our segment reporting to take into account the integration of
operations from our acquisition transactions. Ventiv Commercial Services,
formerly known as Ventiv Pharma Services and prior to that as Ventiv Health
Sales and Marketing, includes the compliance and patient assistance operations
we acquired during 2004 in the Franklin transaction described below. Ventiv
Analytic Services continues to comprise HPR’s planning and analytics services
business. Ventiv Clinical Services includes our newly acquired Smith Hanley and
HHI businesses. See Part II - Item 8 - Notes to Consolidated Financial
Statements - Note 18 Segment Information , for a further description.
 
 The
following is a detailed description of our individual business
units:
 
 ***Ventiv
Commercial Services***
 
 Ventiv
Commercial Services encompasses three offerings:
 
 Ventiv
Pharma Teams
 
 The
Ventiv Pharma Teams group within Ventiv Commercial Services is organized to
plan, implement and execute outsourced product commercialization programs for
prescription pharmaceutical and other life sciences products. Ventiv Commercial
Services maintains and operates systems, facilities, and support services
necessary to recruit, train and deploy a customized, full-service, targeted
sales force. Currently, Ventiv Pharma Teams operates one of the largest
pharmaceutical outsourced sales organizations in the U.S., with approximately
2,500 sales representatives as of December 31, 2004.
 
 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 (“FDA”) approved indications. Information provided by the sales
representative includes the product's role in treatment, efficacy, potential
side-effects, dosage, danger of contra-indications with other drugs, cost and
any other appropriate information. In addition to engaging in an educational
dialogue with the medical professional, the sales representative will provide
free product samples as a supplement to the sales effort. This affords the
prescription writer and his or her patients first-hand exposure to the medical
product and creates a sense of familiarity and comfort with the product. 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 Ventiv Commercial
Services.
 
 Providing
clients with high quality sales people requires effective recruiting and
training. 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.
Ventiv Commercial Services’ 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 stand alone basis. Ventiv Pharma Teams hires a
mix of full-time and flex-time representatives in order to accommodate the
detailing level required by clients and maximize cost
efficiency.







3


We also
emphasize the training of our personnel, and believe we have made significant
investments in this area. Ventiv Commercial Services' Professional Development
Group has one of the largest dedicated training facilities of its type in the
United States. Our goal is to ensure that sales representatives are
knowledgeable and operate professionally, effectively, and efficiently. 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. Ventiv Commercial
Services' trainers are top professionals in their field and rely upon
proprietary information regarding physician prescribing behavior and industry
best practices. As the trainees are from both Ventiv Commercial Services' sales
force and our clients' sales forces, the training and development services are
essential to maintaining and building our relationships with the pharmaceutical
companies. These strengths are widely recognized as differentiating factors,
which distinguish Ventiv Commercial Services from its competitors and benefit
the overall outsourced sales effort. Ventiv Commercial Services also offers
these training services to clients as part of an integrated package or on a
stand alone basis.





We are
committed to providing our clients with customized cost-effective sales support.
This is reflected in the variety of options clients have to choose from,
including the type of sales force, the specialties of the sales force (oncology,
cardiology, etc.), the methodology employed to target decision makers in the
medical community and the type of analysis to be conducted based on the
information the sales force collects. We work closely with our clients in all
aspects of our service offering to ensure maximum impact of the product's
promotional effort.





Consistent
with standard practices in the pharmaceutical industry, Ventiv Commercial
Services 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 Ventiv Commercial Services. 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. Ventiv Commercial Services also
offers this sales force automation system on a stand alone basis to
clients.





Franklin





During
2004, we acquired the businesses of Franklin Group, Inc. and Lincoln Ltd., Inc.
(together, “Franklin”). Franklin specializes primarily in conducting patient
assistance programs and pharmaceutical compliance services.





Franklin
expands Ventiv’s portfolio by offering Patient Assistance Programs and
Reimbursement Counseling. As one of the industry pioneers in Patient Assistance
Programs (“PAPs”), Franklin has firmly established a leadership position in
providing reliable and innovative programs in patient assistance, institutional
PAPs, reimbursement counseling, web-based programs, missions programs and
proactive fulfillment.





Franklin
also provides to clients and to internal Ventiv Pharma Teams independent
oversight of Prescription Drug Marketing Act (“PDMA”) and Office of Inspector
General compliance. Franklin’s expertise in PDMA compliance issues is nationally
recognized and Franklin further strengthens that position by serving as a
liaison for the pharmaceutical industry and consultant to the FDA and enjoying
an ongoing working relationship with the Department of Justice. In addition,
Franklin provides a number of processes, systems and services to help clients
comply with federal and state regulations specific to sample accountability,
including:





• PDMA
Consultative Services - Franklin can perform a “Whole Systems” assessment of a
client’s sample accountability system, processes, documents and third party
vendors, and then provide recommendations for any necessary corrective action.





• Sample
Accountability Services - Franklin offers an auditing field force of medical
professionals with a pharmaceutical orientation. This experienced group
understands the difference in packaging configurations, and is fully trained in
PDMA compliance to provide accurate physical inventories.





• PDMA
Compliance Software Solutions - Franklin licenses software solutions that define
significant loss and reconciliation thresholds; allows for the on-line or CD
administration of PDMA and other compliance based training and certification;
and provides a state-of-the-art “proactive” sample accountability database
management security solution that detects sample diversion or other aberrant
behavior through established thresholds.





Promotech





Ventiv
Commercial Services addresses clients’ product life-cycle marketing needs with
non-personal promotional programs through its Promotech Research Associates
(“Promotech”) division. Promotech provides assembly, mailing, fulfillment,
pharmacy, teleservices and eServices from its newly expanded Colorado 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. Clients rely on us for sample and
literature shipments to sales representatives; physicians and
patients/consumers; field force sample reconciliation; audit and compliance
management; comprehensive fulfillment including tradeshows, physician requests,
and trade advertising; and fulfillment of prescription products as dictated by
patient assistant programs. By utilizing its core marketing and sales resources
(fulfillment, teleservices, direct mail, and incentive programs), Promotech is
able to offer a combination of customized solutions to meet a client’s objective
when a single service will not suffice. One such seamless client offering would
be a coordinated sample delivery with sales calls on physicians as well as
rebate program administration.







4


***Ventiv
Analytic Services***





Ventiv
Analytic Services includes HPR, 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 (“ROI”) for promotional resources. Clients
rely heavily on HPR’s diversified staff of professionals with experience in
pharmaceutical sales and marketing, quantitative sciences and customer support
to deliver solutions that are grounded in industry expertise and coupled with
technical sophistication.





HPR’s
complete range of services includes:





·
    *Market
      Segmentation*:
      HPR’s segmentation solution suite is a critical first step designed to
      enhance the accuracy of the promotion response analytics and optimization
      processes. HPR conducts segmentation analyses across a broad array of
      industry customers using both proprietary and secondary data sources. This
      analysis enables the construction of a concise view of the multiple
      variables driving the marketplace.





·
    *Promotion
      Analytics*:
      By developing a relationship between promotion activity and effect in the
      marketplace, HPR offers a number of analyses to help clients assess ROI
      across all promotion channels and strategies. MarketVantage, a proprietary
      analysis tool, gives clients the unique ability to view the performance of
      various promotional activity for their brands - and also for competing
      brands. HPR’s family of Promotion Response Models (PROMSM)
      measure response to different promotional channels, including detailing,
      sampling, medical education and direct-to-consumer communications. Through
      a series of offerings with their Direct to Consumer ROI Modeling, HPR has
      emerged as the leader in Direct to Consumer ROI analysis in the
      pharmaceutical industry. In addition, HPR has developed a significant body
      of work in empirically based forecasting and independent forecast
      development. Recently launched PC-based simulators that allow clients to
      produce their own forecasts now supplement these
  offerings.





·
    *Market
      Research*:
      HPR utilizes a wide range of tools to conduct primary and secondary
      research, syndicated studies, market tracking and custom research audits.
      The HPR team has proven expertise in developing proprietary, customized
      market research approaches that measure attitudes and behaviors of diverse
      audiences. Core to HPR’s syndicated service offering is the Metropolitan
      Area Promotional Audit (“MPA”) — a service that studies thousands of
      physicians and tracks pharmaceutical promotional activity city by city.
      This intelligence, previously available only on a national basis,
      addresses the differential share of voice metrics, impact and
      effectiveness of rep-driven promotion efforts. Rapid RecallTM is a
      customized service that enables clients to capture independent customer
      feedback within a 72-hour window post contact. With this tool, HPR
      provides its clients with feedback on their performance compared to their
      competitors in such key areas as message delivery, message impact, and
      areas for change. HPR has also emerged as a leader in the identification
      of local peer influence networks. HPR’s Influence Mapping research is able
      to identify the informal network used by physicians within specific
      therapeutic areas to determine which local physicians are informally
      influencing prescribing behavior of other key physicians at the territory
      level. HPR has worked with clients to conduct these efforts on close to
      100 brands.





·
    *Strategic
      Planning:*HPR’s strategic consulting service responds to a broad series of questions
      clients must address for successful brand management. HPR works with
      clients to develop resource solutions that optimize ROI for the future
      market environment. HPR’s resource allocation models determine the
      resource needs for single-product and portfolio promotion activity across
      the various promotion channels, allowing clients to determine optimal
      investment levels for promotion and expected portfolio return. HPR’s
      UniBrandSMmodel develops the optimal sales and marketing solution for a single
      brand. Known as RAMSM,
      HPR’s portfolio model is used by clients to determine the optimal sales
      force size and structure, optimum number of details across brands, return
      on investment across promotion channel and the future impact of
      marketplace events on promotion activity.





·
    *Tactical
      Planning*:
      HPR’s tactical planning provides pharmaceutical companies the tactics
      needed to successfully execute their strategic plan, uniquely integrating
      the optimal detailing, sampling and promotional spending levels across
      Ventiv’s portfolio with an execution plan at the representative level. HPR
      utilizes several proprietary tools to assist its client’s tactical
      planning and execution, including:


o
    Call
      Planning System (“CAPS”), which allocates the number of sales, calls, by
      physician, for every sales representative and the detailing priorities of
      each call. CAPS also supports changes in the portfolio focus on short
      notice, thereby enabling clients to respond quickly to internal and
      external developments.


o
    PharmAlignTM,
      a proprietary territory design software system that provides sales force
      deployment options for a territory, district, region or
      nation.


o
    Field
      Manager and Field Manager HQ, a system used by District Managers and/or
      Headquarters to support analysis of rep and district manager performance
      at a geographic level.





When
coupled together, these tools provide the capability for HPR’s clients to ensure
that they are continually improving the effectiveness of deployed sales force
resources.





5


***Ventiv
Clinical Services***





The
companies making up our Ventiv Clinical Services unit include Smith Hanley and
HHI, leading providers of clinical staffing and data management services. We
acquired these companies in two transactions during 2004. Through these
acquisitions, we broadened our capabilities into the clinical arena, and
established Ventiv Clinical Services. Ventiv Clinical Services has successfully
met the staffing and recruiting needs of more than 65 pharmaceutical and
biotechnology clients, including 14 of the top 20 global pharmaceutical
companies, as well as performed data management and analytical services for over
150 clinical trials. These accomplishments are driven by four
divisions:





• Smith
Hanley Associates, which provides executive placement services;





• Smith
Hanley Consulting Group (“SHCG”), which provides outsourced contract staffing
and recruiting services for pharmaceutical clinical research
trials;





•
MedFocus, which provides outsourced contract staffing and recruiting services
for pharmaceutical clinical research trials and is based in Chicago, Illinois;
and





• HHI
Clinical & Statistical Research Services (“HHI”), a clinical service
provider that manages statistical analysis and data management functions.





Through
its pool of experienced clinical staff and staff augmentation capabilities, SHCG
and MedFocus give pharmaceutical companies and start-up biotechnology firms the
flexibility to manage and execute clinical trials internally without the expense
of hiring and training all of their own staff. Clients obtain qualified
personnel for immediate deployment on a project and are better able to execute
project management as there is no need for the recruiting, hiring, training and
managing process essential with internal employees. Clients also get an
opportunity to understand their work flow, and determine what the most
cost-effective employee mix will be as they continue to move
forward.





Currently,
SHCG and MedFocus provide clients with contract services for such mission
critical positions as SASTM programmers, data managers, statisticians, monitors
and clinical research associates, study & project managers, clinical trials
coordinators, safety/regulatory staff, medical writers, scientific and
laboratory staff and other clinical positions. They draw from a database of over
30,000 candidates, which they are continually expanding with new recruiting
efforts through search engines, job fairs, conferences, and referral
bonuses.





The HHI
division complements SHCG and MedFocus’s contract service 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 HHI 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 as painlessly as possible.





Smith
Hanley Associates offers customized executive placement services to the
pharmaceutical industry as well as clients in the financial services, consumer
products, consulting and insurance industries.





**Competitive
Advantages**





Our
strategic goal is to provide the pharmaceutical and life sciences industries
with value-added clinical, marketing, sales and compliance services that will
enable our clients to achieve accelerated development, superior product sales
through higher market penetration and appropriate regulatory compliance. Our
business units possess significant combined experience, as each has developed
and conducted successful clinical and/or commercialization programs for hundreds
of individual pharmaceutical and life science products. Our expertise spans most
therapeutic categories, including the significant markets of cardiology,
anti-infectives, oncology, gastroenterological, respiratory, allergy,
dermatology and neurology. Our core competencies and track record of proven
success enable us to establish strong relationships with our clients' senior
personnel, which greatly contributes to client retention. ****





*Comprehensive
Service Offering:* We offer
a broad range of services, from strategic and tactical planning and analytics to
the recruiting, training, deployment and management of sales forces and
development of sales and marketing strategies. During 2004, we significantly
broadened our service offerings through complementary service extensions and
strategic acquisitions in the areas of compliance and clinical staffing. This
development positions us to better meet the varied needs of our existing and
prospective pharmaceutical and biotechnology clients. While our offerings are
broad relative to some of our direct competitors, we do also face select
competitors who have also assembled a relatively broad service
offering.





6


*Leading
Position Across Our Offerings:* We are
one of the largest providers of pharmaceutical outsourced sales services in the
United States and we are also a significant provider of strategic and tactical
sales and marketing planning in the U.S. We detail to a large number of
physicians, nurses, pharmacists and formularies—approximately 3.6 million calls
were made in 2004 alone. These targets are regularly contacted by our
representatives. Given the preference by many of our clients to work with
organizations possessing strong reputations and a strong track record, our
large-scale presence in our markets, which is underpinned by our experience,
speed, capabilities, and technology, provides significant advantages in
continuing to win new business. ** We are
also a recognized leader in clinical trials staffing, providing services to a
wide range of pharmaceutical, biotechnology and medical device companies, as
well as to their outsourced service providers to those sectors. Ventiv Clinical
Services has emerged as a leading provider of clinical trials-related SAS
programmers, statisticians, data management and monitoring personnel to the
major pharmaceutical and biotechnology companies. In selecting a vendor to work
with, many pharmaceutical companies prefer to work with a handful of larger,
more reputable organizations, and given our long history and strong brand name
in the business, large database of potential clinical staff and reputation for
quality and flexibility, we have significant advantages in continuing to win new
business.





*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 biotech 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 65
pharmaceutical and biotechnology clients is broad and diversified, and with many
of these clients we have maintained long-term, non-exclusive relationships that
do 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. To conduct strategic studies, HPR
employs a series of programs, which were designed in-house and utilize data,
which is gathered and processed by HPR's clients and, on certain engagements,
Ventiv Commercial Services to conduct proprietary market research. Also, we have
made a considerable investment in technology and have developed and deployed
cutting-edge sales force automation tools to increase our efficiency. Such data
collection is important for the management of a sales and marketing campaign for
pharmaceutical products throughout their life cycle, especially during the
product launch phase.





*Experienced
Management Team:* Our
management team includes executives with substantial expertise in pharmaceutical
and health care services, as well as substantial background within
pharmaceutical companies themselves, including managing pharmaceutical sales
forces and establishing sales and marketing strategies. 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.





Our
overall focus is on offering the best combination of high-quality, flexible and
cost-effective services to our clients, versus our competitors and versus other
alternatives available to our clients for addressing their clinical, sales,
marketing and compliance needs. We continue to enhance our capabilities, deepen
our client relationships and offer more fully-integrated solutions. Because of
our high level of quality service, many of our pharmaceutical clients have
rewarded us with contract extensions and additional new business.





**Clients**





We
provide our services to leading pharmaceutical, biotechnology, medical device
and diagnostics companies. During 2004, approximately 70% of our revenues were
derived from our ten largest clients. Our ten largest clients during 2004,
listed alphabetically, were as follows: ALTANA Pharma (“ALTANA”), Bayer
Corporation (“Bayer”), Bristol-Myers Squibb Company (“BMS”), Fournier
Pharmaceuticals, Ltd., Johnson and Johnson (“J&J”), Noven Pharmaceuticals,
Inc., Sanofi-Aventis Group, Synthon Pharmaceuticals, Ltd. (“Synthon”),
Upsher-Smith Laboratories, Inc. and Watson Pharmaceuticals, Inc. (“Watson”). Two
clients accounted for approximately 16% and 14%, respectively, of our total
revenue for the year ended December 31, 2004. Two clients accounted for 23%, and
18%, respectively, of our revenues during 2003. No other clients accounted for
more than 10% of revenue in 2004 or 2003.





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. 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 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 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.





We
provide services to many of our most significant clients under contracts that
our clients may cancel, typically on 30 to 120 days notice. In addition, many of
the Ventiv Pharma Team contracts provide our clients with the opportunity to
internalize the sales forces ("sales force conversion") under contract, with
sufficient notice. Although Ventiv Pharma Teams has been successful in a number
of cases in negotiating longer-term commitments and an initial non-cancelable
contract period, we cannot be assured that clients will renew relationships
beyond the expiration date of existing contracts.





7


**Competition**





Our
competitors include outsourced sales organizations as well as contract research
organizations that also offer healthcare marketing services. Additionally, drug
distribution companies have indicated a desire to enter this lucrative market by
leveraging their knowledge base and effecting strategic acquisitions. Each of
our operating groups faces distinct competitors in the individual markets in
which the group operates.





*Ventiv
Commercial Services:* A small
number of providers comprise the market for outsourced sales teams, although the
majority of sales teams are managed internally. We believe that Ventiv, Innovex
(Quintiles) and Professional Detailing, Inc. 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.





*Ventiv
Analytic Services:* HPR’s
largest competitor in the strategic and tactical planning marketplace is ZS
Associates, which provides a range of market segmentation, promotion planning
and resource allocation services comparable to HPR’s service offerings. In the
market research marketplace, HPR competes against a variety of large and small
companies, which provide primary and secondary market research on a contract
basis.





*Ventiv
Clinical Services:* The
specialty staffing services industry is very competitive and fragmented with
relatively few barriers to entry. Although several large nationwide temporary
staffing companies compete with us, we are one of the only national firms that
specializes exclusively in professional clinical trials research personnel.
Ventiv Clinical Services’ primary 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 wells
as numerous smaller specialty permanent placement groups.





**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, our business is not generally subject to
seasonal variation.





**Employees**





At
December 31, 2004, we employed approximately 4,000 people in continuing
operations, including approximately 2,700 sales representatives and managers.
Our part-time sales force employees account for approximately four percent of
our total field workforce. We believe that our relations with our employees are
satisfactory.





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. An
increase in the turnover rate among our employees would increase our recruiting
and training costs and decrease our operating efficiencies and productivity. Our
operations typically require specially trained persons, such as those employees
in the pharmaceutical detailing business. Growth in our business will require us
to recruit and train qualified personnel at an accelerated rate from time to
time. The labor markets for quality personnel are competitive, and we cannot
assure you that we will be able to continue to hire, train and retain a
sufficient labor force of qualified persons.





**Government
Regulation**





Several
of the industries in which our clients operate are subject to varying degrees of
governmental regulation, particularly the pharmaceutical and healthcare
industries. Generally, compliance with these regulations is the responsibility
of our clients. However, 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.





In
connection with the handling and distribution of pharmaceutical products
samples, we are subject to 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 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 Ventiv. 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 Ventiv.





8


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 Ventiv.





**Non-U.S.
Operations**





We have
no operations outside the United States and do not derive any material revenues
from non-U.S. sources.




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





As of
December 31, 2004, we leased 18 facilities totaling 330,603 square feet,
including our principal executive offices located in Somerset, New Jersey. Six
facilities totaling 189,345 square feet are leased by the Ventiv Commercial
Services segment, seven facilities totaling 53,464 square feet are leased by the
Ventiv Clinical Services segment, three facilities with 29,631 square feet is
leased by the Ventiv Analytic Services segment and two facilities with
approximately 58,163 square feet is leased by the Other (corporate) segment.
These leases expire at varying dates through 2013. Leased facilities increased
during 2004 due to the completion of several business acquisitions. 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. In the opinion of
management and based on the advice of legal counsel, all matters are believed to
be without merit or are of such kind, or involve such amounts, as would not have
a material effect on our consolidated financial position or consolidated results
of operations if disposed of unfavorably.





**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, 2004.


****


****


9


**PART
II**










**Item
5** ***.
Market for the Registrant's Common Stock and Related Stockholder
Matters.***





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





**High**
    
    **Low**Year
      ended December 31, 2004First
      Quarter
    
    $
    13.92
    
    $
    9.36Second
      Quarter
    
    $
    18.40
    
    $
    13.87Third
      Quarter
    
    $
    16.95
    
    $
    12.94Fourth
      Quarter
    
    $
    20.67
    
    $
    16.65****
    
    
    **High**
    
    
    **Low**Year
      ended December 31, 2003First
      Quarter
    
    $
    2.74
    
    $
    1.72Second
      Quarter
    
    $
    4.25
    
    $
    2.55Third
      Quarter
    
    $
    7.55
    
    $
    4.15Fourth
      Quarter
    
    $
    9.31
    
    $
    7.10





On March
2, 2005, there were approximately 192 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, 2004:





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 holders1999
      Stock Incentive Plan
    4,207,524
    $8.39
    1,252,883
    *Equity
      compensation plans not approved by security holders
      ....................................
    -
    -
    -Total................................................
    4,207,524
    
    1,252,883*
      The 1999 Stock Incentive Plan authorizes the issuance of stock options,
      restricted stock, restricted stock units and stock appreciation rights. To
      date we have not issued any restricted stock units or stock appreciation
      rights.





During
the fourth quarter of 2004, we did not repurchase any of our outstanding equity
securities and, to our knowledge, no “affiliated purchaser” of Ventiv
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.


******


10





**Item
6. ***Selected
Fiancial Data.*****


**SELECTED
FINANCIAL DATA**





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





**For
      the Years Ended December 31,****2004**
    
    **2003**
    
    **2002**
    
    **2001**
    
    **2000****(in
      thousands, except per share data)**Revenues
    
    $352,184
    
    $224,453
    
    $215,387
    
    $294,763
    
    $274,686Earnings
      (losses) from continuing operations
    
    $30,130
    
    $9,895
    
    $4,941
    
    $(16,060)
    
    $24,715Earnings
      (losses) from discontinued operations
    
    $1,002
    
    $(4,119)
    
    $2,951
    
    $(42,442)
    
    $(7,901)Net
      earnings (losses)
    
    $31,132
    
    $5,776
    
    $7,892
    
    $(58,502)
    
    $16,814Basic
      earnings (losses) per share:Continuing
      operations
    
    $1.26
    
    $0.43
    
    $0.22
    
    $(0.71)
    
    $1.09Discontinued
      operations
    
    $0.04
    
    $(0.18)
    
    $0.13
    
    $(1.87)
    
    $(0.35)Net
      earnings (losses)
    
    $1.30
    
    $0.25
    
    $0.35
    
    $(2.58)
    
    $0.74Diluted
      earnings (losses) per share:Continuing
      operations
    
    $1.18
    
    $0.42
    
    $0.22
    
    $(0.71)
    
    $1.06Discontinued
      operations
    
    $0.04
    
    $(0.18)
    
    $0.13
    
    $(1.87)
    
    $(0.34)Net
      earnings (losses)
    
    $1.22
    
    $0.24
    
    $0.35
    
    $(2.58)
    
    $0.72Shares
      used in computing basic earnings (losses) per share
    
    23,951
    
    22,919
    
    22,842
    
    22,648
    
    22,628Shares
      used in computing diluted earnings (losses) per share
    
    25,437
    
    23,801
    
    22,857
    
    22,648
    
    23,406Balance
      sheet data:Total
      assets
    
    $
    287,452
    
    $
    180,708
    
    $
    153,418
    
    $
    232,343
    
    $
    249,491Long-term
      debt (a)
    
    $
    24,898
    
    $
    18,488
    
    $
    8,904
    
    $
    16,947
    
    $
    31,857Total
      equity
    
    $
    172,444
    
    $
    107,725
    
    $
    96,446
    
    $
    87,206
    
    $
    145,311





(a)
Long-term debt includes the non-current portion of the capital lease obligations
but excludes the current portion of the line of credit and capital lease
obligations.





******


11





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


This
Management's Discussion and Analysis of Financial Condition and Results of
Operations should be read in conjunction with the consolidated ancial
statements, accompanying notes and other financial information included in this
Annual Report on Form 10-K for the years ended December 31, 2004, 2003 and
2002.





**Overview**





We are a
leading provider of outsourced clinical, sales, marketing and compliance
solutions for the pharmaceutical, biotechnology and life sciences industries. We
offer a broad range of integrated and stand alone services, in a context of
consultative partnership that identifies strategic goals and applies targeted,
tailored solutions.





The
portfolio of offerings includes:


·
    integrated
      sales force recruitment, training and
management;


·
    stand
      alone sales force recruitment, training, systems automation and regulatory
      compliance services;


·
    product,
      sample and literature fulfillment;


·
    telemarketing
      and other marketing support;


·
    product/brand
      management;


·
    brand/portfolio
      analytics and forecasting;


·
    market
      research and intelligence;


·
    strategic
      and tactical planning;


·
    clinical
      staffing and recruiting


·
    permanent
      placement; and


·
    clinical
      data management and statistical analysis.





Our
services are designed to develop, execute and monitor late-stage clinical
trials, sales & marketing and compliance plans and programs for
pharmaceutical, biotechnology and other life sciences products. We currently
conduct our continuing operations in the U.S., serving U.S. companies and
domestic affiliates of foreign corporations.





We became
a public reporting company in connection with our spin-off from Snyder
Communications, Inc. in 1999. We have not conducted any other offerings of debt
or equity securities (other than the offering of shares underlying stock options
to its employees) and have funded our operations principally through internally
generated cash flow. Although we currently maintain, and have traditionally
maintained, availability under a bank line of credit, we have no currently
outstanding borrowings under our bank line. Our current line of credit agreement
expires on March 31, 2005.





Our
businesses are organized into three
operating reportable segments based on products and services offered: Ventiv
Analytic Services (through HPR), Ventiv Commercial Services , and
Ventiv Clinical Services (through the recently acquired Smith Hanley group of
companies, including HHI). Our non-operating reportable segment, “Other”,
encompasses the activities of our corporate group.





Our
Ventiv Commercial Services segment is focused on planning, implementing and
executing outsourced product commercialization programs for prescription
pharmaceutical and other life sciences products in the U.S. This segment
maintains and operates the requisite systems, facilities, and support services
to rapidly recruit, train and deploy customized, full-service and highly
targeted sales forces. In addition, Ventiv Commercial Services offers
telemarketing services, which significantly enhance a life sciences company's
ability to communicate effectively with physicians in a cost efficient
manner.





Our
Ventiv Analytic Services segment is capable of designing product launch programs
and monitoring each program's progress to maximize the potential for a product's
success. This is achieved by using proprietary software to analyze data compiled
from internal sources and third parties to determine specifically how a targeted
strategy can maximize asset utilization and return on investment for our
clients. HPR's distinctive process for developing strategic and tactical
resource allocation is predicated upon the linking of services and data through
solutions based on doctor-level intelligence. HPR also conducts primary and
secondary research, syndicated studies and market tracking and custom research
audits, with proven expertise in developing proprietary, customized market
research projects that measure attitudes and behaviors of diverse audiences
including both physicians and consumers.





Our
Ventiv Clinical Services segment provides recruitment, clinical staffing and
data collection and management services. Smith Hanley offers outsourced
professional staffing, permanent placement and executive search services
targeted primarily in the pharmaceutical clinical trials arena. HHI is a
clinical service provider that manages statistical analysis and data management
functions on behalf of a variety of pharmaceutical and biotechnology clients.








12





**Critical
Accounting Policies**





*Revenue
Recognition*





Ventiv
Commercial Services


Revenues
and associated costs under pharmaceutical detailing contracts are generally
based on the number of physician calls made or the number of sales
representatives utilized. With respect to risk-based contracts, all or a portion
of revenues earned are based on contractually defined percentages of either
product revenues or the market value of prescriptions written and filled in a
given period.


Revenues
are recognized on Ventiv Pharma Teams contracts as services are performed. Most
of our Ventiv Pharma 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”.





Most of
our Ventiv 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 Ventiv Pharma Teams contracts on a
straight-line basis based on the size of the deployed field force.





Many of
the product detailing contracts allow for additional periodic incentive fees to
be earned once agreed upon performance benchmarks have been attained. Revenue
earned from incentive fees is recognized 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.





We
periodically analyze our detailing contracts to determine the likelihood and
amount of any potential loss on a contract resulting from lower than anticipated
product or field force 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.





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





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
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.





We
provide services to many of our most significant clients under contracts that
our clients may cancel, typically on 30 to 120 days notice. In addition, many of
the Ventiv Pharma Teams contracts provide our clients with the opportunity to
internalize the sales forces ("sales force conversion") under contract, with
sufficient notice. Although Ventiv Pharma Teams has been successful in a number
of cases in negotiating longer-term commitments and an initial non-cancelable
contract period, we cannot be assured that clients will renew relationships
beyond the expiration date of existing contracts. Normally, if a client
terminates a project, the client remains obligated to pay for services performed
and reimbursable expenses incurred through the date of termination.





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.





Ventiv
Analytic Services





Revenues
for HPR generally include fixed fees, which are recognized when monthly services
are performed based on percentage of completion and when payment is reasonably
assured. HPR’s initial contracts typically range from one month to one year.
Revenues for additional services are recognized when the services are provided
and payment is reasonably assured.





Ventiv
Clinical Services





Revenues
for Smith Hanley consist mainly of permanent placement and temporary service
fees. We generally record permanent placement services revenue at the time a
candidate begins full-time employment. Any write-offs due to cancellations
and/or billing adjustments historically have been insignificant. We record
revenue from temporary personnel services, outsourcing and outplacement when
services are rendered. Revenue earned but not yet billed as of the end of an
accounting period is accrued. We believe that we have adequate reserves for any
potential write-offs or adjustments.


*Goodwill
and Other Intangible Assets*








13





With the
acquisition of Smith Hanley and other businesses we have acquired, we have
material intangible assets, including goodwill and other identifiable finite and
indefinite-lived acquired intangibles. The identification and valuation of these
intangible assets and the determination of the estimated useful lives at the
time of acquisition, as well as the completion of annual impairment tests,
require significant management judgments and estimates. These estimates are made
based on, among others, consultations with an accredited independent valuation
consultant, reviews of projected future income cash flows and statutory
regulations. The use of alternative estimates and assumptions could increase or
decrease the estimated fair value of our goodwill and other intangible assets,
and potentially result in a different impact to our results of operations.
Furthermore, changes in business strategy and/or market conditions may
significantly impact these judgments thereby impacting the fair value of these
assets, which could result in an impairment of the goodwill. We performed annual
impairment tests in 2004 and concluded that the existing goodwill balances were
not impaired. As of December 31, 2004, we recorded goodwill of
approximately $64.8 million and other intangibles (net) of $21.4 million in
the Consolidated Balance Sheet.





*Claims
and Insurance Accruals*





We
maintain self-insured retention limits for certain insurance policies. The
liabilities associated with the risk retained by Ventiv 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 actual costs of Ventiv
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.





*Income
Taxes*





Deferred
tax assets and liabilities are recognized for the estimated future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured annually based on
enacted tax laws and rates for temporary differences between the financial
accounting and income tax bases of assets and liabilities. 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 the Consolidated Balance Sheet. We
periodically review these reserves to determine if adjustments to these balances
are necessary.





**Recent
Business Developments**





*Ventiv
Pharma Teams Contracts*





Ventiv
Pharma Teams contracts often involve the deployment of large numbers of sales
representative and may have appreciable impacts on revenues and earnings. The
following are brief summaries of the most significant Ventiv Pharma Teams
contracting events during 2003 and 2004:





Effective January
23, 2003, we entered into a letter agreement to provide ALTANA with a
second nationwide sales force, including recruitment, training and operational
support.  The agreement was finalized on August 23, 2003. Under the terms
of the agreement, Ventiv provides 248 additional full-time sales representatives
and six Regional Training and Administrative Managers. Revenues associated with
the initial recruiting and training of this sales force were recognized in the
second quarter of 2003, while the revenue related to the promotion activities
for this engagement commenced in the third quarter of 2003.





During
the first quarter of 2004, we won several new contracts amounting to an
additional 365 sales representatives. These contracts mainly comprise of small to
mid-size clients looking to enter new markets or looking to build
infrastructure. Among the notable contracts were Synthon Pharmaceuticals, Ltd.
and ISTA Pharmaceuticals, Inc.





During
the second quarter of 2004, we won two additional contracts, each adding 200
sales representatives during the second half of the year, one with an existing
client and another for a new client, Yamanouchi Pharmaceutical Company, Ltd., in
which deployment is scheduled to occur during the fourth quarter of 2004.








14





In July
2004, we entered into an agreement with Aventis Pharmaceuticals, Inc.
(“Aventis”) to provide a national sales force including recruiting, training and
operational support. Under the terms of the agreement, we will provide
approximately 452 sales representatives and 50 district managers during the
second half of the year.




During
the third quarter of 2004, we won two significant new contracts totaling over
400 sales representatives with large, global pharmaceutical firms, including one
contract with Bristol-Myers Squibb (“BMS”). To accommodate these and other new
contracts, we agreed to an early wind-down of our contracts with Bayer
Pharmaceuticals Corporation (“Bayer”) in order to redeploy its sales
representatives from these older contracts to recently announced new multi-year
contracts.




In
September 2003, we were notified by Endo Pharmaceuticals, Inc. (“Endo”) of its
intent to convert the field sales force working under the Ventiv-Endo contract
from full-time Ventiv employment to full-time Endo employment effective December
15, 2003. The conversion resulted in approximately 160 sales representatives
employed by Endo by December 31, 2003.





In June
2004, Watson Pharmaceuticals, Inc. (“Watson”) elected to exercise its option to
not continue its sales force contract for a second year, effective on or about
August 1, 2004. This action was related to Watson’s strategic decision to
refocus its broader business priorities, and was not a reflection on the
performance of the Ventiv sales team. The contract originated in March 2003 to
provide for approximately 385 sales representatives.





*Acquisitions*





In June
2004, Ventiv acquired the net assets of Franklin Group, Inc. and Lincoln Ltd.,
Inc. (together, “Franklin”), privately-held companies based in Somerville, New
Jersey. Franklin specializes primarily in conducting patient assistance programs
and pharmaceutical compliance services. Ventiv 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 assets. Ventiv
is obligated to make certain earn-out payments, which may be material,
contingent on Franklin’s performance measurements during 2004 through 2006. The
amount due with respect to Franklin for 2004 is expected to be approximately
$1.7 million, which we accrued at December 31, 2004, but is subject to review
mechanisms set forth in the acquisition agreement and may change materially
based on such review. Franklin’s financial results are reported in the Ventiv
Commercial Services segment from the acquisition date through December 31, 2004
in the accompanying consolidated financial statements.





In
October 2004, we 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. We acquired Smith Hanley to
significantly expand our service portfolio in the clinical services and
recruitment areas, expand our market position in the pharmaceutical services and
achieve cross-selling opportunities by leveraging our existing sales force and
relationships. We acquired approximately $9.5 million of net assets for
consideration of approximately $52.8 million in cash and stock (taking into
account post-closing adjustments and direct acquisition costs) and will be
obligated to make certain earn-out payments, which may be material, contingent
on Ventiv Clinical Services’ performance measurements in 2004 and 2005. The
amount due with respect to Smith Hanley for 2004 is expected to be approximately
$6.8 million which we accrued at December 31, 2004, but is subject to review
mechanisms set forth in the acquisition agreement and may change materially
based on such review. The value of the 1.3 million common shares issued as a
result of the acquisition was determined based on the average market price of
Ventiv’s common shares over the two-day period before and after the terms of the
acquisition were agreed to and announced. The results of Smith Hanley have been
reflected in Ventiv Clinical Services in Ventiv’s consolidated financial
statements from the acquisition date to December 31, 2004.





In
November 2004, Ventiv acquired the net assets of HHI. HHI, a privately-held
company based in Baltimore, Maryland, is a leading specialized statistical
analysis and data management provider to the U.S. pharmaceutical industry. HHI
complements Ventiv's Smith Hanley business. 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) for approximately
$0.8 million of net assets. Ventiv will be obligated to make certain earn-out
payments, which may be material, contingent on HHI’s performance measurements in
2005 and 2006. The results of HHI have been reflected in Ventiv Clinical
Services in Ventiv’s consolidated financial statements from the acquisition date
to December 31, 2004.





*Divesting
Transactions*





On June
3, 2003, we placed the subsidiaries in our France-based contract sales business
unit into receivership.  On September 1, 2003 the receiver sold the major
assets of the subsidiaries to a France-based pharmaceutical sales training
organization, and the balance of the subsidiaries’ net assets is in the process
of being liquidated by the receiver.





15





During 2002
and 2003, we divested our Communications and European Contract Sales businesses.
We have been receiving payments subsequent to some of these divestitures based
on the subsequent earnings of the divested unit. The following table summarizes
the additional contingent consideration we received subsequent to these
divestitures:





**Operation**
    **Consideration
      at Closing**
    **Additional
      Consideration**Alpharetta,
      Georgia-based business unit
    $0.9
      million in cash
    Up
      to $0.5 million in contingent payments based on results of divested unit
      (all received as of December 31, 2004)Ventiv
      Health Germany
    EUR
      6.2 million ($6.1 million) in cash
    Up
      to EUR 5.0 million payable from future earnings of the business ($1.8
      million received through December 31, 2004)Hungary-based
      contract sales business
    $0.3
      million in cash
    Up
      to $0.3 million(all
      received through December 31, 2004)





16


****


**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,****2004**
    **2003**
    **2002****(in
      thousands, except for per share data)**Revenues:
    
    
    
    
    
    Percentage*
    
    
    
    
    
    Percentage*
    
    
    
    
    
    Percentage
      *Ventiv
      Commercial Services
    
    $
    300,170
    
    
    85.2
    %
    $
    194,547
    
    
    86.7
    %
    $
    188,978
    
    
    87.7
    %Ventiv
      Analytic Services
    
    
    30,326
    
    
    8.6
    %
    
    29,906
    
    
    13.3
    %
    
    25,677
    
    
    11.9
    %Ventiv
      Clinical Services
    
    
    21,688
    
    
    6.2
    %
    
    --
    
    
    --
    
    
    --
    
    
    --Other
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    732
    
    
    0.4
    %Total
      revenues
    
    
    352,184
    
    
    100.0
    %
    $
    224,453
    
    
    100.0
    %
    $
    215,387
    
    
    100.0
    %Cost
      of services:Ventiv
      Commercial Services
    
    
    247,957
    
    
    82.6
    %
    
    164,172
    
    
    84.4
    %
    $
    161,703
    
    
    85.6
    %Ventiv
      Analytic Services
    
    
    17,289
    
    
    57.0
    %
    
    18,486
    
    
    61.8
    %
    
    16,497
    
    
    64.2
    %Ventiv
      Clinical Services
    
    
    14,487
    
    
    66.8
    %
    
    --
    
    
    --
    
    
    --
    
    
    --Other
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    701
    
    
    95.8
    %Total
      cost of services
    
    
    279,733
    
    
    79.4
    %
    
    182,658
    
    
    81.4
    %
    
    178,901
    
    
    83.1
    %Selling,
      general and administrative expenses
    
    
    38,539
    
    
    10.9
    %
    
    26,223
    
    
    11.7
    %
    
    27,397
    
    
    12.7
    %Other
      operating income
    
    
    264
    
    
    --
    
    
    392
    
    
    0.2
    %
    
    --
    
    
    --Total
      operating earnings
    
    $
    34,176
    
    
    9.7
    %
    $
    15,964
    
    
    7.1
    %
    $
    9,089
    
    
    4.2
    %Interest
      expense
    
    
    (922
    )
    
    (0.3
    )%
    
    (549
    )
    
    (0.3
    )%
    
    (1,576
    )
    
    (0.7
    )%Interest
      income
    
    
    678
    
    
    0.2
    %
    
    413
    
    
    0.2
    %
    
    456
    
    
    0.2
    %Earnings
      from continuing operations before income taxes
    
    
    33,932
    
    
    9.6
    %
    
    15,828
    
    
    7.0
    %
    
    7,969
    
    
    3.7
    %Income
      tax provision
    
    
    (3,802
    )
    
    (1.1
    )%
    
    (5,933
    )
    
    (2.6
    )%
    
    (3,028
    )
    
    (1.4
    )%Earnings
      from continuing operations
    
    
    30,130
    
    
    8.5
    %
    
    9,895
    
    
    4.4
    %
    
    4,941
    
    
    2.3
    %Earnings
      (losses) from discontinued operations:Losses
      from discontinued operations, net of taxes
    
    
    --
    
    
    --
    
    
    (4,092
    )
    
    (1.8
    )%
    
    (4,772
    )
    
    (2.2
    )%Gains
      (losses) on disposals of discontinued operations, net of
    taxes
    
    
    1,002
    
    
    0.3
    %
    
    (4,406
    )
    
    (2.0
    )%
    
    2,323
    
    
    1.1
    %Tax
      benefit arising from the disposal of a discontinued
    operation
    
    
    --
    
    
    0.0
    %
    
    4,379
    
    
    2.0
    %
    
    5,400
    
    
    2.5
    %Earnings
      (losses) from discontinued operations
    
    
    1,002
    
    
    0.3
    %
    
    (4,119
    )
    
    (1.8
    )%
    
    2,951
    
    
    1.4
    %Net
      earnings
    
    $
    31,132
    
    
    8.8
    %
    $
    5,776
    
    
    2.6
    %
    $
    7,892
    
    
    3.7
    %Earnings
      (losses) per share:Continuing
      operations:Basic
    
    $
    1.26
    
    
    
    
    $
    0.43
    
    
    
    
    $
    0.22Diluted
    
    $
    1.18
    
    
    
    
    $
    0.42
    
    
    
    
    $
    0.22Discontinued
      operations:Basic
    
    $
    0.04
    
    
    
    
    $
    (0.18
    )
    
    
    
    $
    0.13Diluted
    
    $
    0.04
    
    
    
    
    $
    (0.18
    )
    
    
    
    $
    0.13Net
      earnings:Basic
    
    $
    1.30
    
    
    
    
    $
    0.25
    
    
    
    
    $
    0.35Diluted
    
    $
    1.22
    
    
    
    
    $
    0.24
    
    
    
    
    $
    0.35





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







17




**Year
Ended December 31, 2004 Compared to Year Ended December 31,
2003**




***Revenues*** :
Revenues increased by approximately $127.7 million, or 56.9%, to $352.2 million
in the year ended December 31, 2004, from $224.5 million in the year ended
December 31, 2003, mainly due to increased business in our Ventiv Commercial
Services business and company acquisitions during 2004, as more fully described
below.




Revenues
in our Ventiv Commercial Services business were $300.2 million in the year ended
December 31, 2004, an increase of $105.7 million or 54.3% from $194.5 million in
the year ended December 31, 2003, and accounted for 85.2% of total revenues for
the year ended December 31, 2004. This increase resulted primarily from new
contracts won in 2004, ranging from small to mid-size clients looking to enter
new markets or build infrastructure, to large, global pharmaceutical companies
with existing infrastructure, and including contracts
amounting to an additional 765 sales representatives during the first half of
2004; a new contract with Aventis for approximately 452 sales representatives
during the third quarter of 2004; and two additional contracts with
large, global pharmaceutical firms  totaling
over 400 sales representatives, one of which was BMS. The increases from these
significant contract wins (described above) were offset by decreases
attributable to conversions of sales teams for Endo and Boehringer Ingleheim
Pharmaceuticals, Inc. during the fourth quarter of 2003, Watson’s election to
terminate its sales contract effective August 1, 2004, and the redeployment of
Bayer representatives from older contracts to recently announced new multi-year
contracts with other clients, as discussed previously. Revenues from the Aventis
and other 2004 contract wins are expected to offset the preceding losses and
diversify our client base. Finally, Ventiv acquired Franklin on June 9, 2004,
resulting in approximately $14.4 million of revenue since the acquisition
date.




Our
Ventiv Analytic Services business generated $30.3 million of revenue, which was
8.6% of total revenues, in the year ended December 31, 2004, compared to $29.9
million in the year ended December 31, 2003. Increased business from
GlaxoSmithKline and Novartis Pharmaceuticals Corporation mainly contributed to
this variance.




As a
result of the fourth quarter 2004 acquisitions in Ventiv Clinical Services,
Ventiv has increased its revenues by approximately $21.7 million. Ventiv
Clinical Services’ clientele consists of a wide range of pharmaceutical,
biotechnology and medical device companies, as well as to their outsourced
service providers to those sectors.




***Costs
of Services*** : Costs
of services increased by approximately $97.0 million or 53.1%, to $279.7 million
during the year ended December 31, 2004 from $182.7 million in the year ended
December 31, 2003. Costs of services decreased as a percentage of revenues to
79.4% from 81.4% in the year ended December 31, 2004 and 2003, respectively.




Costs of
services at the Ventiv Commercial Services business increased by approximately
$83.8 million, or 51.0%, to $248.0 million in the year ended December 31, 2004
from $164.2 million in the year ended December 31, 2003. This variance
percentage is lower than the percentage increase in revenue between the related
periods. Costs of services were 82.6% of Ventiv Commercial Services revenue in
the year ended December 31, 2004, compared to 84.4% in the year ended December
31, 2003. The decrease of costs of services as a percentage of revenue in 2004
as compared to 2003 was attributable to ongoing cost savings measures
implemented by management to align the support and infrastructure of Ventiv with
the current level of operations. In addition, Ventiv acquired Franklin, as
described previously, which is a higher margin division than the core commercial
services business.




Costs of
services in our Ventiv Analytic Services business were $17.3 million in the year
ended December 31, 2004, a decrease of $1.2 million or 6.5%, from $18.5 million
in the year ended December 31, 2003. Costs of services represented 57.0% of
revenue in the year ended December 31, 2004 compared to 61.8% in the year ended
December 31, 2003. The decrease as a percentage of revenue is due to tighter
cost control over market research projects in 2004 that helped to produce higher
margins in 2004.




Costs of
services at our newly acquired Ventiv Clinical Services business were
approximately $14.5 million for the period from the respective acquisition dates
to December 31, 2004. Costs of services represented approximately 66.8% of
Ventiv Clinical Services revenues during this period. Gross margins related to
this business tend to be higher than the core commercial services business.




***Selling,
General and Administrative Expenses (“SG&A”)*** :
SG&A expenses increased by approximately $12.3 million, or 47.0%, to $38.5
million from $26.2 million in the year ended December 31, 2004 and 2003,
respectively. This increase was primarily due to increased compensation levels
in 2004 versus 2003, SG&A expenses incurred at the newly acquired Franklin
and Smith Hanley divisions, and increases in professional fees related to
compliance with the internal control standards of Section 404 of the
Sarbanes-Oxley Act of 2002.




SG&A
expenses at Ventiv Commercial Services increased by approximately $2.7 million,
or 17.2%, to $18.2 million in the year ended December 31, 2004 from $15.5
million incurred in the year ended December 31, 2003. This increase was due to
increased compensation levels in 2004 versus 2003 due to increased results
during the current year, increased rent expense due to Ventiv Commercial
Services occupying additional space, which it previously subleased to a third
party, and expenses related to Franklin in 2004.




18




SG&A
expenses at our Ventiv Analytic Services business increased by approximately
$0.7 million to $5.8 million during the year ended December 31, 2004 when
compared to the same period in 2003. This was due to increased compensation for
2004 versus 2003, offset by tighter controls over the division’s
expenses.




SG&A
expenses at our newly acquired Ventiv Clinical Services businesses were
approximately $5.5 million in 2004, which reflects expenses incurred during the
fourth quarter, when the acquisitions were consummated.




Other
SG&A was approximately $9.0 million for the year ended December 31, 2004, an
increase of approximately $3.5 million or 63.1% from $5.5 million for the year
ended December 31, 2003. The increase was mainly related to increases in
compensation as a result of improved company performance, and professional fees
primarily related to our compliance with the internal control standards of
Section 404 of the Sarbanes-Oxley Act of 2002.




***Restructuring*** : In May
2004, our Ventiv Commercial Services segment signed an agreement to release one
of its tenants from a sublease in the facility which is currently under lease in
Somerset, New Jersey. Ventiv Commercial Services has decided to occupy this
space as an extension to its current space; as such, approximately $0.3 million
of restructuring reserves, which were originally recorded in September 2001,
were reversed during the second quarter of 2004.




***Gain
on Sale of Real Estate*** : The
Ventiv Commercial Services business unit sold a Colorado warehousing facility
and the associated land in June 2003 for $1.1 million.  In conjunction with
this sale, Ventiv recorded a net gain of approximately $0.4 million.




***Provision
for Income Taxes*** : :
During the fourth quarter of 2004, Ventiv recorded a tax benefit of
approximately $7.1 million primarily related to the divestiture and shutdown of
certain former subsidiaries. Ventiv’s 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. The aggregate effect of these
benefits and adjustments reduced Ventiv’s full-year 2004 effective tax rate from
38% to approximately 11%. Ventiv recorded a provision for income taxes on
continuing operations using an estimated effective tax rate of 37.5% for the
year ended December 31, 2003. Our current effective tax rate is based on current
projections for earnings in the tax jurisdictions in which Ventiv does 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
to the potential tax impact arising from previous divestitures.




***Discontinued
Operations*** : For the
year ended December 31, 2004 and 2003, earnings (losses) from discontinued
operations, net of taxes, were earnings of $1.0 million and losses of $4.1
million, respectively. The 2004 gains on disposals of discontinued operations of
mainly consisted of contingency payments due from our previously divested
Germany, Hungary and Alpharetta, Georgia-based operations, as more fully
described in Recent Business Developments, offset by increased expenses in our
facility remaining from our previously-divested Communications business unit.




For the
year ended December 31, 2003, operating losses of $4.1 million mainly consisted
of the results of our France-based operations. In addition, Ventiv incurred
approximately $4.4 million of losses related to the disposals of the units
described in Recent Business Developments, consisting of the following: we wrote
off net liabilities and currency translation adjustments of approximately $5.1
million, mainly related to the sale of its France-based business unit; we
incurred approximately $1.2 million of expenses, comprised primarily of legal
and severance fees associated with the sale of its France and UK-based business
units, and adjustments of residual balances in entities divested; we recorded a
loss of $0.6 million on the sale of the assets and business of its Hungary-based
contract sales business unit; these adjustments were offset in 2003 by
contingent consideration of approximately $0.5 million recognized pursuant to
divestiture agreements on the sale of our Germany and Hungary-based contract
sales business units; as a result of these adjustments, there were approximately
$2.0 million of tax benefits recorded in 2003.





Finally,
in connection with the completion of the divestiture of its France-based
contract sales business unit in 2003, we recorded an estimated $4.4 million tax
benefit relating to the disposal of this business unit.




***Net
Earnings and Earnings Per Share (“EPS”)*** : Our net
earnings increased by approximately $25.3 million from $5.8 million in 2003 to
$31.1 million in 2004. Diluted earnings per share increased to $1.22 per share
for the year ended December 31, 2004 from $0.24 for the year ended December 31,
2003.  Operating results were higher due to increased revenues from certain
contracts; the acquisitions of Franklin and the companies comprising Ventiv
Clinical Services; various cost saving strategies in 2004; and the tax benefit
and one-time tax adjustments recorded in 2004. During 2004, Ventiv started to
realize earnings from discontinued operations related to the receipt of post
acquisition contingent consideration from the divested entities, while incurring
losses from discontinued operations in 2003 from our previously divested
business units.




**Year
Ended December 31, 2003 Compared to Year Ended December 31, 2002**





***Revenues*** :
Revenues increased by approximately $9.1 million, or 4.2%, to $224.5 million for
the year ended December 31, 2003, from $215.4 million for the year ended
December 31, 2002.





19


Revenues
in our Ventiv Commercial Services business were $194.5 million, an increase of
2.9%, or $5.6 million over 2002, and accounted for 86.7% of total Ventiv
revenues during the year ended December 31, 2003. As explained in Recent
Business Developments, Ventiv generated increased revenues during the year ended
December 31, 2003 from the ALTANA contract, effective September 12, 2002, a new
contract with Watson in March 2003, and a second outsourced sales agreement with
Bayer, which was executed in October 2003. Increased revenues from the new
contracts were offset by lower revenues from Reliant Pharmaceuticals, Inc.
(“Reliant”), Endo Pharmaceuticals, Inc. (“Endo”), BMS, and the amended initial
Bayer agreement. The Reliant field force converted from full-time Ventiv
employment to full-time Reliant employment effective as of March 31, 2002. The
Endo contract was partially converted as of June 30, 2002 and fully converted
from Ventiv employment to full-time Endo employment in December 2003. The BMS
contract was completed during the first half of 2002. Finally, the amendment of
the initial Bayer agreement in January 2003 resulted in lower revenues during
the year ended December 31, 2003. Revenues
from the Ventiv Commercial Services business include incentive fees of $1.6
million and $2.5 million for the years ended December 31, 2003 and 2002,
respectively.





Our
Ventiv Analytic business, HPR, generated 13.3% of total revenues during the year
ended December 31, 2003. Revenues increased $4.2 million or 16.5%, to $29.9
million from $25.7 million for the years ended December 31, 2003 and 2002,
respectively. HPR engaged in increased market research activities in 2003 with
clients such as Aventis, Proctor & Gamble and Schering Plough. The
i ncreased
business was offset in part by reduced business volume with J&J and
Boehringer Ingelheim.





***Costs
of Services*** : Costs
of services increased by approximately $3.8 million, or 2.1%, to $182.7 million
for the year ended December 31, 2003 from $178.9 million for the year ended
December 31, 2002.





Costs of
services at the Ventiv Commercial Services business increased by $2.5 million or
1.5% to $164.2 million for the year ended December 31, 2003 from $161.7 million
during the year ended December 31, 2002. Costs of services in 2003 were 84.4% of
revenues compared to 85.6% of revenue in 2002. The
increase in costs of services in 2003 was principally due to the following
factors: the increase in business and revenues from 2002 to 2003; the effect of
the renegotiated Bayer agreement in May 2002, which reduced cost of sales in
2002, as more fully explained in the comparison of the years ended December 31,
2002 and 2001; increased costs in 2003 resulting from the operation of standing
specialty sales teams promoting dental, dermatology and women’s healthcare
products, which have been discontinued or reassigned to other Ventiv Commercial
Services projects due to less than expected results from products promoted by
those teams; these increases were partially offset by Ventiv Commercial
Services’s ongoing initiatives to increase operating efficiencies and minimize
internal operating costs.





HPR
incurred costs of services of $18.5 million for the year ended December 31,
2003, representing an increase of $2.0 million or 12.1% from $16.5 million for
the year ended December 31, 2002. Costs of services were 61.8% of revenues in
2003 compared to 64.2% in 2002. The decrease in costs of services as a percent
of revenue was primarily due to increased operating efficiencies in market
research projects, which, as discussed above, generated an increase in
revenues.





***SG&A:*** SG&A
expenses decreased by approximately $1.2 million, or 4.3%, to $26.2 million from
$27.4 million in the years ended December 31, 2003 and 2002,
respectively.





SG&A
expenses in the Ventiv Commercial Services business increased by approximately
$3.3 million to $15.5 million for the year ended December 31, 2003 compared to
$12.2 million for the year ended December 31, 2002. This
increase is primarily due to increased incentive employee compensation in 2003.
Incentive compensation is partially contingent on Company performance in any
given year. Our earnings from continuing operations in 2003 exceeded the 2002
earnings from continuing operations, and thus, the incentive compensation was
higher in 2003 than 2002.





HPR
incurred SG&A expenses of $5.2 million for the year ended December 31, 2003
compared to $5.3 million for the year ended December 31, 2002. The slight
decrease is in line with our effort to increase operating
efficiencies .





Other
SG&A expenses decreased to $5.5 million for the year ended December 31, 2003
from $9.9 million for the year ended December 31, 2002. This decrease primarily
resulted from s avings
derived from the group’s ongoing initiatives to increase operating efficiencies
and minimize internal operating costs. In addition, Ventiv incurred
non-recurring prior-year re-audit fees recorded in the fourth quarter of 2002.





***Interest
Expense*** *:* Ventiv
recorded $0.5 million of interest expense in the year ended December 31, 2003, a
decrease of $1.0 million from the year ended December 31, 2002. Interest
expense decreased in 2003 as a result of our repayment of the $35.0 million
outstanding balance under its prior line of credit in February 2002, and any
interest and fees related to a short-term advance in 2002. During the second
quarter of 2002, Ventiv received a $15.0 million short-term advance pursuant to
its credit agreement with Foothill Capital Corporation, a wholly-owned
subsidiary of Wells Fargo & Company, which was treated as restricted cash.
Per the terms of the credit agreement, the related borrowing was not considered
a draw against our borrowing availability under the line of credit and was to be
repaid ninety days after the initial advance. This initial advance was repaid,
together with accrued interest and fees of approximately $0.4 million, on
September 4, 2002. Ventiv also incurred $0.3 million of interest expense related
to obligations under its capital lease arrangement for the Ventiv Commercial
Services automobile fleet in the year ended December 31, 2003 and $0.4 million
for the corresponding period in 2002.





20


***Income
Tax Provision*** *:* Ventiv
recorded a provision for income taxes on continuing operations using an
effective tax rate of 37.5% and 38.0% for the years ended December 31, 2003 and
December 31, 2002, respectively. The effective rates were based on reported
earnings in each tax jurisdiction in which our continuing operations conduct
business and are subject to taxation.





***Discontinued
operations*** : For the
years ended December 31, 2003 and 2002, (losses) earnings from discontinued
operations, net of taxes, were losses of $4.1 million and earnings of $3.0
million, respectively. The 2003 results from discontinued operations of $4.1
million mainly consisted of the results of our France-based operations. The 2002
losses of $4.8 million included results of all of our discontinued units, prior
to their dates of sale.





For the
years ended December 31, 2003 and 2002, (losses) gains from disposals of
discontinued operations were losses of $4.4 million and gains of $2.3 million,
respectively. The 2002 net gains comprised of the divestitures of the Germany
and U.K.-based contract sales business units, and our Alpharetta, Georgia-based
and Stamford, Connecticut-based communications business units,. For the year
ended December 31, 2003, Ventiv wrote off net liabilities and currency
translation adjustments of approximately $5.1 million, mainly related to the
sale of its France-based business unit; in addition, Ventiv incurred
approximately $1.2 million of expenses, comprised primarily of legal and
severance fees associated with the sale of its France and UK-based business
units, and adjustments of residual balances in entities divested. In addition,
Ventiv recorded a loss of $0.6 million on the sale of the assets and business of
its Hungary-based contract sales business unit. These adjustments were offset in
2003 by contingent consideration of approximately $0.5 million recognized
pursuant to divestiture agreements on the sale of our Germany and Hungary-based
contract sales business units. As a result of these adjustments, there were
approximately $2.0 million of tax benefits recorded in 2003.





Finally,
in connection with the completion of the divestiture of its Stamford,
Connecticut-based communications business unit in 2002, Ventiv recorded an
estimated $5.4 million tax benefit for carry-back deductions relating to the
disposal of this business unit. Similarly, in 2003, Ventiv recorded an estimated
$4.4 million tax benefit relating to the disposal of its France-based contract
sales business unit.





***EPS*** *:* our net
earnings decreased by approximately $2.1 million to $5.8 million, from net
earnings of $7.9 million in the years ended December 31, 2003 and 2002,
respectively. Diluted earnings per share decreased to $0.24 for the year ended
December 31, 2003 from earnings of $0.35 for the year ended December 31, 2002.
Increased losses from discontinued operations, partially offset by increased
revenues and the benefits of cost savings strategies, contributed to the
decrease in net earnings, as more fully explained above.








**Off-Balance-Sheet
Arrangements**





As of
December 31, 2004, we did not have any off-balance-sheet arrangements, as
defined in Item 303(a)(4)(ii) of SEC Regulation S-K.





21


At
December 31, 2004, Ventiv had $50.8 million of unrestricted cash and
equivalents, a decrease of $4.2 million from December 31, 2003, mainly relating
to cash payments for 2004 acquisitions offset by increased business in 2004, as
discussed previously. For the year ended December 31, 2003 compared to the year
ended December 31, 2004, cash provided by operations increased by $36.0 million
from $14.3 million to $50.3 million. Cash used in investing activities increased
from a source of $0.2 million in the year ended December 31, 2003 to a use of
$44.7 million in the year ended December 31, 2004. Cash used in financing
activities increased by $2.3 million from $6.6 million to $8.8 million over the
same comparative periods.





Cash
provided by operations was $50.3 million and $14.3 million in the year ended
December 31, 2004 and 2003, respectively. This increase was, in large part, due
to increased revenues during the year ended December 31, 2004 when compared to
the same period in 2003. As discussed previously, many new contracts were
initiated in 2004 and generated cash predominantly during the second and third
quarters of 2004. In addition, operational cash flow increased due to the
billing and collection of certain payments due under various
contracts.





Cash used
in investing activities was $44.7 million for the year ended December 31, 2004
compared to a source of $0.2 million in the same period during 2003. In June
2004, Ventiv acquired the net assets of Franklin for $7.7 million in cash,
including acquisition costs. In October 2004, Ventiv acquired the net assets of
Smith Hanley for $32.9 million in cash, including acquisition costs and net of
cash acquired. In November 2004, Ventiv acquired the net assets of HHI for $4.3
million in cash, including acquisition costs and net of cash acquired. There
were approximately $0.9 million of 2004 acquisition costs that were not paid
until 2005, but accrued in 2004. These outflows were partially offset by $3.8
million of proceeds from manufacturers’ rebates received on leased vehicles.
Ventiv received higher rebates in 2004 than 2003 because of the increased
vehicles used from additional sales representatives employed. During the year
ended December 31, 2004 and 2003, Ventiv received approximately $2.1 and $1.3
million, respectively, in proceeds contingent on earnings from its
previously-divested business units. Investing
activities also included capital expenditures of approximately $5.7 million and
$3.6 million for the year ended December 31, 2004 and 2003,
respectively. These
expenditures mainly relate to computer equipment purchased as a result of the
increased business from several new contracts. Finally, Ventiv received $1.1
million from the sale of real estate in Ventiv Commercial Services during the
second quarter of 2003.





Cash used
in financing activities was $8.8 million and $6.6 million for the years ended
December 31, 2004 and 2003, respectively. Ventiv made capital lease payments of
$11.0 million and $6.4 million for the year ended December 31, 2004 and 2003,
respectively, under the fleet lease agreement in its Ventiv Commercial Services
business unit. Increased business in 2004 resulted in additional vehicles leased
in 2004 versus 2003. During the year ended 2004, Ventiv received $3.2 million of
proceeds from the exercise of stock options versus only $0.6 million during the
same period in 2003 due to increased options exercised in 2004 because of the
increase in our stock price. Ventiv also has existing letters of credit for
insurance on its automobile fleet in its Ventiv Commercial Services business
unit. These letters of credit have been fully cash collateralized by Ventiv in
the year ended December 31, 2004 and 2003.





On March
29, 2002, we entered into an asset-based lending agreement with Foothill Capital
Corporation, a wholly-owned subsidiary of Wells Fargo and Company, providing for
a maximum borrowing amount of $50 million. This agreement expires on March 31,
2005. Ventiv did not have any amounts outstanding under the credit facility at
December 31, 2004. We will seek to enter into a replacement credit facility and
anticipate initiating discussions with lenders over the next several months. We
do not believe that the absence of a credit facility during the intervening
period will materially impact our liquidity.





A summary
of our contractual obligations and commercial commitments as of December 31,
2004 are 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 yearsCapital
      lease obligations (a)
    $39,343
    $13,066
    $22,548
    $3,729
    $---Operating
      leases
    28,247
    6,927
    12,840
    5,700
    2,780Total
      obligations
    $67,590
    $19,993
    $35,388
    $9,429
    $2,780





(a) **** These
future commitments include interest and management fees, which are not recorded
on the Consolidated Balance Sheet as of December 31, 2004 but will be recorded
as incurred.





22


The
acquisition agreements entered into in connection with the Smith Hanley,
Franklin and HHI transactions 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 profitability targets during 2004 through 2006. The amount due with
respect to Smith Hanley for 2004 is expected to be approximately $6.8 million
and the amount due with respect to Franklin for 2004 is expected to be
approximately $1.7 million. Both amounts were accrued at December 31, 2004.
These estimates are subject to review mechanisms set forth in the acquisition
agreements and there can be no assurance that our estimates will not be revised
materially. There is no provision for an earn-out payment under the HHI
acquisition agreement with respect to 2004.





We
believe that our cash and equivalents will be sufficient to fund our current
operating requirements and planned capital expenditures over the next 12 months
and for the foreseeable future. We do not have any material commitments for
capital expenditures and did not have any such material commitments as of
December 31, 2004.





We plan
to focus on internal growth while continuing to consider acquisition and
investment opportunities as they arise. Cash provided by operations may not be
sufficient to fund all internal growth initiatives 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. We cannot assure
you that we will be successful in raising the cash required to complete all
acquisition, investment or business opportunities which we may wish to pursue in
the future.





**Risks
Related to Our Business**





Before
deciding to invest in our Company or to maintain or increase your investment,
you should carefully consider the risks described below, in addition to the
other information contained in this Report and in our other filings with the
SEC, including our reports on Forms 10Q and 8-K subsequent to the filing of this
Report. The risks and uncertainties described below are not the only ones facing
our Company. Additional risks and uncertainties not presently known to us or
that we currently deem immaterial may also affect our business. If any of these
known or unknown risks or uncertainties actually occurs with material adverse
effects on Ventiv, our business, financial condition and results of operations
could be seriously harmed. In that event, the market price for our common stock
could decline and you may lose all or part of your investment.





***Our
revenues are dependent on expenditures by companies in the 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 life sciences
industries, particularly the pharmaceutical industry, for 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.





·
    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.
      Furthermore, the trend in the life sciences industries toward
      consolidation, by merger or otherwise, may result in a reduction in
      overall sales and marketing expenditures and, potentially, a reduction in
      the overall use of outsourced sales and marketing services
      providers.


·
    Companies
      may elect to perform promotional, marketing and sales 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, number of clinical professional employed
      internally in relation to 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, typically on 30 to 120 days notice for pharmaceutical
sales contracts and 10 to 30 days for temporary staffing, FDA compliance and
patient assistance contracts. In addition, many of our pharmaceutical sales
contracts provide our clients with the opportunity to internalize the sales
forces under contract, with sufficient notice. Although Ventiv has been
successful in a number of cases in negotiating longer-term commitments and a
non-cancelable initial period for pharmaceutical sales contracts, Ventiv cannot
be assured that clients will renew relationships beyond the expiration date of
existing contracts in any of its businesses. As a result, 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 results of
operations.




23





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





Our
ability to grow depends to a significant degree on our ability to successfully
leverage our existing infrastructure to perform services for our clients, as
well as on our ability to develop and successfully implement new marketing
methods or channels for new services. 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 and to increase our penetration with
existing customers; to recruit, motivate and retain qualified personnel; and to
economically train existing sales representatives and recruit new sales
representatives. We will also be required to 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 demand
and market conditions. If we are unable to manage our infrastructure and
resources effectively, this could materially adversely affect our business,
consolidated financial condition and consolidated results of
operations.





***We
employ sophisticated computer technology to deliver our services, and any
failure of or damage of 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 business. 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. Significant changes in
these regulations, or our failure to comply with them, could impose additional
costs on us or otherwise negatively affect our
operations.***





In
connection with the handling and distribution of samples of pharmaceutical
products, we are subject to regulation by the Prescription Drug Marketing Act of
1987 and other applicable federal, state and local laws and regulations in the
U. S. These laws regulate the distribution of drug samples by mandating storage,
handling and record-keeping requirements for drug samples and by banning the
purchase or sale of drug samples. 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, which AMA
physicians may receive, directly or indirectly, from pharmaceutical companies.
Any changes in these regulations and guidelines or their application could have
a material adverse effect on our business. 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 Ventiv.





Pharmaceutical
manufacturers and the healthcare industry, in general, are subject to
significant U.S. federal and state regulation. In particular, regulations
affecting the pricing or marketing of pharmaceuticals could make it uneconomical
or infeasible for pharmaceutical companies to market their products through
medical marketing detailers. Other changes in the domestic and international
regulation of the pharmaceutical industry could also have a material adverse
effect on Ventiv.





***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
two customers, individually, that accounted for in excess of 10% of our net
revenues for the year ended December 31, 2004, and our largest customer during
such year accounted for 16% of net revenues. If any large customer decreases or
terminates its relationship with us, our business, results of consolidated
operations or consolidated financial condition could be materially adversely
affected.




24


***We
expect to make future acquisitions, which involve additional
risks*** **




Our
growth is dependent upon market growth, our ability to enhance our existing
service offerings, and our ability to introduce new products on a competitive
basis. We have and will continue to address the need to offer additional
services through acquisitions of other companies, including the personnel such
acquisitions may bring to us. Acquisitions involve numerous risks, including the
following:






·
    Difficulties
      in integrating the operations, technologies, products and personnel of the
      acquired companies;




·
    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 employees of the acquired
  companies.




Acquisitions
may also cause us to issue common stock that would dilute our current
shareholders’ percentage ownership; assume liabilities; 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 adversely affect our business, operating results, or financial
condition. Failure to manage and successfully integrate acquisitions we make
could harm our business and operating results in a material way.




**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 2004, 2003, and 2002.





**New
Accounting Pronouncements**





In
January 2003, the Financial Accounting Standards Board (“FASB”) issued FASB
Interpretation No. 46, “Consolidation of Variable Interest Entities” (“FIN 46”),
an interpretation of Accounting Research Bulletin No. 51, “Condensed
Consolidated Financial Statements”. FIN 46 establishes accounting guidance for
consolidation of variable interest entities that function to support the
activities of the primary beneficiary. In December 2003, the FASB revised FIN 46
and issued FIN 46 (revised December 2003) (“FIN 46R”). In addition to conforming
to previously issued FASB Staff Positions, FIN 46R deferred the implementation
date for certain variable interest entities. This revised interpretation is
effective for all entities no later than the end of the first reporting period
that ends after March 15, 2004. Ventiv does not have any investments in or
contractual relationship or other business relationship with a variable interest
entity and therefore the adoption of this interpretation did not have any impact
on our consolidated financial position or consolidated results of
operations.





In May
2003, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No.
150, ''Accounting for Certain Financial Instruments with Characteristics of Both
Liabilities and Equity'' (“SFAS No. 150”).  SFAS No. 150 establishes
standards for how an issuer classifies and measures certain financial
instruments with characteristics of both liabilities and equity.  SFAS No.
150 requires that an issuer classify a financial instrument that is within its
scope as a liability (or an asset in some circumstances).  The requirements
of this statement apply to issuers' classification and measurement of
freestanding financial instruments, including those that comprise more than one
option or forward contract. SFAS No. 150 is effective for financial instruments
entered into or modified after May 31, 2003, and otherwise is effective at the
beginning of the first interim period beginning after June 15, 2003.  Our
initial adoption did not have a material effect on our consolidated results of
operations, consolidated financial position or consolidated cash
flows.




In
September 2004, the Emerging Issues Task Force (“EITF”) reached a consensus
regarding Issue No. 04-1, "Accounting for Preexisting Relationships Between
the Parties to a Business Combination" ("EITF 04-1"). EITF 04-1 requires an
acquirer in a business combination to evaluate any preexisting relationship with
the acquiree to determine if the business combination in effect contains a
settlement of the preexisting relationship. A business combination between
parties with a preexisting relationship should be viewed as a multiple element
transaction. EITF 04-1 is effective for business combinations after
October 13, 2004, but requires goodwill resulting from prior business
combinations involving parties with a preexisting relationship to be tested for
impairment by applying the guidance in the consensus. The Company will apply
EITF 04-1 to acquisitions subsequent to the effective date and in future
goodwill impairment testing.




In
December 2004, the FASB issued SFAS No. 123 (revised 2004),
"Share-Based Payment" ("SFAS No. 123R"), which replaces SFAS No. 123,
"Accounting for Stock-Based Compensation" ("SFAS No. 123") and supercedes
Accounting Principles Board (“APB”) Opinion No. 25, "Accounting for Stock
Issued to Employees." 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 June 15, 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. The Company is required
to adopt SFAS No. 123R in our third quarter of 2005, beginning July 1,
2005. Under SFAS No. 123R, the Company 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. The Company is evaluating the requirements of
SFAS No. 123R and the Company expects that the adoption of SFAS
No. 123R will have a material impact on the Company’s consolidated results
of operations and earnings per share. The Company has not determined the method
of adoption or the effect of adopting SFAS No. 123R.




25





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





We do not
have material market risk exposure from changes in market interest rates. We do
not currently engage in hedging or other market risk management
strategies.





**Long-Term
Debt Exposure**





At
December 31, 2004, Ventiv had no debt outstanding under its line of credit. See
Liquidity and Capital Resources section for further detail on Ventiv’s available
line of credit. If Ventiv utilizes a line of credit in the future, it may incur
variable interest expense with respect to any future outstanding
loans.





**Foreign
Currency Exchange Rate Exposure**





Ventiv is
not currently affected by foreign currency exchange rate exposure, except for
any fluctuations in the foreign bank accounts remaining from the divestitures of
Ventiv’s European business units. At December 31, 2004, the accumulated other
comprehensive earnings was approximately $0.3 million.





26





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





**INDEX
TO FINANCIAL STATEMENTS**





PageReport
      of Management..................................................................................................................
    29Independent
      Registered Public Accounting Firm
      Report...........................................................................
    30Consolidated
      Balance Sheets as of December 31, 2004 and
      2003................................................................
    31Consolidated
      Statements of Operations for the years ended December 31, 2004, 2003 and
      2002...........................
    32Consolidated
      Statements of Stockholders' Equity for the years ended December 31, 2004,
      2003, and 2002...............
    33Consolidated
      Statements of Cash Flows for the years ended December 31, 2004, 2003 and
      2002..........................
    34Notes
      to Consolidated Financial
      Statements.........................................................................................
    35





27


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 Franklin, Smith Hanley and HHI businesses we acquired in
2004 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 10% and 31% of revenues and total assets, respectively, of the
consolidated financial statement amounts as of and for the year ending December
31, 2004. Based on this evaluation, our management concluded that our system of
internal control over financial reporting was effective as of December 31,
2004. 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.





28





REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





Board of
Directors and Stockholders of Ventiv Health, Inc.





We have
audited the accompanying consolidated balance sheet of Ventiv Health, Inc. and
subsidiaries (the "Company") as of December 31, 2004 and 2003, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 2004.
Our audits also included the financial statement schedule listed in the Index at
Item 15. We also have audited management's assessment, included under the
caption *Management's
Report on Internal Control Over Financial Reporting* , that
Ventiv maintained effective internal control over financial reporting as of
December 31, 2004, based on criteria established in *Internal
Control—Integrated Framework* issued by
the Committee of Sponsoring Organizations of the Treadway Commission. The
Company's management is responsible for these consolidated financial statements
and financial statement schedule, 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. As described in Report of Management, management excluded from
their assessment the internal control over financial reporting at Franklin,
Smith Hanley and HHI, which were acquired in June, October and November 2004,
respectively, and whose financial statements constitute 10% and 31% of revenues
and total assets, respectively, of the consolidated financial statement amounts
as of and for the year ending December 31, 2004. Accordingly, our audit did not
include the internal control over financial reporting at Franklin, Smith Hanley
and HHI.





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 audits 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 Ventiv Health,
Inc. and subsidiaries as of December 31, 2004 and 2003, and the results of
its operations and its cash flows for each of the three years in the period
ended December 31, 2004, in conformity with accounting principles generally
accepted in the United States of America. Also, in our opinion, such financial
statement schedule, 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, 2004, 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,
2004, based on the criteria established in *Internal
Control—Integrated Framework* issued by
the Committee of Sponsoring Organizations of the Treadway Commission.





/s/
Deloitte & Touche LLP


Parsippany,
NJ


March 31,
2005





29





**VENTIV
HEALTH, INC.**





**CONSOLIDATED
BALANCE SHEETS**


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








December
      31,2004
    
    2003**ASSETS**Current
      assets:Cash
      and equivalents
    
    $50,809
    
    $54,970Restricted
      cash
    
    2,488
    
    1,672Accounts
      receivable, net of allowances for doubtful accounts of $1,980 and $2,019
      atDecember
      31, 2004 and 2003, respectively
    
    
    56,534
    
    
    41,836Unbilled
      services
    
    
    36,130
    
    
    21,347Prepaid
      expenses and other current assets
    
    
    2,755
    
    
    1,146Current
      deferred tax assets
    
    
    8,226
    
    
    1,660Total
      current assets
    
    
    156,942
    
    
    122,631Property
      and equipment, net
    
    
    40,226
    
    
    31,457Goodwill
    
    
    64,823
    
    
    20,638Other
      intangibles, net
    
    
    21,370
    
    
    85Deferred
      tax assets
    
    
    3,583
    
    
    5,438Deposits
      and other assets
    
    
    508
    
    
    459Total
      assets
    
    $
    287,452
    
    $
    180,708**LIABILITIES
      AND STOCKHOLDERS’ EQUITY**Current
      liabilities:Current
      portion of capital lease obligations
    
    $
    12,004
    
    $
    8,100Accrued
      payroll, accounts payable and accrued expenses
    
    
    56,076
    
    
    32,105Current
      income tax liabilities
    
    
    12,113
    
    
    9,165Client
      advances and unearned revenue.
    
    
    9,184
    
    
    4,859Total
      current liabilities
    
    
    89,377
    
    
    54,229Capital
      lease obligations
    
    
    24,898
    
    
    18,488Other
      non-current liabilities
    
    
    733
    
    
    266Total
      liabilities
    
    
    115,008
    
    
    72,983Commitments
      and contingenciesStockholders’
      Equity:Preferred
      stock, $.001 par value, 10,000,000 shares authorized, none issued and
      outstanding atDecember
      31, 2004 and 2003, respectively
    
    
    --
    
    
    --Common
      stock, $.001 par value, 50,000,000 shares authorized; 25,705,012 and
      23,094,503Shares
      issued and outstanding at December 31, 2004 and 2003,
      respectively
    
    
    26
    
    
    23Additional
      paid-in-capital
    
    
    193,061
    
    
    159,359Deferred
      compensation
    
    
    (420
    )
    
    (85
    )Accumulated
      other comprehensive earnings
    
    
    320
    
    
    103Accumulated
      deficit
    
    
    (20,543
    )
    
    (51,675
    )Total
      stockholders’ equity
    
    
    172,444
    
    
    107,725Total
      liabilities and stockholders’ equity
    
    $
    287,452
    
    $
    180,708





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


****


30


****


**VENTIV HEALTH,
INC.**





**CONSOLIDATED
STATEMENTS OF OPERATIONS**


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





For
      the Years Ended December 31,2004
    
    
    2003
    
    
    2002Revenues
    
    $
    352,184
    
    $
    224,453
    
    $
    215,387Operating
      expenses:Cost
      of services
    
    
    279,733
    
    
    182,658
    
    
    178,901Selling,
      general and administrative expenses
    
    
    38,539
    
    
    26,223
    
    
    27,397Restructuring
    
    
    (264
    )
    
    --
    
    
    --Gain
      on sale of real estate
    
    
    --
    
    
    (392
    )
    
    --Total
      operating expenses
    
    
    318,008
    
    
    208,489
    
    
    206,298Operating
      earnings
    
    
    34,176
    
    
    15,964
    
    
    9,089Interest
      expense
    
    
    (922
    )
    
    (549
    )
    
    (1,576
    )Interest
      income
    
    
    678
    
    
    413
    
    
    456Earnings
      from continuing operations before income taxes
    
    
    33,932
    
    
    15,828
    
    
    7,969Income
      tax provision
    
    
    (3,802
    )
    
    (5,933
    )
    
    (3,028
    )Earnings
      from continuing operations
    
    
    30,130
    
    
    9,895
    
    
    4,941Earnings
      (losses) from discontinued operations:Losses
      from discontinued operations, net of tax expense of $--, $63 and $159 for
      the
      years
      ended December 31 2004, 2003 and 2002, respectively
    
    
    --
    
    
    (4,092
    )
    
    (4,772
    )Gains
      (losses) on disposals of discontinued operations, net of tax
      (expense)benefit of
      ($547),
      $2,056 and $2,585 for the years ended December 31 2004, 2003 and
      2002,
      respectively
    
    
    1,002
    
    
    (4,406
    )
    
    2,323Tax
      benefit related to the disposal of a discontinued
operation
    
    
    --
    
    
    4,379
    
    
    5,400Earnings
      (losses) from discontinued operations
    
    
    1,002
    
    
    (4,119
    )
    
    2,951Net
      earnings
    
    $
    31,132
    
    $
    5,776
    
    $
    7,892Earnings
      (losses) per share:Continuing
      operations:Basic
    
    $
    1.26
    
    $
    0.43
    
    $
    0.22Diluted
    
    $
    1.18
    
    $
    0.42
    
    $
    0.22Discontinued
      operations:Basic
    
    $
    0.04
    
    $
    (0.18
    )
    $
    0.13Diluted
    
    $
    0.04
    
    $
    (0.18
    )
    $
    0.13Net
      earnings:Basic
    
    $
    1.30
    
    $
    0.25
    
    $
    0.35Diluted
    
    $
    1.22
    
    $
    0.24
    
    $
    0.35Weighted
      average common shares outstanding:Basic
    
    
    23,951
    
    
    22,919
    
    
    22,842Diluted
    
    
    25,437
    
    
    23,801
    
    
    22,857





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





31


****


**CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' EQUITY**


**For
the years ended December 31, 2004, 2003 and 2002**


**(in
thousands)**





Common
      Stock
    
    Additional
      Paid-In
      Capital
    
    Accumulated
      Deficit
    
    Deferred
      Compen-
      Sation
    
    Compre-hensive
      Income
      (Loses)
    
    Accumulated
      Other Comprehen-sive Earnings (Losses)
    
    TotalBalance
      at January 1, 2002
    
    $23
    
    $157,864
    
    $(65,343)
    
    $(1,275)
    
    
    
    $(4,063)
    
    $87,206Net
      earnings
    
    --
    
    --
    
    7,892
    
    --
    
    $7,892
    
    --
    
    7,892Foreign
      currency translation
      Adjustments
    
    --
    
    --
    
    --
    
    --
    
    4,712
    
    4,712
    
    4,712Write-off
      of currency translation
      adjustments
      from divestitures
    
    
    
    
    
    
    
    
    
    (4,937)
    
    (4,937)
    
    (4,937)Taxes
      payable from vesting of
      restricted
      stock
    
    
    
    
    
    (166
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    (166
    )$
    7,667Cancellation
      of restricted shares
    
    
    --
    
    
    (300
    )
    
    --
    
    
    300
    
    
    
    
    
    --
    
    
    --Vesting
      of restricted shares
    
    
    --
    
    
    --
    
    
    --
    
    
    518
    
    
    
    
    
    --
    
    
    518Issuance
      of stock options to employees
    
    
    --
    
    
    12
    
    
    --
    
    
    --
    
    
    
    
    
    --
    
    
    12Write-off
      of officer loan to purchase
      common
      stocks
    
    
    --
    
    
    500
    
    
    --
    
    
    --
    
    
    
    
    
    --
    
    
    500Other
    
    
    --
    
    
    709
    
    
    --
    
    
    --
    
    
    
    
    
    --
    
    
    709Balance
      at December 31, 2002
    
    
    23
    
    
    158,619
    
    
    (57,451
    )
    
    (457
    )
    
    
    
    
    (4,288
    )
    
    96,446Net
      earnings
    
    
    --
    
    
    --
    
    
    5,776
    
    
    --
    
    $
    5,776
    
    
    --
    
    
    5,776Foreign
      currency translation
      Adjustment
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    (1,913
    )
    
    (1,913
    )
    
    (1,913
    )Write-off
      of currency translation
      adjustments
      from divestitures
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    6,304
    
    
    6,304
    
    
    6,304$
    10,167Vesting
      of restricted shares
    
    
    --
    
    
    --
    
    
    --
    
    
    397
    
    
    
    
    
    --
    
    
    397Exercise
      of stock options
    
    
    --
    
    
    555
    
    
    --
    
    
    --
    
    
    
    
    
    --
    
    
    555Issuance
      of restricted shares
    
    
    --
    
    
    85
    
    
    --
    
    
    (85
    )
    
    
    
    
    --
    
    
    --Tax
      benefit from exercise of employee stock options and vesting of restricted
      stock
    
    
    --
    
    
    345
    
    
    --
    
    
    --
    
    
    
    
    
    --
    
    
    345Executive
      share surrender
    
    
    --
    
    
    (185
    )
    
    --
    
    
    --
    
    
    
    
    
    --
    
    
    (185
    )Other
    
    
    --
    
    
    (60
    )
    
    --
    
    
    60
    
    
    
    
    
    --
    
    
    --Balance
      at December 31, 2003
    
    
    23
    
    
    159,359
    
    
    (51,675
    )
    
    (85
    )
    
    
    
    
    103
    
    
    107,725Net
      earnings
    
    
    --
    
    
    --
    
    
    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
    
    $
    172,444








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


****


32


****


**VENTIV
HEALTH, INC.**





**CONSOLIDATED
STATEMENTS OF CASH FLOWS**


**(in
thousands)**





**For
      the Years Ended****December
      31,****2004**
    
    **2003**
    
    **2002**Cash
      flows from operating activities:Net
      earnings
    
    $31,132
    
    $5,776
    
    $7,892Adjustments
      to reconcile net earnings to net cash provided by operating
      activities:(Earnings)
      losses from discontinued operations
    
    (1,002)
    
    4,119
    
    (2,951)Depreciation
    
    15,602
    
    9,485
    
    9,585Amortization
    
    306
    
    19
    
    47Deferred
      taxes
    
    
    (4,711
    )
    
    2,316
    
    
    1,750Gain
      on sale of real estate
    
    
    --
    
    
    (392
    )
    
    --Write
      off of deferred financing costs
    
    
    --
    
    
    --
    
    
    314Stock
      compensation expense
    
    
    138
    
    
    397
    
    
    518Tax
      benefit (expense) from stock option exercises and vesting of restricted
      shares
    
    
    4,493
    
    
    345
    
    
    (166
    )Write-off
      of officer note receivable
    
    
    --
    
    
    --
    
    
    500Estimated
      future losses on contracts
    
    
    --
    
    
    --
    
    
    (2,400
    )Executive
      share surrender.
    
    
    --
    
    
    (185
    )
    
    --Changes
      in assets and liabilities, net of effects from discontinued
      operations:Restricted
      cash.
    
    
    184
    
    
    810
    
    
    (669
    )Accounts
      receivable, net
    
    
    (1,186
    )
    
    (13,140
    )
    
    9,785Unbilled
      services.
    
    
    (9,522
    )
    
    (6,800
    )
    
    27,933Prepaid
      expenses and other current assets
    
    
    (1,208
    )
    
    280
    
    
    447Accrued
      payroll, accounts payable and accrued expenses
    
    
    8,413
    
    
    3,926
    
    
    (4,343
    )Current
      income tax liabilities
    
    
    2,948
    
    
    5,886
    
    
    (2,253
    )Client
      advances and unearned revenue
    
    
    4,286
    
    
    1,134
    
    
    (12,704
    )Other
    
    
    397
    
    
    341
    
    
    63Net
      cash provided by operating activities
    
    
    50,270
    
    
    14,317
    
    
    33,348Cash
      flows from investing activities:Acquisitions,
      net of cash acquired
    
    
    (44,943
    )
    
    --
    
    
    --Proceeds
      from disposals of discontinued operations
    
    
    2,141
    
    
    1,280
    
    
    17,870Purchases
      of property and equipment
    
    
    (5,697
    )
    
    (3,642
    )
    
    (3,966
    )Proceeds
      from manufacturers rebates on leased vehicles
    
    
    3,799
    
    
    1,478
    
    
    111Proceeds
      from sale of real estate
    
    
    --
    
    
    1,099
    
    
    --Net
      cash (used in) provided by investing activities
    
    
    (44,700
    )
    
    215
    
    
    14,015Cash
      flows from financing activities:Repayments
      on line of credit
    
    
    --
    
    
    --
    
    
    (35,000
    )Repayments
      of capital lease obligations
    
    
    (11,021
    )
    
    (6,354
    )
    
    (7,274
    )Fees
      to establish line of credit
    
    
    --
    
    
    --
    
    
    (610
    )Collateralization
      of obligations under the letter of credit
    
    
    (1,000
    )
    
    (788
    )
    
    --Proceeds
      from exercise of stock options
    
    
    3,198
    
    
    555
    
    
    --Net
      cash used in financing activities
    
    
    (8,823
    )
    
    (6,587
    )
    
    (42,884
    )Net
      cash (used in) provided by discontinued operations
    
    
    (1,125
    )
    
    2,879
    
    
    6,378Effect
      of exchange rate changes
    
    
    217
    
    
    (1,913
    )
    
    (225
    )Net
      (decrease) increase in cash and equivalents
    
    
    (4,161
    )
    
    8,911
    
    
    10,632Cash
      and equivalents, beginning of year
    
    
    54,970
    
    
    46,059
    
    
    35,427Cash
      and equivalents, end of year
    
    $
    50,809
    
    $
    54,970
    
    $
    46,059Supplemental
      disclosures of cash flow information:Cash
      paid for interest
    
    $
    857
    
    $
    352
    
    $
    1,312Cash
      paid for income taxes
    
    $
    1,641
    
    $
    462
    
    $
    564Supplemental
      disclosure of non-cash activities:Vehicles
      acquired through capital lease agreements
    
    $
    16,581
    
    $
    19,463
    
    $
    7,099Stock
      issuance related to acquisitions
    
    $
    25,541
    
    
    --
    
    
    --







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








33






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


**1. 
Organization and Business:**
 
 Ventiv
Health Inc. (together with its subsidiaries, “Ventiv” or the “Company”) is a
leading provider of outsourced clinical, sales, marketing and compliance
solutions for the pharmaceutical, biotechnology and life sciences industries.
Ventiv offers a broad range of integrated and stand alone services, in a context
of consultative partnership that identifies strategic goals and applies
targeted, tailored solutions.





The
portfolio of offerings includes:


·
    integrated
      sales force recruitment, training and
management;


·
    stand
      alone sales force recruitment, training, systems automation and regulatory
      compliance services;


·
    product,
      sample and literature fulfillment;


·
    telemarketing
      and other marketing support;


·
    product/brand
      management;


·
    brand/portfolio
      analytics and forecasting;


·
    market
      research and intelligence;


·
    strategic
      and tactical planning;


·
    clinical
      staffing and recruiting


·
    permanent
      placement; and


·
    clinical
      data management and statistical analysis.





*Ventiv's
Business Units*





The
Company currently operates primarily through three business units, which
correspond to its reporting segments for 2004:





·
    Ventiv
      Commercial Services,
      formerly known as Ventiv Pharma Services and previous to that as Ventiv
      Health Sales and Marketing, which includes the Company’s outsourced sales
      and marketing teams, compliance and patient assistance businesses,
      marketing support services, professional development and training, and
      recruitment of sales representatives in the commercial services
      area;


·
    Ventiv
      Analytic Services,
      comprising Health Products Research ("HPR"), which provides planning and
      analytics services; and


·
    Ventiv
      Clinical Services,
      which consists of the newly acquired businesses of Smith Hanley
      Associates, Smith Hanley Consulting Group and MedFocus (collectively
      “Smith Hanley”) and HHI Clinical & Statistical Research Services
      (“HHI”). This segment provides services related to recruitment, clinical
      staffing, and data collection and
management.





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. The Company
currently conducts our continuing operations in the United States, serving U.S.
companies and domestic affiliates of foreign corporations.





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





*Basis
of Presentation*





The
consolidated financial statements include the accounts of Ventiv and its wholly
owned subsidiaries. Ventiv's continuing operations consist primarily of three
business units: Ventiv
Commercial Services , Ventiv
Analytic Services (through Ventiv’s HPR subsidiary), and
Ventiv Clinical Services. In 2005, Ventiv plans to incorporate the Ventiv
Analytic Services group within the Ventiv Commercial Services group assuming
certain criteria are met. All significant intercompany transactions have been
eliminated in consolidation.  Certain balances on the consolidated
financial statements have been reclassified to conform to current
classifications.





*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. Approximately $2.5 million and $1.7 million were held in escrow
on behalf of clients and included in restricted cash at December 31, 2004 and
2003, respectively.








34


**VENTIV
HEALTH, INC.**
 
 **NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)**


*Revenue
Recognition*





Ventiv
Commercial Services


Revenues
and associated costs under pharmaceutical detailing contracts are generally
based on the number of physician calls made or the number of sales
representatives utilized. With respect to risk-based contracts, all or a portion
of revenues earned are based on contractually defined percentages of either
product revenues or the market value of prescriptions written and filled in a
given period.





Revenues
are recognized on product Ventiv Pharma Teams contracts as services are
performed. Most Ventiv Pharma 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 the deployed field
force actively promotes specified products for clients through face-to-face
interactions with physicians referred to as “detailing”.





Most
Ventiv 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 recognizes 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 recognizes revenue during
the “promotion phase” of Ventiv Pharma Teams contracts on a straight-line basis
based on the size of the deployed field force.





Many of
the product detailing contracts allow for additional periodic incentive fees to
be earned once agreed upon performance benchmarks have been attained. Revenue
earned from incentive fees is recognized 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.





The
Company periodically analyzes detailing contracts to determine the likelihood
and amount of any potential loss on a contract resulting from lower than
anticipated product or field force performance. In the event that current
information illustrates a loss is likely to be incurred over the remaining life
of the contract, loss is accrued at the time it becomes probable.





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





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
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.





The
Company provides services to many of its most significant clients under
contracts that their clients may cancel, typically on 30 to 120 days notice. In
addition, many of the Ventiv Pharma Teams contracts provide our clients with the
opportunity to internalize the sales forces ("sales force conversion") under
contract, with sufficient notice. Although Ventiv Pharma Teams have been
successful in a number of cases in negotiating longer-term commitments and an
initial non-cancelable contract period, the Company cannot be assured that
clients will renew relationships beyond the expiration date of existing
contracts. Normally, if a client terminates a project, the client remains
obligated to pay for services performed and reimbursable expenses incurred
through the date of termination.





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 the Company’s 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.





Ventiv
Analytic Services





Revenues
for HPR generally include fixed fees, which are recognized when monthly services
are performed based on percentage of completion and when payment is reasonably
assured. HPR’s initial contracts typically range from one month to one year.
Revenues for additional services are recognized when the services are provided
and payment is reasonably assured.


****


35


****


**VENTIV
HEALTH, INC.**


**NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)**


**


**


*Ventiv Clinical
Services*





Revenues
for Smith Hanley consist mainly of permanent placement and temporary service
fees. The Company generally records permanent placement services revenue at the
time a candidate begins full-time employment. Any write-offs due to
cancellations and/or billing adjustments historically have been insignificant.
The Company records revenue from temporary personnel services, outsourcing and
outplacement when services are rendered. Revenue earned but not yet billed as of
the end of an accounting period is accrued. The Company believes that we have
adequate reserves for any potential write-offs or adjustments.





**


*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. Ventiv depreciates furniture, fixtures and
office equipment on a straight-line basis over three to seven years; computer
equipment over two to five years and buildings up to thirty nine years.
Leasehold improvements are amortized on a straight-line basis over the shorter
of the term of the lease or the estimated useful lives of the improvements.
Ventiv amortizes the cost of vehicles under capital leases on a straight-line
basis over the term of the lease.





*Goodwill
and Other Intangible Assets*





With the
acquisition of Smith Hanley and other businesses the Company has acquired,
material intangible assets, including goodwill and other identifiable finite and
indefinite-lived acquired intangibles. The identification and valuation of these
intangible assets and the determination of the estimated useful lives at the
time of acquisition, as well as the completion of annual impairment tests,
require significant management judgments and estimates. These estimates are made
based on, among others, consultations with an accredited independent valuation
consultant, reviews of projected future income cash flows and statutory
regulations. The use of alternative estimates and assumptions could increase or
decrease the estimated fair value of our goodwill and other intangible assets,
and potentially result in a different impact to our results of operations.
Furthermore, changes in business strategy and/or market conditions may
significantly impact these judgments thereby impacting the fair value of these
assets, which could result in an impairment of the goodwill. Goodwill is tested
at least annually for impairment. We performed annual impairment tests in 2004
and concluded that the existing goodwill balances were not impaired. As of
December 31, 2004, goodwill of approximately $64.8 million and other
intangibles (net) of $21.4 million were recorded in the Consolidated
Balance Sheet.





*Impairment
of Long-Lived Assets*





Statement
of Financial Accounting Standards (“SFAS”) No. 144,  “Accounting
for the Impairment or Disposal of Long-Lived Assets,”  establishes
accounting standards for the impairment of long-lived assets. Ventiv 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.





*Claims
and Insurance Accruals*





The
Company maintains self-insured retention limits for certain insurance policies.
The liabilities associated with the risk retained by Ventiv 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 actual costs of Ventiv
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.





36


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


*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,****2004**
    
    **2003**
    
    **2002****(in
      thousands, except per share data)**Basic
      EPS from Continuing Operations ComputationEarnings
      from continuing operations
    
    $30,130
    
    $9,895
    
    $4,941Weighted
      average number of common shares outstanding
    
    
    23,951
    
    
    22,919
    
    
    22,842Basic
      EPS from continuing operations
    
    $
    1.26
    
    $
    0.43
    
    $
    0.22Diluted
      EPS from Continuing Operations ComputationEarnings
      from continuing operations
    
    $
    30,130
    
    $
    9,895
    
    $
    4,941Adjustments
    
    
    --
    
    
    --
    
    
    --Adjusted
      earnings from continuing operations
    
    $
    30,130
    
    $
    9,895
    
    $
    4,941Weighted
      average number of common shares outstanding
    
    
    23,951
    
    
    22,919
    
    
    22,842Stock
      options(1)
    
    
    1,482
    
    
    882
    
    
    15Restricted
      awards
    
    
    4
    
    
    --
    
    
    --Total
      diluted common shares outstanding
    
    
    25,437
    
    
    23,801
    
    
    22,857Diluted
      EPS from continuing operations
    
    $
    1.18
    
    $
    0.42
    
    $
    0.22





(1) For the
years ended December 31, 2004, December 31, 2003 and December 31, 2002, 377,121
shares, 1,600,648 shares and 2,135,452 shares, respectively, were excluded from
the calculation of diluted EPS because the grant prices exceeded the market
prices during those periods.





*Income
Taxes*





Deferred
tax assets and liabilities are recognized for the estimated future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured annually based on
enacted tax laws and rates for temporary differences between the financial
accounting and income tax bases of assets and liabilities. 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.





*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
divestiture of the Company’s European business units.





37





**VENTIV
HEALTH, INC.**
 
 **NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)**











*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
reserves for accounts receivable, certain assumptions related to goodwill and
intangible assets, deferred tax valuation, and amounts recorded for
contingencies and other reserves.  Because of the uncertainty inherent in
such estimates, actual results may differ from these estimates.  Ventiv is
not aware of reasonably likely events or circumstances that would result in
different amounts being reported that would have a material impact on results of
operations or financial condition.





*Fair
Value of Financial Instruments*





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





*Concentration
of Credit Risk*





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





*Accounting
for Stock Options*





In
December 2002, the Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Accounting Standards (“SFAS”) No. 148, “Accounting for
Stock-Based Compensation - Transition and Disclosure - an Amendment of FASB
Statement No. 123,” to provide alternative methods of transition for a voluntary
change to the fair value based method of accounting for stock-based employee
compensation. In addition, this Statement amends the disclosure requirements of
SFAS No. 123 “Accounting for Stock-Based Compensation” (“SFAS No. 123”) to
require prominent disclosures in both annual and interim financial statements
about the method of accounting for stock-based employee compensation and the
effect of the method used on reported results. Ventiv had adopted the disclosure
requirements of SFAS No. 148 as of December 31, 2002. Ventiv accounts for
stock-based employee compensation arrangements in accordance with provisions of
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued
to Employees, (“APB No. 25”)" and complies with the disclosure provisions of
SFAS No. 123, as amended. Under APB No. 25, compensation expense is based on the
difference, if any, on the date of grant, between the quoted market price of our
stock and the exercise price.




The
following table illustrates the effect on net earnings and net earnings per
share if Ventiv had applied the fair value recognition provisions of SFAS No.
123 to stock-based employee compensation arrangements:







**Year
      Ended December 31,****2004**
    
    **2003**
    
    **2002****(in
      thousands, except per share data)**Net
      earnings, as reported
    
    $31,132
    
    $5,776
    
    $7,892Less:
      stock-based employee compensation expense determinedunder
      the fair value method, net of related income tax
    
    (2,637)
    
    (1,395)
    
    (2,245)Pro
      forma net earnings
    
    $
    28,495
    
    $
    4,381
    
    $
    5,647Net
      earnings per share attributable to common shareholders:As
      reported: Basic
    
    $
    1.30
    
    $
    0.25
    
    $
    0.35As
      reported: Diluted
    
    $
    1.22
    
    $
    0.24
    
    $
    0.35Pro
      forma: Basic
    
    $
    1.19
    
    $
    0.19
    
    $
    0.25Pro
      forma: Diluted
    
    $
    1.12
    
    $
    0.18
    
    $
    0.25





38


**VENTIV
HEALTH, INC.**
 
 **NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)**


*New
Accounting Pronouncements*





In
January 2003, the Financial Accounting Standards Board (“FASB”) issued FASB
Interpretation No. 46, “Consolidation of Variable Interest Entities” (“FIN 46”),
an interpretation of Accounting Research Bulletin No. 51, “Consolidated
Financial Statements”. FIN 46 establishes accounting guidance for consolidation
of variable interest entities that function to support the activities of the
primary beneficiary. In December 2003, the FASB revised FIN 46 and issued FIN 46
(revised December 2003) (“FIN 46R”). In addition to conforming to previously
issued FASB Staff Positions, FIN 46R deferred the implementation date for
certain variable interest entities. This revised interpretation is effective for
all entities no later than the end of the first reporting period that ends after
March 15, 2004. Ventiv does not have any investments in or contractual
relationship or other business relationship with a variable interest entity and
therefore the adoption of this interpretation did not have any impact on the
Company’s consolidated financial position or consolidated results of
operations.





In May
2003, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No.
150, ''Accounting for Certain Financial Instruments with Characteristics of Both
Liabilities and Equity'' (“SFAS No. 150”).  SFAS No. 150 establishes
standards for how an issuer classifies and measures certain financial
instruments with characteristics of both liabilities and equity.  SFAS No.
150 requires that an issuer classify a financial instrument that is within its
scope as a liability (or an asset in some circumstances).  The requirements
of this statement apply to issuers' classification and measurement of
freestanding financial instruments, including those that comprise more than one
option or forward contract. SFAS No. 150 is effective for financial instruments
entered into or modified after May 31, 2003, and otherwise is effective at the
beginning of the first interim period beginning after June 15, 2003.  The
Company’s initial adoption did not have a material effect on the Company’s
consolidated results of operations, consolidated financial position or
consolidated cash flows.




In
September 2004, the Emerging Issues Task Force (“EITF”) reached a consensus
regarding Issue No. 04-1, "Accounting for Preexisting Relationships Between
the Parties to a Business Combination" ("EITF 04-1"). EITF 04-1 requires an
acquirer in a business combination to evaluate any preexisting relationship with
the acquiree to determine if the business combination in effect contains a
settlement of the preexisting relationship. A business combination between
parties with a preexisting relationship should be viewed as a multiple element
transaction. EITF 04-1 is effective for business combinations after
October 13, 2004, but requires goodwill resulting from prior business
combinations involving parties with a preexisting relationship to be tested for
impairment by applying the guidance in the consensus. The Company will apply
EITF 04-1 to acquisitions subsequent to the effective date and in future
goodwill impairment testing.




In
December 2004, the FASB issued SFAS No. 123 (revised 2004),
"Share-Based Payment" ("SFAS No. 123R"), which replaces SFAS No. 123,
"Accounting for Stock-Based Compensation" ("SFAS No. 123") and supercedes
Accounting Principles Board (“APB”) Opinion No. 25, "Accounting for Stock
Issued to Employees." 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 June 15, 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. The Company is required
to adopt SFAS No. 123R in our third quarter of 2005, beginning July 1,
2005. Under SFAS No. 123R, the Company 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. The Company is evaluating the requirements of
SFAS No. 123R and the Company expects that the adoption of SFAS
No. 123R will have a material impact on the Company’s consolidated results
of operations and earnings per share. The Company has not determined the method
of adoption or the effect of adopting SFAS No. 123R.




**3.
Acquisitions:**





In June
2004, Ventiv acquired the net assets of Franklin Group, Inc. and Lincoln Ltd.,
Inc. (together, “Franklin”), privately-held companies based in Somerville, New
Jersey. Franklin specializes primarily in conducting patient assistance programs
and pharmaceutical compliance services. Ventiv 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 assets. Ventiv
is obligated to make certain earn-out payments, which may be material,
contingent on Franklin’s performance measurements during 2004 through 2006. The
amount due with respect to Franklin for 2004 is expected to be approximately
$1.7 million, which the company accrued at December 31, 2004, but is subject to
review mechanisms set forth in the acquisition agreement and may change
materially based on such review. Franklin’s financial results are reported in
the Ventiv Commercial Services segment from the acquisition date through
December 31, 2004 in the accompanying consolidated financial statements.





39


**VENTIV
HEALTH, INC.**

**NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)**





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 significantly expand our service portfolio in the clinical services and
recruitment areas, expand our market position in the pharmaceutical services and
achieve cross-selling opportunities by leveraging our existing sales force and
relationships. The Company acquired approximately $9.5 million of net assets for
consideration of approximately $52.8 million in cash and stock (taking into
account post-closing adjustments and direct acquisition costs) and will be
obligated to make certain earn-out payments, which may be material, contingent
on Ventiv Clinical Services’ performance measurements in 2004 and 2005. The
amount due with respect to Smith Hanley for 2004 is expected to be approximately
$6.8 million, which the company accrued at December 31, 2004, but is subject to
review mechanisms set forth in the acquisition agreement and may change
materially based on such review. The value of the 1.3 million common shares
issued as a result of the acquisition was determined based on the average market
price of Ventiv’s common shares over the two-day period before and after the
terms of the acquisition were agreed to and announced. The results of Smith
Hanley have been reflected in Ventiv Clinical Services in Ventiv’s consolidated
financial statements from the acquisition date to December 31, 2004.





In
November 2004, Ventiv acquired the net assets of HHI. HHI, a privately-held
company based in Baltimore, Maryland, is a leading specialized statistical
analysis and data management provider to the U.S. pharmaceutical industry. HHI
complements Ventiv's Smith Hanley business. 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) for approximately
$0.8 million of net assets. Ventiv will be obligated to make certain earn-out
payments, which may be material, contingent on HHI’s performance measurements in
2005 and 2006. The results of HHI have been reflected in Ventiv Clinical
Services in Ventiv’s consolidated financial statements from the acquisition date
to December 31, 2004.


****


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




Purchase
      price consideration
    
    Franklin
    
    Smith
      Hanley
    
    HHICash
      *
    
    $7,705
    
    $31,582
    
    $5,431Stock
    
    
    3,580
    
    
    21,215
    
    
    746Contingent
      consideration
    
    
    1,672
    
    
    6,832
    
    
    --Total
    
    $
    12,957
    
    $
    59,629
    
    $
    6,177


* -
including direct acquisition costs and other post-closing
adjustments





The
following represents the allocation of the purchase price to the acquired assets
of Franklin, Smith Hanley and HHI. 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
    
    Franklin
    
    Smith
      Hanley
    
    HHICurrent
      assets
    
    $3,165
    
    $13,859
    
    $1,005Property
      and equipment, and other noncurrent assets
    
    432
    
    670
    
    48Goodwill
    
    
    7,714
    
    
    32,757
    
    
    3,752Identifiable
      intangible assets
    
    
    2,557
    
    
    17,400
    
    
    1,610Liabilities
      assumed
    
    
    (911
    )
    
    (5,057
    )
    
    (238
    )Total
    
    $
    12,957
    
    $
    59,629
    
    
    6,177





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.





The
following table provides unaudited pro forma results of operations for the
periods noted below, as if the 2004 acquisitions had been made at the beginning
of each period. The pro forma amounts are not necessarily indicative of the
results that would have occurred if the acquisitions had been completed at that
time.





2004
    
    2003Revenues
    
    $435,199
    
    $308,902Earnings
      from continuing operations(a)
    
    37,280
    
    13,174Net
      income(a)
    
    38,282
    
    9,055Earnings
      per share(a):Basic
    
    $
    1.52
    
    $
    0.37Diluted
    
    $
    1.44
    
    $
    0.36





(a)
Ventiv’s effective tax rate decreased substantially from 2003 to 2004 due to tax
benefits and other tax adjustments recorded. See footnote 15 for further
details. The adjusted tax rate has been utilized in the pro forma
calculations.




40


****VENTIV
HEALTH, INC.**

**NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)****


****


**4.
Significant Clients:**





During
the year ended December 31, 2004, two clients accounted for approximately 16%
and 14%, individually, of Ventiv's total revenues spread across the Ventiv
Commercial Services and Ventiv Analytic Services segments. For the year ended
December 31, 2003, two clients, accounted for 23% and 18%, individually, of
Ventiv's total revenues. During 2002, three clients accounted for approximately
25%, 12% and 11% of the total revenue for the year ended December 31, 2002, of
Ventiv’s total revenues.





Ventiv
had one client at December 31, 2004 that accounted for 18% of billed account
receivables spread across all three operating segments. At December 31, 2003,
Ventiv had three clients, who comprised 22%, 18% and 12%of billed account
receivables, individually. Ventiv had three clients at December 31, 2004 that
accounted for 29%, 19% and 14%, individually, of unbilled receivables spread
across all three operating segments. At December 31, 2003, Ventiv had three
clients, which comprised 28%, 22% and 18%, individually, of unbilled
receivables.





**5.
Restricted Cash:**





In January
2004, Ventiv pledged $1.0 million of cash as collateral on an outstanding
standby letter of credit to support the insurance policy relating to a fleet
leasing arrangement for the Ventiv Commercial Services segment. The beneficiary
has not drawn on this letter of credit. As this cash has been pledged as
collateral, it is restricted from use for general purposes and has been
classified accordingly in the Consolidated Balance Sheet as of December 31,
2004.





In March
2003, Ventiv pledged approximately $0.8 million of cash as collateral on an
outstanding standby letter of credit, issued in support of the insurance policy
relating to a fleet leasing arrangement for the Ventiv Commercial Services
segment. The beneficiary has not drawn on this letter of credit. As this cash
has been pledged as collateral, it is restricted from use for general purposes
and has been classified accordingly in the Consolidated Balance Sheet as of
December 31, 2004 and December 31, 2003.





Ventiv
often receives cash advances from its clients as funding for specific projects
and engagements. These funds are deposited into segregated bank accounts and
used solely for purposes relating to the designated projects. Although these
funds are not held subject to formal escrow agreements, Ventiv considers these
funds to be restricted and has classified these balances accordingly. Cash held
in such segregated bank accounts totaled approximately $0.7 million and $0.9
million held in escrow on behalf of clients and was included in restricted cash
at December 31, 2004 and 2003, respectively.





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





Property
and equipment consist of the following:





**As
      of December 31,****2004**
    
    **2003****(in
      thousands)**Land
    
    $---
    
    $---Buildings
      and leasehold improvements
    
    2,973
    
    1,978Computer
      equipment and software
    
    
    16,896
    
    
    13,826Vehicles
    
    
    44,397
    
    
    31,715Furniture
      and fixtures
    
    
    3,600
    
    
    3,784$
    67,866
    
    $
    51,303Accumulated
      depreciation
    
    
    (27,640
    )
    
    (19,846
    )$
    40,226
    
    $
    31,457





The
vehicles have been recorded under the provisions of a capital lease. Ventiv's
Commercial Services 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 $15.6 million, $9.5 million, and $9.6
million in 2004, 2003 and 2002, respectively. In 2004, 2003, and 2002 Ventiv
recorded $11.0 million, $5.7 million and $5.9 million of depreciation,
respectively, on vehicles under capital lease.





****


41


****VENTIV
HEALTH, INC.**

**NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)****


****


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





Goodwill
consists of the following:





**December
      31,**(in
      thousands)
    
    **2004**
    
    **2003**Ventiv
      Commercial Services
    
    $
    28,314
    
    $
    20,638
    
    
    (1
    )Ventiv
      Clinical Services
    
    
    36,509
    
    
    --
    
    
    (1
    )Total
    
    $
    64,823
    
    $
    20,638








(1) The
changes in goodwill arose from 2004 acquisitions (see Note 3 for further
details) and includes a reclassification adjustment to other intangible assets
in Ventiv Commercial Services.








Other
intangible assets consist of the following:





**December
      31, 2004**
    
    **December
      31, 2003**(in
      thousands)
    
    ****
    
    **Accumulated**
    
    ****
    
    ****
    
    **Accumulated**
    
    ******Gross**
    
    **Amortization**
    
    **Net**
    
    **Gross**
    
    **Amortization**
    
    **Net**Customer
      relationships(1)
    
    $
    7,567
    
    $
    (282
    )
    $
    7,285
    
    $
    --
    
    $
    --
    
    $
    --Noncompete
      agreement(1)
    
    
    240
    
    
    (5
    )
    
    235
    
    
    --
    
    
    --
    
    
    --Other(2)
    
    
    260
    
    
    (170
    )
    
    90
    
    
    236
    
    
    (151
    )
    
    85Total
      definite-life intangibles
    
    
    8,067
    
    
    (457
    )
    
    7,610
    
    
    236
    
    
    (151
    )
    
    85Tradename(1)
    
    
    13,760
    
    
    --
    
    
    13,760
    
    
    --
    
    
    --
    
    
    --Total
      other intangibles
    
    $
    21,827
    
    $
    (457
    )
    $
    21,370
    
    $
    236
    
    $
    (151
    )
    $
    85





(1)
    The
      changes in other intangible assets arose from 2004 acquisitions (see Note
      3 for further details).


(2)
    Includes
      a reclassification adjustment from
goodwill.





The 2004
business combinations discussed in footnote 3 above resulted in approximately
$44.2 million of goodwill (all of which is expected to be deductible for tax
purposes) and the following intangible assets:





Intangible
      asset
    
    Amount
      (in
      thousands)
    
    Weighted
      average amortization periodTradename
    
    $13,760
    
    IndefiniteCustomer
      relationships
    
    
    7,567
    
    
    7.8
      yearsNoncompete
      agreement
    
    
    240
    
    
    4.0
      yearsTotal
    
    $
    21,567





Amortization
expense, based on intangibles subject to amortization held at December 31, 2004,
is expected $1.2 million annually from 2005 through 2007, $1.1 million in 2008
and $0.7 million in 2009.





**8.
Debt:**





On March
29, 2002, we entered into an asset-based lending agreement with Foothill Capital
Corporation, a wholly owned subsidiary of Wells Fargo and Company, providing for
a maximum borrowing amount of $50 million, This agreement expires on March 31,
2005. Ventiv did not have any amounts outstanding under the credit facility at
December 31, 2004. The Company will seek to enter into a replacement credit
facility and anticipate initiating discussions with lenders over the next
several months. The Company do not believe that the absence of a credit facility
during the intervening period will materially impact liquidity.





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





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





December
      31,2004
    
    2003(in
      thousands)Accrued
      payroll and related employee benefits
    
    $
    21,869
    
    $
    18,054Accounts
      payable
    
    
    2,901
    
    
    560Accrued
      insurance
    
    
    4,899
    
    
    1,287Accrued
      commissions
    
    
    3,377
    
    
    --Accrued
      meeting fees
    
    
    1,721
    
    
    1,648Contingent
      consideration from acquisitions
    
    
    8,504
    
    
    --Accrued
      expenses
    
    
    12,805
    
    
    10,556$
    56,076
    
    $
    32,105








42








**10.
Leases:**


Ventiv
leases certain facilities, office equipment and other assets under
non-cancelable operating leases. The Company’s operating leases are generally
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, 2004 (in thousands):





Years
      Ending December 31,2005
    
    $
    6,9272006
    
    
    6,7702007
    
    
    6,0702008
    
    
    4,1002009
    
    
    1,600Thereafter
    
    
    2,780Total
      minimum lease payments
    
    $
    28,247





Rental
expense charged to operations was approximately $2.5 million, $2.6 million, and
$2.1 million for the years ended December 31, 2004, 2003 and 2002, respectively.
In February 2003, Ventiv started to receive sublease payments for one of its
facilities, which was formerly occupied by one of its divested units. In 2004
and 2003, approximately $0.9 million and $0.7 million, respectively, of sublease
income was received and offset against the obligation. Ventiv expects to collect
for years ending December 31, 2005, 2006 and 2007, approximately $0.9 million,
$1.5 million, and $1.5 million, respectively, under the sublease agreement, and
an additional $0.4 million through the contract expiration in March
2008.





Ventiv
also has commitments under capital leases. The following is a schedule of future
minimum lease payments for these capital leases at December 31, 2004 (in
thousands):





U.S.
      Fleet Leases (a)Years
      Ending December 31,2005
    $13,0662006
    12,2852007
    10,2632008
    3,7282009
    1Total
      minimum lease payments
    39,343Amount
      representing interest andanagement
      fees
    (2,441)36,902Current
      portion
    (12,004)Non-current
      lease obligations
    $24,898





(a) These
future commitments include interest and management fees, which are not recorded
on the Consolidated Balance Sheet as of December 31, 2004 but will be recorded
as incurred.





**11.
Commitments and Contingencies:**





Ventiv 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 Ventiv. In the opinion of
management and based on the advice of legal counsel, all matters outstanding as
of December 31, 2004 are without merit or are of such a nature, or involve
amounts that as would not have a material effect on the consolidated financial
position or consolidated results of operations of Ventiv if disposed of
unfavorably.





**12.
Common Stock and Stock Incentive Plans:**





As
amended June 16, 2004, Ventiv’s 1999 Stock Incentive Plan (“Stock Plan”)
authorizes Ventiv to grant incentive stock options, nonqualified stock options,
restricted stock awards, restricted stock units and stock appreciation rights
("SARs”). The aggregate number of shares of Ventiv common stock that may be
issued under the Stock Plan upon exercise of options, SARs or in the form of
restricted stock is 7.2 million shares, which was increased from 4.8 million
shares in June 2004 as approved by a majority shareholder vote.





43


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





A summary
of the option activity within the Stock Plan, is as follows:





**Number
      of Shares**
    
    **Weighted
      Average Exercise Price Per Share****(in
      thousands)**Outstanding
      options at January 1, 2002
    
    3,316
    
    $7.92Granted
    
    3,238
    
    2.62Exercised
    
    
    --
    
    
    --Forfeited
      or expired
    
    
    (2,662
    )
    
    8.04Outstanding
      options at December 31, 2002
    
    
    3,892
    
    $
    3.43Granted
    
    
    371
    
    
    6.75Exercised
    
    
    (181
    )
    
    3.08Forfeited
      or expired
    
    
    (218
    )
    
    3.61Outstanding
      options at December 31, 2003
    
    
    3,864
    
    $
    3.76Granted
    
    
    1,467
    
    
    16.51Exercised
    
    
    (1,059
    )
    
    3.02Forfeited
      or expired
    
    
    (64
    )
    
    3.63Outstanding
      options at December 31, 2004
    
    
    4,208
    
    $
    8.39Exercisable
      at:December
      31, 2002
    
    
    1,277
    
    $
    4.80December
      31, 2003
    
    
    1,987
    
    $
    4.24December
      31, 2004
    
    
    1,681
    
    $
    4.64





Ventiv’s
options outstanding and exercisable have exercise price ranges and weighted
average remaining contractual lives of:





(options
below are presented in thousands)





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**$1.19
    To
    $1.19
    8
    $1.19
    7.77
    --
    $0.00$1.48
    To
    $1.66
    1,079
    $1.66
    7.94
    501
    $1.66$1.68
    To
    $3.42
    215
    $2.42
    7.32
    41
    $2.50$4.00
    To
    $4.00
    713
    $4.00
    7.92
    597
    $4.00$4.11
    To
    $8.45
    661
    $8.08
    6.20
    478
    $8.05$8.81
    To
    $15.48
    181
    $11.77
    8.15
    60
    $9.29$15.96
    To
    $15.96
    500
    $15.96
    7.33
    --
    $0.00$16.86
    To
    $17.25
    616
    $17.05
    9.78
    4
    $16.86$17.57
    To
    $20.12
    235
    $17.87
    9.62
    --
    $0.004,208
    
    
    1,681





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.





**2004**
    
    **2003**
    
    **2002**Expected
      life of option
    
    
    4.42
      yrs
    
    
    4.00
      yrs
    
    
    4.00
      yrsRisk-free
      interest rate
    
    
    3.52
    %
    
    3.06
    %
    
    3.03
    %Expected
      volatility
    
    
    87.30
    %
    
    94.51
    %
    
    100.00
    %Expected
      dividend yield
    
    
    0.00
    %
    
    0.00
    %
    
    0.00
    %





The
weighted average option fair value at date of grant was $10.95, $4.54 and $1.83
at December 31, 2004, 2003 and 2002, respectively.





44


During
1999, Ventiv granted 831,502 shares of restricted stock to certain key
employees, of which 269,608 of the shares vested upon grant with the remaining
shares of restricted stock vesting ratably over the four years following the
grant date and currently fully vested. During 2004 and 2003, Ventiv issued
23,122 shares and 10,000 shares of restricted stock, respectively, which vest,
on a over a period of two to three years.





A summary
of the restricted shares activity within the Stock Plan is as
follows:





**Restricted
      Stock****Number
      of Shares****(in
      thousands)**January
      1, 2002
    
    659Granted
    
    --Cancelled
    
    (33)December
      31, 2002 (559 shares vested)
    
    626Granted
    
    10Cancelled
    
    --December
      31, 2003 (626 shares vested)
    
    
    636Granted
    
    
    23Cancelled
    
    
    --December
      31, 2004 (631 shares vested)
    
    
    659





During
2004, 2003 and 2002, Ventiv recognized compensation expense related to the
vesting of restricted shares of $0.1 million, $0.4 million and $0.5 million,
respectively.





On May 2,
2002, Ventiv initiated an exchange offer, which provided Ventiv employees with
the opportunity to exchange their Ventiv employee stock options, on a grant by
grant basis, for new Ventiv stock options with an exercise price of the greater
of the market price on December 2, 2002 or $4.00 per share. The exchange offer
expired on May 31, 2002 and the new options were issued to participants on
December 2, 2002. The new options were issued with one of the following two
vesting schedules (determined, on a grant by grant basis, to result in the
greatest remaining period of time between the issuance of the new options and
the completion of the vesting schedule): (1) a vesting schedule identical to the
vesting schedule for the cancelled options without taking into account the
period between the expiration of the exchange offer and the issuance of the new
options and (2) a two year vesting schedule beginning on the date of issuance of
the new options. Employee stock options exercisable for 1,067,529 shares of
Ventiv stock at a weighted average exercise price of $8.75 were exchanged
pursuant to the exchange offer.





**13.
Benefit Plans:**





Ventiv
and certain of its subsidiaries maintain a defined contribution benefit plans.
Costs incurred by Ventiv related to this plan amounted to approximately $0.7
million, $0.5 million, and $0.6 million for 2004, 2003 and 2002,
respectively.





On
November 22, 2004, Ventiv adopted the Ventiv Health, Inc. Deferred Compensation
Plan (the "Plan"), which was approved by Ventiv’s 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 the Company or an
affiliated employer participating in the Plan. The compensation deferrals have
been initiated in 2005.





**14.
Restructuring Charges:**





During
2001, Ventiv completed an evaluation of the operations of certain U.S. based
operations. As a result of this evaluation, Ventiv adopted a plan of
restructuring and recorded a charge of approximately $2.0 million, which
included provisions for the severance of 23 people and costs to reduce the size
of the Somerset, NJ and New York, NY administrative offices. Ventiv expects that
the remaining amounts will be utilized through the end of the NJ office lease
term, which expires in 2008.





In May
2004, Ventiv’s Ventiv Commercial Services segment signed an agreement to release
one of its tenants from a sublease in the facility, which is currently under
lease in Somerset, New Jersey. Ventiv Commercial Services has decided to occupy
this space as an extension to its current space; as such, approximately $0.3
million of restructuring reserves, which were originally recorded in September
2001, was reversed during the second quarter of 2004.




45


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


The
following table summarizes the activity in the integration activities liability
account (in thousands):





Beginning
      Balance
    
    Additions
    
    Deductions
      for
      Amounts
      Paid
    
    Adjustments
    
    Balance
      at End of PeriodYear
      Ended December 31, 2004
    
    $302
    
    $--
    
    $(38)
    
    $(264)
    
    $--Year
      Ended December 31, 2003
    
    $
    534
    
    
    --
    
    
    (232
    )
    
    --
    
    $
    302Year
      Ended December 31, 2002
    
    $
    1,064
    
    $
    --
    
    $
    (530
    )
    $
    --
    
    $
    534








**15.
Income Taxes:**





Ventiv's
income tax provision (benefit) included the following components:





**For
      the Years Ended****December
      31,****2004**
    
    **2003**
    
    **2002****(in
      thousands)**Current:U.S.—Federal
    
    $
    7,808
    
    $
    4,998
    
    $
    349U.S.—State
      and local
    
    
    1,707
    
    
    629
    
    
    189$
    9,515
    
    $
    5,627
    
    $
    538Deferred:U.S.—Federal
    
    $
    (5,050
    )
    $
    284
    
    $
    2,229U.S.—State
      and local
    
    
    (663
    )
    
    22
    
    
    261$
    (5,713
    )
    $
    306
    
    $
    2,490Income
      tax provision
    
    $
    3,802
    
    $
    5,933
    
    $
    3,028





The
provision for taxes on net earnings (losses) 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,****2004**
    
    **2003**
    
    **2002**Taxes
      at statutory U.S. federal income tax rate
    
    35.0%
    
    35.0%
    
    35.0%State
      and local income taxes, net of federal tax benefit
    
    4.7
    
    4.1
    
    5.6Utilization
      of net operating losses / other tax benefits
    
    (29.2)
    
    (1.7)
    
    (4.7)Other
      permanent differences
    
    
    0.7
    
    
    0.1
    
    
    2.1Effective
      tax rate
    
    
    11.2
    %
    
    37.5
    %
    
    38.0
    %





In 2004,
the Company recorded a tax benefit of approximately $7.1 million primarily
related to the divestiture and shutdown of certain former subsidiaries. The
Company’s tax rate also benefited 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. Additional tax benefits related
to the vesting of restricted stock and the exercise of stock options in the
amount of $4.5 million were credited directly to “Additional paid-in-capital” in
the Consolidated Balance Sheet and statement of stockholders’
equity.




46


**VENTIV
HEALTH, INC.**
 
 **NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)**


Deferred
income taxes are recorded based upon differences between the financial statement
and tax bases of assets and liabilities. As of December 31, 2004 and 2003, the
deferred tax assets and liabilities consisted of the following:





**As
      of December 31,****2004**
    
    
    **2003****Current
      Deferred Assets****:**
    
    **(in
      thousands)**Accrued
      expenses
    
    $
    6,530
    
    $
    6,686Net
      operating loss carryforwards
    
    
    3,545
    
    
    --Other
    
    
    424
    
    
    550Subtotal
    
    
    10,499
    
    
    7,236


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


Deferred
      Compensation
    
    7
    
    328Intangible
      Assets
    
    4,001
    
    4,328Net
      operating loss carryforwards
    
    20,048
    
    30Fixed
      Assets
    
    
    11,777
    
    
    9,513Other
    
    
    388
    
    
    1,314Subtotal
    
    
    36,221
    
    
    15,513**Gross
      Deferred Assets**
    
    
    46,720
    
    
    22,749**Current
      Deferred Liabilities**:Accrued
      Expenses
    
    
    (1,301
    )
    
    (4,449
    )Other
    
    
    (972
    )
    
    (1,127
    )Subtotal
    
    
    (2,273
    )
    
    (5,576
    )**Non-Current
      Deferred Liabilities:**Property
      and Equipment
    
    
    (12,606
    )
    
    (9,911
    )Other
    
    
    (14
    )
    
    (164
    )Subtotal
    
    
    (12,620
    )
    
    (10,075
    )**Gross
      Deferred Liabilities**
    
    
    (14,893
    )
    
    (15,651
    )**Valuation
      Allowance**
    
    
    (20,018
    )
    
    --**Net
      deferred tax assets**
    
    $
    11,809
    
    $
    7,098





The
increase in Net deferred tax assets was primarily driven by the recognition of a
$3.5 million benefit in 2004 related to the expected utilization of tax losses
against 2005 income. 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 related to net operating loss carryforwards for which the
Company has concluded it is more likely than not that these loss carryforwards
will not be realized in future periods. For financial statement purposes,
federal net operating loss carryforwards of approximately $62 million exist at
December 31, 2004 and will begin to expire in 2022. Management continually
assesses whether Ventiv's deferred tax asset position is realizable and has
concluded that it is more likely than not that the reported deferred tax asset
is realizable at December 31, 2004.





**16.
Discontinued Operations:**




For the
year ended December 31, 2004 and 2003, earnings (losses) from discontinued
operations, net of taxes, were earnings of $1.0 million and losses of $4.1
million, respectively. The 2004 gains on disposals of discontinued operations of
mainly consisted of contingency payments due from our previously divested
Germany, Hungary and Alpharetta, Georgia-based operations, as more fully
described in Recent Business Developments, offset by increased expenses in our
facility remaining from our previously-divested Communications business unit.








47


**VENTIV
HEALTH, INC.**
 
 **NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)**


For the
year ended December 31, 2003, operating losses of $4.1 million mainly consisted
of the results of our France-based operations. In addition, Ventiv incurred
approximately $4.4 million of losses related to the disposals of the units
described in Recent Business Developments, consisting of the following: the
Company wrote off net liabilities and currency translation adjustments of
approximately $5.1 million, mainly related to the sale of its France-based
business unit; the Company incurred approximately $1.2 million of expenses,
comprised primarily of legal and severance fees associated with the sale of its
France and UK-based business units, and adjustments of residual balances in
entities divested; the Company recorded a loss of $0.6 million on the sale of
the assets and business of its Hungary-based contract sales business unit; these
adjustments were offset in 2003 by contingent consideration of approximately
$0.5 million recognized pursuant to divestiture agreements on the sale of our
Germany and Hungary-based contract sales business units; as a result of these
adjustments, there were approximately $2.0 million of tax benefits recorded in
2003.





Finally,
in connection with the completion of the divestiture of its France-based
contract sales business unit in 2003, the Company recorded an estimated $4.4
million tax benefit relating to the disposal of this business unit.





**17.
Related Parties:**





In
September 1999 Ventiv’s Chief Executive Officer borrowed $0.5 million on a
non-recourse basis from Ventiv exclusively for the purchase of 45,000 shares of
Ventiv’s common stock, subject to the terms of a promissory note, dated
September 30, 1999 and payable on September 30, 2003. In December 2002, Ventiv
forgave the loan and the executive returned the shares to Ventiv in 2003,
pursuant to the terms of the promissory note executed between Ventiv and the
officer. These shares were immediately canceled. As a result, Ventiv recorded a
net charge of $0.3 million to compensation expense in 2003 in conjunction with
the forgiveness of this loan.





**18.
Segment Information:**





Ventiv
currently operates under three segments: Ventiv Commercial Services (formerly
known as Ventiv Pharma Services and previous to that as Ventiv Health Sales and
Marketing), Ventiv Analytic Services (operated through Ventiv’s wholly-owned
subsidiary, Health Products Research, Inc. (HPR)), Ventiv Clinical Services
(through the recently acquired Smith Hanley group of companies, including HHI),
and our non-operating reportable segment, “Other”. These segments were
determined based on the nature and similarity of the services provided by the
various divisions.





Ventiv's
reportable segments are:





·
    Ventiv
      Commercial Services, which includes our outsourced sales and marketing
      teams, compliance and patient assistance businesses, marketing support
      services, professional development and training, and recruitment in the
      commercial services area;


·
    Ventiv
      Analytic Services, which provides planning and analytics services; and


·
    Ventiv
      Clinical Services, which provide recruitment, clinical staffing and data
      collection and management.


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





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





**Ventiv
      Commercial Services**
    
    **Ventiv**
      **Analytic**
      **Services**
    
    **Ventiv**
      **Clinical**
      **Services**
    
    **Other**
    
    **Total**Revenues*
    
    $300,170
    
    $30,326
    
    $21,688
    
    $--
    
    $352,184Depreciation
      and amortization
    
    14,995
    
    618
    
    219
    
    76
    
    15,908Restructuring
    
    249
    
    --
    
    --
    
    15
    
    264Interest
      expense
    
    
    627
    
    
    --
    
    
    --
    
    
    295
    
    
    922Interest
      income
    
    
    34
    
    
    17
    
    
    5
    
    
    622
    
    
    678Segment
      income (loss)
    
    $
    33,654
    
    $
    7,219
    
    $
    1,709
    
    $
    (8,650
    )
    $
    33,932


*  Revenues are disclosed net of intercompany
eliminations.


For the
year ended December 31, 2003 (in thousands):





**Ventiv
      Commercial Services**
    
    **Ventiv**
      **Analytic**
      **Services**
    
    **Ventiv**
      **Clinical**
      **Services**
    
    **Other**
    
    **Total**Revenues*
    
    $
    194,547
    
    $
    29,906
    
    $
    --
    
    $
    --
    
    $
    224,453Depreciation
      and amortization
    
    
    8,516
    
    
    817
    
    
    --
    
    
    171
    
    
    9,504Gain
      on sale of real estate
    
    
    392
    
    
    --
    
    
    --
    
    
    --
    
    
    392Interest
      expense
    
    
    279
    
    
    --
    
    
    --
    
    
    270
    
    
    549Interest
      income
    
    
    --
    
    
    13
    
    
    --
    
    
    400
    
    
    413Segment
      income (loss)
    
    $
    14,946
    
    $
    6,267
    
    $
    --
    
    $
    (5,385
    )
    $
    15,828


*  Revenues are disclosed net of intercompany
eliminations.





48


**VENTIV
HEALTH, INC.**
 
 **NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)**


For the
year ended December 31, 2002 (in thousands):





**Ventiv
      Commercial Services**
    
    **Ventiv**
      **Analytic**
      **Services**
    
    **Ventiv**
      **Clinical**
      **Services**
    
    **Other**
    
    **Total**Revenues*
    
    $188,978
    
    $25,677
    
    $--
    
    $732
    
    $215,387Depreciation
      and amortization
    
    8,643
    
    785
    
    --
    
    204
    
    9,632Interest
      expense
    
    
    377
    
    
    --
    
    
    --
    
    
    1,199
    
    
    1,576Interest
      income
    
    
    --
    
    
    --
    
    
    --
    
    
    456
    
    
    456Segment
      income (loss)
    
    $
    14,693
    
    $
    3,906
    
    $
    --
    
    $
    (10,630
    )
    $
    7,969


*  Revenues are disclosed net of
intercompany eliminations.








(in
      thousands)
    
    **December
      31,****2004**
    
    **2003**Total
      Assets:Ventiv
      Commercial Services
    
    $168,573
    
    $106,887Ventiv
      Analytic Services
    
    
    33,040
    
    
    29,465Ventiv
      Clinical Services
    
    
    73,970
    
    
    --Other*
    
    
    11,869
    
    
    44,356Total
      assets
    
    $
    287,452
    
    $
    180,708


*  Shown net of intercompany
adjustments.


Ventiv's
continuing operations are exclusively in the United States.




49


****


****VENTIV
HEALTH, INC.**

**NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)****


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





The
following table summarizes financial data by quarter for Ventiv for 2004 and
2003.





**2004
      Quarter Ended (b)****March
      31**
    
    **June
      30**
    
    **Sept.
      30**
    
    **Dec.
      31**
    
    **Total
      (a)****(in
      thousands, except per share amounts)**Revenues
    
    $
    70,661
    
    $
    75,221
    
    $
    88,853
    
    $
    117,449
    
    $
    352,184Gross
      profit
    
    
    14,350
    
    
    14,924
    
    
    16,831
    
    
    26,346
    
    
    72,451Earnings
      from continuing operations
    
    
    4,948
    
    
    4,855
    
    
    5,087
    
    
    15,240
    
    
    30,130Earnings
      (losses) from discontinued operations
    
    
    155
    
    
    1,754
    
    
    223
    
    
    (1,130
    )
    
    1,002Net
      earnings
    
    
    5,103
    
    
    6,609
    
    
    5,310
    
    
    14,110
    
    
    31,132Earnings
      (losses) per share (a)Continuing
      operations:Basic
    
    $
    0.22
    
    $
    0.21
    
    $
    0.21
    
    $
    0.60
    
    $
    1.26Diluted
    
    $
    0.20
    
    $
    0.19
    
    $
    0.20
    
    $
    0.57
    
    $
    1.18Discontinued
      operations:Basic
    
    $
    --
    
    $
    0.07
    
    $
    0.01
    
    $
    (0.04
    )
    $
    0.04Diluted
    
    $
    0.01
    
    $
    0.07
    
    $
    0.01
    
    $
    (0.05
    )
    $
    0.04Net
      earnings:Basic
    
    $
    0.22
    
    $
    0.28
    
    $
    0.22
    
    
    0.56
    
    $
    1.30Diluted
    
    $
    0.21
    
    $
    0.26
    
    $
    0.21
    
    
    0.52
    
    $
    1.22





**2003
      Quarter Ended (b)****March
      31**
    
    **June
      30**
    
    **Sept.
      30**
    
    **Dec.
      31**
    
    **Total
      (a)****(in
      thousands, except per share amounts)**Revenues
    
    $43,654
    
    $46,239
    
    $59,291
    
    $75,269
    
    $224,453Gross
      profit
    
    5,798
    
    8,255
    
    11,323
    
    16,419
    
    41,795Earnings
      from continuing operations
    
    224
    
    1,753
    
    2,960
    
    4,958
    
    9,895Earnings
      (losses) from discontinued operations
    
    (1,396)
    
    (3,585)
    
    (6,078)
    
    6,940
    
    (4,119)Net
      earnings (losses)
    
    (1,172)
    
    (1,832)
    
    (3,118)
    
    11,898
    
    5,776Earnings
      (losses) per share (a)Continuing
      operations:Basic
    
    $
    0.01
    
    $
    0.08
    
    $
    0.13
    
    $
    0.22
    
    $
    0.43Diluted
    
    $
    0.01
    
    $
    0.07
    
    $
    0.12
    
    $
    0.20
    
    $
    0.42Discontinued
      operations:Basic
    
    $
    (0.06
    )
    $
    (0.16
    )
    $
    (0.27
    )
    $
    0.30
    
    $
    (0.18
    )Diluted
    
    $
    (0.06
    )
    $
    (0.15
    )
    $
    (0.26
    )
    $
    0.29
    
    $
    (0.18
    )Net
      earnings (losses):Basic
    
    $
    (0.05
    )
    $
    (0.08
    )
    $
    (0.14
    )
    $
    0.52
    
    $
    0.25Diluted
    
    $
    (0.05
    )
    $
    (0.08
    )
    $
    (0.14
    )
    $
    0.49
    
    $
    0.24





(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.





50







**SCHEDULE
II VALUATION AND QUALIFYING ACCOUNTS**


**YEARS
ENDED DECEMBER 31, 2004, 2003 and 2002**


(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, 2004
    
    $2,019
    
    $643
    
    $141
    
    $823
    
    $1,980Year
      ended December 31, 2003
    
    $
    1,178
    
    $
    1,790
    
    $
    --
    
    $
    949
    
    $
    2,019Year
      ended December 31, 2002
    
    $
    979
    
    $
    236
    
    $
    --
    
    $
    37
    
    $
    1,178


(1) Reserves
acquired with the acquisition of Franklin and Smith Hanley.







**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, 2004 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 Ventiv and its 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 quarter ended December 31, 2004 that have materially
affected, or are reasonably likely to materially affect, our internal controls
over financial reporting.




Our
management, including the Chief Executive Officer and Chief Financial Officer,
does not expect that our disclosure controls and procedures 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.




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




See page
28.




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




None.










51








**PART
III**





**Item
10.** ***Directors
and Executive Officers of the Registrant.***





Information
regarding our Directors and Executive Officers and compliance with
Section 16(a) of the Securities Exchange Act of 1934 is incorporated herein
by reference to our definitive 2004 Proxy Statement, which is expected to be
filed not later than 120 days after our fiscal year ended December 31,
2004.





We have
adopted a Code of Business Conduct and Ethics that applies to all of its
directors, officers (including its chief executive officer, chief financial
officer, chief accounting officer and any person performing similar functions)
and employees. Ventiv has made the Code of Business Conduct available on its
website at www.ventiv.com . Any
future amendments to the Code of Business Conduct and Ethics will also be
reflected in this section of the website.





Effective
March 10, 2004, Ventiv amended its Insider Trading Policy to, among other
things, permit the entry into Rule 10b5-1 trading plans by persons who are
otherwise restricted to trading during trading windows specified in the Insider
Trading Policy. Certain of our officers subsequently entered into Rule 10b5-1
trading plans, and additional officers or directors may enter into such plans
from time to time.





**Item
11.** ***Executive
Compensation*** *.*





The
information contained in our Proxy Statement under the section entitled
"Executive Compensation" is incorporated herein by reference in response to this
item, except that the information contained in the Proxy Statement under the
sub-headings of "Compensation Committee Report on Executive Compensation" and
"Stockholder Return Performance Graph" is not incorporated herein by reference
and is not deemed "filed" as part of this filing.





**Item
12.** ***Security
Ownership of Certain Beneficial Owners and
Management.***





The
information contained in our Proxy Statement under the section entitled
"Security Ownership of Directors, Executive Officers and Certain Beneficial
Owners" is incorporated herein by reference in response to this
item.





**Item
13.** ***Certain
Relationships and Related Transactions*** *.*





The
information contained in our Proxy Statement under the section entitled
"Compensation Committee Interlocks and Insider Participation" is incorporated
herein by reference in response to this item.





**Item
14.** ***Principal
Accounting Fees and Services.***







The
information contained in our Proxy Statement under the section entitled
"Principal Accounting Fees and Services" is incorporated herein by reference in
response to this item.




52





**PART
IV**












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





(a)  *1.
The following Consolidated Financial Statements of Ventiv Health, Inc. are filed
under "Item 8. Financial Statements and Supplementary Data."*





Consolidated
Balance Sheets as of December 31, 2004 and 2003





Consolidated
Statements of Operations for the years ended December 31, 2004, 2003 and
2002.





Consolidated
Statements of Stockholders' Equity for the years ended December 31, 2004, 2003
and 2002.





Consolidated
Statements of Cash Flows for the years ended December 31, 2004, 2003 and
2002.





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 Ventiv Health, Inc. (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).
      *3.2a
    By-Laws
      of Ventiv Health, Inc. (filed as Exhibit 3.2 to the Registrant's Form 10
      filed with the Securities and Exchange Commission under the Securities Act
      of 1934, as amended). *3.2b
    Amendment
      to By-Laws of Ventiv Health, Inc. adopted May 23, 20033.2c
    Amendments
      to By-Laws of Ventiv Health, Inc. adopted September 17,
    20033.2d
    Amendment
      to By-Laws of Ventiv Health, Inc. adopted March 10, 20044.1
    Specimen
      form of certificate representing Ventiv Health, Inc. 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 Ventiv
      Health, Inc. (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 Ventiv
      Health, Inc. (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
    Ventiv
      Health, Inc. 1999 Stock Incentive Plan, as amended.10.4.1
    Form
      of Executive Officer Stock Option Agreement.10.4.2
    Form
      of Director Stock Option Agreement.10.4.3
    Form
      of Restricted Stock Agreement.10.5
    Employment
      Agreement, dated June 14, 1999 by and between Eran Broshy and Snyder
      Communications, Inc. (filed as Exhibit 10.5 to the Registrant's Form 10
      filed with the Securities and Exchange Commission under the Securities Act
      of 1934, as amended). *10.5.1
    Amendment
      dated January 1, 2004 to Employment Agreement, dated June 14, 1999, by and
      between Eran Broshy and Snyder Communications, Inc. (filed as Exhibit
      10.5.1 to the Registrant's Annual Report on Form 10-K filed for the fiscal
      year ended December 31, 2003 with the Securities and Exchange Commission
      under the Securities Act of 1934, as amended). *10.9
    Employment
      Agreement, dated August 13, 2001 by and between John R. Emery and Ventiv
      Health, Inc.
      (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 Ventiv Health, Inc. (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). *10.10
    Credit
      Agreement, dated March 29, 2002, among Ventiv Health, certain subsidiaries
      of Ventiv Health, Inc., and Foothill Capital Corporation. (filed as
      Exhibit 10.10 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
    Employment
      Agreement, dated April 8, 2002 by and between Terrell Herring and Ventiv
      Health, Inc.
      (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 Ventiv Health, Inc. (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 Ventiv Health,
      Inc., 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
    Ventiv
      Health, Inc. 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).
      *21.1
    Subsidiaries
      of Ventiv 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.


#
Confidential treatment requested.





(b)
Reports on Form 8-K


Current
Report on Form 8-K, filed as of October 19, 2004, Items 2.01, 7.01, 9.01,
regarding Ventiv’s acquisition of Smith Hanley.





Current
Report on Form 8-K, filed as of November 8, 2004, Item 2.02 and 9.01, regarding
Ventiv’s release of financial information for the third quarter of 2004 on
November 8, 2004.





Current
Report on Form 8-K, filed as of November 22, 2004, Items 1.01, 7.01, 9.01,
regarding Ventiv’s acquisition of HHI.





Current
Report on Form 8-K, filed as of November 29, 2004, Items 1.01 and 9.01,
regarding Ventiv’s adoption of a company deferred compensation
plan.





Current
Report on Form 8-K/A, filed as of December 29, 2004, Items 2.01 and 9.01,
regarding the disclosure of the historical and pro forma financial statements of
Smith Hanley, which were not included in the Form 8-K filed on October 19, 2004.

















53





**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.





**VENTIV
HEALTH, INC.**





By:   /s/  John
R. Emery


John R.
Emery


Chief
Financial Officer





Date:
March 31, 2005





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*
    *March
      31, 2005**Eran
      Broshy*
    *(Principal
      Executive Officer)**/s/
      JOHN R. EMERY*
    *Chief
      Financial Officer*
    *March
      31, 2005**John
      R. Emery*
    *(Principal
      Financial Officer and Principal Accounting Officer)**/s/
      DANIEL M. SNYDER*
    *Chairman
      of the Board*
    *March
      31, 2005**Daniel
      M. Snyder**/s/
      DONALD CONKLIN*
    *Director*
    *March
      31, 2005**Donald
      Conklin**/s/
      JOHN R. HARRIS*
    *Director*
    *March
      31, 2005**John
      R. Harris*/s/*MARK
      E. JENNINGS*
    *Director*
    *March
      31, 2005**Mark
      E.Jennings*/s/*PER
      G.H. LOFBERG*
    *Director*
    *March
      31, 2005**Per
      G.H. Lofberg**/s/
      A. CLAYTON PERFALL*
    *Director*
    *March
      31, 2005**A.
      Clayton Perfall*