##### 









SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549




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Form 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended
September 30, 2003

Commission file number 000-23520

Quintiles Transnational Corp.

(Exact name of registrant as specified in its
charter)


|                                                                                          |  |                                         
|----------------------------------------------------------------------------------------- |  | ----------------------------------------
|North Carolina                                                                            |  | 56-1714315                              
|(State or other jurisdiction of
    incorporation or organization)                        |  | (I.R.S. Employer
    Identification No.)
|                                                                                         
|4709 Creekstone Dr., Suite
    200 Durham, NC(Address of principal executive
    offices) |  | 27703-8411(Zip Code)                    

(919) 998-2000

(Registrants telephone number, including
area code)


N/A

(Former name, former address and former fiscal
year, if changed since last report)


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.     þ Yes          o No

Indicate by check mark whether the registrant is
an accelerated filer (as defined in Rule 12b-2 of the
Exchange
Act).     þ Yes          o No

The number of shares of Common Stock, $.01 par
value, outstanding as of October 31, 2003 was 125,000,000.



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##### 



INDEX

|                                   |  |                                                                                                                                                                                                                                                                                                                |    |      |    | 
|---------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -- | ---- | -- | 
|                                   |  |                                                                                                                                                                                                                                                                                                                |    | Page
|                                   |  |                                                                                                                                                                                                                                                                                                                |    |     
|Part I.  Financial
    Information
|Item 1.                            |  | Financial Statements (unaudited)                                                                                                                                                                                                                                                                               |    |      | 2  | 
|                                   |  | Condensed consolidated balance sheets 
    September 30, 2003 (successor) and December 31, 2002
    (predecessor)                                                                                                                                                                                             |    |      | 2  | 
|                                   |  | Condensed consolidated statements of
    operations  September 26, 2003 through
    September 30, 2003 (successor); July 1, 2003 through
    September 25, 2003 (predecessor); January 1, 2003
    through September 25, 2003 (predecessor); Three and nine
    months ended September 30, 2002 (predecessor) |    |      | 3  | 
|                                   |  | Condensed consolidated statements of cash
    flows  January 1, 2003 through
    September 25, 2003 (predecessor); September 26, 2003
    through September 30, 2003 (successor); Nine months ended
    September 30, 2002 (predecessor)                                                                      |    |      | 4  | 
|                                   |  | Notes to condensed consolidated financial
    statements  September 30, 2003                                                                                                                                                                                                                                  |    |      | 5  | 
|Item 2.                            |  | Managements Discussion and Analysis of
    Financial Condition and Results of Operations                                                                                                                                                                                                                      |    |      | 29 | 
|Item 3.                            |  | Quantitative and Qualitative Disclosure about
    Market Risk                                                                                                                                                                                                                                                  |    |      | 51 | 
|Item 4.                            |  | Controls and Procedures                                                                                                                                                                                                                                                                                        |    |      | 52 | 
|Part II.  Other
    Information   
|Item 1.                            |  | Legal Proceedings                                                                                                                                                                                                                                                                                              |    |      | 52 | 
|Item 2.                            |  | Changes in Securities and Use of Proceeds                                                                                                                                                                                                                                                                      |    |      | 54 | 
|Item 3.                            |  | Defaults upon Senior
    Securities  Not Applicable                                                                                                                                                                                                                                                           |    |      | 54 | 
|Item 4.                            |  | Submission of Matters to a Vote of Security
    Holders                                                                                                                                                                                                                                                        |    |      | 54 | 
|Item 5.                            |  | Other Information  Not Applicable                                                                                                                                                                                                                                                                             |    |      | 55 | 
|Item 6.                            |  | Exhibits and Reports on Form 8-K                                                                                                                                                                                                                                                                               |    |      | 55 | 
|Signatures                         |  |                                                                                                                                                                                                                                                                                                                | 57 |     
|Exhibit Index                      |  |                                                                                                                                                                                                                                                                                                                | 58 |     

1



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##### 



QUINTILES TRANSNATIONAL CORP. AND
SUBSIDIARIES



CONDENSED CONSOLIDATED BALANCE
SHEETS


|                                         |                                                                                                                                                                          |                                            |           |              |           |  |          |         |           | 
|---------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ------------------------------------------ | --------- | ------------ | --------- |  | -------- | ------- | --------- | 
|                                         |                                                                                                                                                                          | September 30,                              |           | December 31,
|                                         |                                                                                                                                                                          | 2003                                       |           | 2002        
|                                         |                                                                                                                                                                          |                                            |           |             
|                                         |                                                                                                                                                                          | Successor                                  |           | Predecessor 
|                                         |                                                                                                                                                                          | (Unaudited)                                |           | (Note 1)    
|                                         |                                                                                                                                                                          |                                           
|                                         |                                                                                                                                                                          | (In thousands,                            
|                                         |                                                                                                                                                                          | except share data)                        
|ASSETS                                  
|Current assets:                          |                                                                                                                                                                          |                                            |           |              |           |  |          |        
|                                         | Cash and cash equivalents                                                                                                                                                |                                            | $         | 333,157      |           |  | $        | 644,284 |          
|                                         | Trade accounts receivable and unbilled services,
    net                                                                                                                 |                                            |           | 249,928      |           |  |          | 255,647 |          
|                                         | Investments in debt securities                                                                                                                                           |                                            |           | 593          |           |  |          | 27,218  |          
|                                         | Prepaid expenses                                                                                                                                                         |                                            |           | 25,567       |           |  |          | 22,516  |          
|                                         | Other current assets and receivables                                                                                                                                     |                                            |           | 53,945       |           |  |          | 42,654  |          
|                                         |                                                                                                                                                                          |                                            |           |              |           |  |          |        
|                                         |                                                                                                                                                                          | Total current assets                       |           |              | 663,190   |  |          |         | 992,319   | 
|Property and equipment                   |                                                                                                                                                                          |                                            | 311,099   |              |           |  | 475,543  |        
|Less accumulated depreciation            |                                                                                                                                                                          |                                            | (661      | )            |           |  | (213,385 | )      
|                                         |                                                                                                                                                                          |                                            |           |              |           |  |          |        
|                                         |                                                                                                                                                                          |                                            | 310,438   |              |           |  | 262,158  |        
|Intangibles and other assets:            |                                                                                                                                                                          |                                            |           |              |           |  |          |        
|                                         | Investments in debt securities                                                                                                                                           |                                            |           | 10,775       |           |  |          | 9,453   |          
|                                         | Investments in marketable equity securities                                                                                                                              |                                            |           | 59,846       |           |  |          | 64,926  |          
|                                         | Investments in non-marketable equity securities
    and loans                                                                                                            |                                            |           | 45,478       |           |  |          | 46,449  |          
|                                         | Investments in unconsolidated affiliates                                                                                                                                 |                                            |           | 121,153      |           |  |          | 121,101 |          
|                                         | Commercial rights and royalties                                                                                                                                          |                                            |           | 10,813       |           |  |          | 1,786   |          
|                                         | Accounts receivable  unbilled                                                                                                                                           |                                            |           | 33,450       |           |  |          | 59,750  |          
|                                         | Advances to customer                                                                                                                                                     |                                            |           | 70,000       |           |  |          | 70,000  |          
|                                         | Goodwill                                                                                                                                                                 |                                            |           | 192,351      |           |  |          | 70,133  |          
|                                         | Other identifiable intangibles, net                                                                                                                                      |                                            |           | 405,248      |           |  |          | 142,715 |          
|                                         | Deferred income taxes                                                                                                                                                    |                                            |           | 2,015        |           |  |          | 174,534 |          
|                                         | Deposits and other assets                                                                                                                                                |                                            |           | 62,899       |           |  |          | 38,871  |          
|                                         |                                                                                                                                                                          |                                            |           |              |           |  |          |        
|                                         |                                                                                                                                                                          |                                            | 1,014,028 |              |           |  | 799,718  |        
|                                         |                                                                                                                                                                          |                                            |           |              |           |  |          |        
|                                         |                                                                                                                                                                          | Total assets                               |           | $            | 1,987,656 |  |          | $       | 2,054,195 | 
|                                         |                                                                                                                                                                          |                                            |           |              |           |  |          |        
|LIABILITIES AND SHAREHOLDERS
    EQUITY
|Current liabilities:                     |                                                                                                                                                                          |                                            |           |              |           |  |          |        
|                                         | Accounts payable and accrued expenses                                                                                                                                    |                                            | $         | 325,926      |           |  | $        | 238,269 |          
|                                         | Credit arrangements                                                                                                                                                      |                                            |           | 19,607       |           |  |          | 21,719  |          
|                                         | Unearned income                                                                                                                                                          |                                            |           | 167,125      |           |  |          | 141,718 |          
|                                         | Income taxes payable                                                                                                                                                     |                                            |           | 14,935       |           |  |          | 20,067  |          
|                                         | Other current liabilities                                                                                                                                                |                                            |           | 2,858        |           |  |          | 2,073   |          
|                                         |                                                                                                                                                                          |                                            |           |              |           |  |          |        
|                                         |                                                                                                                                                                          | Total current liabilities                  |           |              | 530,451   |  |          |         | 423,846   | 
|Long-term liabilities:                   |                                                                                                                                                                          |                                            |           |              |           |  |          |        
|                                         | Credit arrangements, less current portion                                                                                                                                |                                            |           | 773,241      |           |  |          | 18,855  |          
|                                         | Deferred income taxes                                                                                                                                                    |                                            |           | 135,020      |           |  |          | 405     |          
|                                         | Other liabilities                                                                                                                                                        |                                            |           | 26,398       |           |  |          | 12,703  |          
|                                         |                                                                                                                                                                          |                                            |           |              |           |  |          |        
|                                         |                                                                                                                                                                          |                                            | 934,659   |              |           |  | 31,963   |        
|                                         |                                                                                                                                                                          |                                            |           |              |           |  |          |        
|                                         |                                                                                                                                                                          | Total liabilities                          |           |              | 1,465,110 |  |          |         | 455,809   | 
|Shareholders equity:                    |                                                                                                                                                                          |                                            |           |              |           |  |          |        
|                                         | Preferred stock, none issued and outstanding at
    September 30, 2003 and December 31, 2002                                                                             |                                            |           |             |           |  |          |        |          
|                                         | Common stock and additional paid-in capital,
    125,000,000 and 117,850,597 shares issued and outstanding at
    September 30, 2003 and December 31, 2002, respectively |                                            |           | 521,727      |           |  |          | 881,927 |          
|                                         | Retained earnings                                                                                                                                                        |                                            |           | 819          |           |  |          | 716,465 |          
|                                         | Accumulated other comprehensive income (loss)                                                                                                                            |                                            |           |             |           |  |          | (6      | )        
|                                         |                                                                                                                                                                          |                                            |           |              |           |  |          |        
|                                         |                                                                                                                                                                          | Total shareholders equity                 |           |              | 522,546   |  |          |         | 1,598,386 | 
|                                         |                                                                                                                                                                          |                                            |           |              |           |  |          |        
|                                         |                                                                                                                                                                          | Total liabilities and shareholders equity |           | $            | 1,987,656 |  |          | $       | 2,054,195 | 
|                                         |                                                                                                                                                                          |                                            |           |              |           |  |          |        

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

2



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##### 



QUINTILES TRANSNATIONAL CORP. AND
SUBSIDIARIES



CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS


|                                                                                                                                       |  |                                       |         |               |  |             |         |               |  |               |         |               |  |   |         |   |  |   |           |   |  |   |           |  
|-------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------- | ------- | ------------- |  | ----------- | ------- | ------------- |  | ------------- | ------- | ------------- |  | - | ------- | - |  | - | --------- | - |  | - | --------- | -
|                                                                                                                                       |  | September                             |         |               |  |             |         | September     |  | January 1,    |         |              
|                                                                                                                                       |  | 26, 2003                              |         |               |  |             |         | 26, 2003      |  |               |         |              
|                                                                                                                                       |  | Through                               |         | July 1, 2003  |  | Three       |         | Through       |  | 2003          |         | Nine Months  
|                                                                                                                                       |  |                                       |         | Through       |  | Months      |         |               |  | Through       |         | Ended        
|                                                                                                                                       |  |                                       |         |               |  | Ended       |         |               |  |               |         |              
|                                                                                                                                       |  | September 30,                         |         | September 25, |  | September   |         | September 30, |  | September 25, |         | September 30,
|                                                                                                                                       |  | 2003                                  |         | 2003          |  | 30,         |         | 2003          |  | 2003          |         | 2002         
|                                                                                                                                       |  |                                       |         |               |  | 2002        |         |               |  |               |         |              
|                                                                                                                                       |  |                                       |         |               |  |             |         |               |  |               |         |              
|                                                                                                                                       |  | Successor                             |         | Predecessor   |  | Predecessor |         | Successor     |  | Predecessor   |         | Predecessor  
|                                                                                                                                       |  |                                      
|                                                                                                                                       |  | (Unaudited)                          
|                                                                                                                                       |  |                                      
|                                                                                                                                       |  | (In thousands, except per share data)
|Gross revenues                                                                                                                         |  | $                                     | 22,992  |               |  | $           | 467,182 |               |  | $             | 490,965 |               |  | $ | 22,992  |   |  | $ | 1,498,822 |   |  | $ | 1,482,494 |  
|Costs, expenses and other:                                                                                                             |  |                                       |         |               |  |             |         |               |  |               |         |               |  |   |         |   |  |   |           |   |  |   |           |  
|Costs of revenues                                                                                                                      |  |                                       | 15,052  |               |  |             | 307,662 |               |  |               | 330,108 |               |  |   | 15,052  |   |  |   | 997,822   |   |  |   | 1,020,500 |  
|General and administrative                                                                                                             |  |                                       | 5,971   |               |  |             | 129,082 |               |  |               | 128,842 |               |  |   | 5,971   |   |  |   | 397,318   |   |  |   | 381,970   |  
|Interest (income) expense, net                                                                                                         |  |                                       | 1,033   |               |  |             | (2,246  | )             |  |               | (3,256  | )             |  |   | 1,033   |   |  |   | (10,374   | ) |  |   | (9,954    | )
|Other (income) expense, net                                                                                                            |  |                                       | (309    | )             |  |             | 17      |               |  |               | 1,473   |               |  |   | (309    | ) |  |   | (5,433    | ) |  |   | 344       |  
|Transaction and restructuring                                                                                                          |  |                                       |        |               |  |             | 50,261  |               |  |               |        |               |  |   |        |   |  |   | 54,148    |   |  |   |          |  
|                                                                                                                                       |  |                                       |         |               |  |             |         |               |  |               |         |               |  |   |         |   |  |   |           |   |  |   |           |  
|                                                                                                                                       |  |                                       | 21,747  |               |  |             | 484,776 |               |  |               | 457,167 |               |  |   | 21,747  |   |  |   | 1,433,481 |   |  |   | 1,392,860 |  
|                                                                                                                                       |  |                                       |         |               |  |             |         |               |  |               |         |               |  |   |         |   |  |   |           |   |  |   |           |  
|Income (loss) before income taxes                                                                                                      |  |                                       | 1,245   |               |  |             | (17,594 | )             |  |               | 33,798  |               |  |   | 1,245   |   |  |   | 65,341    |   |  |   | 89,634    |  
|Income tax expense (benefit)                                                                                                           |  |                                       | 448     |               |  |             | (14     | )             |  |               | 11,602  |               |  |   | 448     |   |  |   | 28,184    |   |  |   | 30,028    |  
|                                                                                                                                       |  |                                       |         |               |  |             |         |               |  |               |         |               |  |   |         |   |  |   |           |   |  |   |           |  
|Income (loss) before equity in earnings of
    unconsolidated affiliates and other                                                     |  |                                       | 797     |               |  |             | (17,580 | )             |  |               | 22,196  |               |  |   | 797     |   |  |   | 37,157    |   |  |   | 59,606    |  
|Equity in earnings of unconsolidated affiliates
    and other                                                                          |  |                                       | 22      |               |  |             | (12     | )             |  |               | (1,017  | )             |  |   | 22      |   |  |   | 4         |   |  |   | (540      | )
|                                                                                                                                       |  |                                       |         |               |  |             |         |               |  |               |         |               |  |   |         |   |  |   |           |   |  |   |           |  
|Income (loss) from operations                                                                                                          |  |                                       | 819     |               |  |             | (17,592 | )             |  |               | 21,179  |               |  |   | 819     |   |  |   | 37,161    |   |  |   | 59,066    |  
|Cumulative effect on prior years (to
    December 31, 2001) of changing to a different method of
    recognizing deferred income taxes |  |                                       |        |               |  |             |        |               |  |               |        |               |  |   |        |   |  |   |          |   |  |   | 45,659    |  
|                                                                                                                                       |  |                                       |         |               |  |             |         |               |  |               |         |               |  |   |         |   |  |   |           |   |  |   |           |  
|Net income (loss)                                                                                                                      |  | $                                     | 819     |               |  | $           | (17,592 | )             |  | $             | 21,179  |               |  | $ | 819     |   |  | $ | 37,161    |   |  | $ | 104,725   |  
|                                                                                                                                       |  |                                       |         |               |  |             |         |               |  |               |         |               |  |   |         |   |  |   |           |   |  |   |           |  
|Basic net income (loss) per share:                                                                                                     |  |                                       |         |               |  |             |         |               |  |               |         |               |  |   |         |   |  |   |           |   |  |   |           |  
|Income (loss) from operations                                                                                                          |  | $                                     | 0.01    |               |  | $           | (0.15   | )             |  | $             | 0.18    |               |  | $ | 0.01    |   |  | $ | 0.31      |   |  | $ | 0.50      |  
|Cumulative effect of change in accounting
    principle                                                                                |  |                                       |        |               |  |             |        |               |  |               |        |               |  |   |        |   |  |   |          |   |  |   | 0.39      |  
|                                                                                                                                       |  |                                       |         |               |  |             |         |               |  |               |         |               |  |   |         |   |  |   |           |   |  |   |           |  
|Basic net income (loss) per share                                                                                                      |  | $                                     | 0.01    |               |  | $           | (0.15   | )             |  | $             | 0.18    |               |  | $ | 0.01    |   |  | $ | 0.31      |   |  | $ | 0.89      |  
|                                                                                                                                       |  |                                       |         |               |  |             |         |               |  |               |         |               |  |   |         |   |  |   |           |   |  |   |           |  
|Diluted net income (loss) per share:                                                                                                   |  |                                       |         |               |  |             |         |               |  |               |         |               |  |   |         |   |  |   |           |   |  |   |           |  
|Income (loss) from operations                                                                                                          |  | $                                     | 0.01    |               |  | $           | (0.15   | )             |  | $             | 0.18    |               |  | $ | 0.01    |   |  | $ | 0.31      |   |  | $ | 0.50      |  
|Cumulative effect of change in accounting
    principle                                                                                |  |                                       |        |               |  |             |        |               |  |               |        |               |  |   |        |   |  |   |          |   |  |   | 0.39      |  
|                                                                                                                                       |  |                                       |         |               |  |             |         |               |  |               |         |               |  |   |         |   |  |   |           |   |  |   |           |  
|Diluted net income (loss) per share                                                                                                    |  | $                                     | 0.01    |               |  | $           | (0.15   | )             |  | $             | 0.18    |               |  | $ | 0.01    |   |  | $ | 0.31      |   |  | $ | 0.88      |  
|                                                                                                                                       |  |                                       |         |               |  |             |         |               |  |               |         |               |  |   |         |   |  |   |           |   |  |   |           |  
|Shares used in computing net income
    (loss) per share:                                                                              |  |                                       |         |               |  |             |         |               |  |               |         |               |  |   |         |   |  |   |           |   |  |   |           |  
|Basic                                                                                                                                  |  |                                       | 125,000 |               |  |             | 118,560 |               |  |               | 117,694 |               |  |   | 125,000 |   |  |   | 118,358   |   |  |   | 118,240   |  
|Diluted                                                                                                                                |  |                                       | 125,000 |               |  |             | 118,560 |               |  |               | 117,845 |               |  |   | 125,000 |   |  |   | 119,050   |   |  |   | 118,520   |  

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

3



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##### 



QUINTILES TRANSNATIONAL CORP. AND
SUBSIDIARIES



CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS


|                                                                                                  |                                                                                                                                        |                |            |             |   |             |         |         |   |   |         |         |  
|------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------- | -------------- | ---------- | ----------- | - | ----------- | ------- | ------- | - | - | ------- | ------- | -
|                                                                                                  |                                                                                                                                        | September      |            | January 1,  |   |            
|                                                                                                  |                                                                                                                                        | 26, 2003       |            |             |   |            
|                                                                                                  |                                                                                                                                        | Through        |            | 2003        |   | Nine Months
|                                                                                                  |                                                                                                                                        |                |            | Through     |   | Ended      
|                                                                                                  |                                                                                                                                        | September      |            | September   |   | September  
|                                                                                                  |                                                                                                                                        | 30,            |            | 30,         |   | 30,        
|                                                                                                  |                                                                                                                                        | 2003           |            | 2003        |   | 2002       
|                                                                                                  |                                                                                                                                        |                |            |             |   |            
|                                                                                                  |                                                                                                                                        | Successor      |            | Predecessor |   | Predecessor
|                                                                                                  |                                                                                                                                        |               
|                                                                                                  |                                                                                                                                        | (In thousands)
|                                                                                                  |                                                                                                                                        |               
|                                                                                                  |                                                                                                                                        | (Unaudited)   
|Operating activities                                                                              |                                                                                                                                        |                |            |             |   |             |         |         |   |   |         |        
|                                                                                                  | Net income                                                                                                                             |                | $          | 819         |   |             | $       | 37,161  |   |   | $       | 104,725 |  
|                                                                                                  | Cumulative effect on prior years (to
    December 31, 2001) of changing to a different method of
    recognizing deferred income taxes |                |            |            |   |             |         |        |   |   |         | (45,659 | )
|                                                                                                  |                                                                                                                                        |                |            |             |   |             |         |         |   |   |         |        
|                                                                                                  | Income from operations                                                                                                                 |                |            | 819         |   |             |         | 37,161  |   |   |         | 59,066  |  
|Adjustments to reconcile income from operations
    to net cash provided by operating activities: |                                                                                                                                        |                |            |             |   |             |         |         |   |   |         |        
|                                                                                                  | Depreciation and amortization                                                                                                          |                |            | 1,655       |   |             |         | 65,871  |   |   |         | 65,387  |  
|                                                                                                  | Restructuring charge (payments) accrual, net                                                                                           |                |            |            |   |             |         | 283     |   |   |         | (18,953 | )
|                                                                                                  | Transaction costs                                                                                                                      |                |            |            |   |             |         | 44,057  |   |   |         |        |  
|                                                                                                  | (Gain) loss from sales and impairments of
    investments, net                                                                         |                |            | (213        | ) |             |         | (27,363 | ) |   |         | (14,609 | )
|                                                                                                  | Provision for (benefit from) deferred income tax
    expense                                                                           |                |            |            |   |             |         | 12,592  |   |   |         | (7,432  | )
|                                                                                                  | Change in operating assets and liabilities                                                                                             |                |            | (2,261      | ) |             |         | 38,172  |   |   |         | 83,475  |  
|                                                                                                  | Other                                                                                                                                  |                |            |            |   |             |         | (904    | ) |   |         | 1,967   |  
|                                                                                                  |                                                                                                                                        |                |            |             |   |             |         |         |   |   |         |        
|Net cash provided by operating activities                                                         |                                                                                                                                        |                |           |             |   |             | 169,869 |         |   |   | 168,901 |        
|Investing activities                                                                              |                                                                                                                                        |                |            |             |   |             |         |         |   |   |         |        
|Acquisition of property and equipment                                                             |                                                                                                                                        |                |           |             |   |             | (39,682 | )       |   |   | (30,608 | )      
|Repurchase of common stock in going-private merger                                                |                                                                                                                                        |                | (1,617,567 | )           |   |             |        |         |   |   |        |        
|Payment of transaction costs in going-private
    merger                                          |                                                                                                                                        |                | (16,073    | )           |   |             | (2,896  | )       |   |   |        |        
|Acquisition of businesses, net of cash acquired                                                   |                                                                                                                                        |                |           |             |   |             |        |         |   |   | (25,450 | )      
|Acquisition of intangible assets                                                                  |                                                                                                                                        |                |           |             |   |             | (5,898  | )       |   |   |        |        
|Advances to customer                                                                              |                                                                                                                                        |                |           |             |   |             |        |         |   |   | (30,000 | )      
|Acquisition of commercial rights and royalties                                                    |                                                                                                                                        |                |           |             |   |             | (17,710 | )       |   |   | (11,435 | )      
|Proceeds from disposition of property and
    equipment                                           |                                                                                                                                        |                |           |             |   |             | 6,219   |         |   |   | 4,022   |        
|Proceeds from (purchases of) debt securities, net                                                 |                                                                                                                                        |                |           |             |   |             | 25,267  |         |   |   | (1,148  | )      
|Purchases of equity securities and other
    investments                                          |                                                                                                                                        |                |           |             |   |             | (10,645 | )       |   |   | (15,028 | )      
|Proceeds from sale of equity securities and other
    investments                                 |                                                                                                                                        |                |           |             |   |             | 61,741  |         |   |   | 24,803  |        
|Advances to unconsolidated affiliates                                                             |                                                                                                                                        |                |           |             |   |             |        |         |   |   | (10,328 | )      
|                                                                                                  |                                                                                                                                        |                |            |             |   |             |         |         |   |   |         |        
|Net cash (used in) provided by investing
    activities                                           |                                                                                                                                        |                | (1,633,640 | )           |   |             | 16,396  |         |   |   | (95,172 | )      
|Financing activities                                                                              |                                                                                                                                        |                |            |             |   |             |         |         |   |   |         |        
|Borrowings                                                                                        |                                                                                                                                        |                | 734,864    |             |   |             |        |         |   |   |        |        
|Principal payments on credit arrangements, net                                                    |                                                                                                                                        |                | (912       | )           |   |             | (13,219 | )       |   |   | (11,081 | )      
|Capital contribution                                                                              |                                                                                                                                        |                | 390,549    |             |   |             |        |         |   |   |        |        
|Issuance of common stock, net (predecessor)                                                       |                                                                                                                                        |                |           |             |   |             | 7,042   |         |   |   | 7,730   |        
|Repurchase of common stock                                                                        |                                                                                                                                        |                |           |             |   |             |        |         |   |   | (27,024 | )      
|                                                                                                  |                                                                                                                                        |                |            |             |   |             |         |         |   |   |         |        
|Net cash provided by (used in) financing
    activities                                           |                                                                                                                                        |                | 1,124,501  |             |   |             | (6,177  | )       |   |   | (30,375 | )      
|Effect of foreign currency exchange rate changes
    on cash                                      |                                                                                                                                        |                |           |             |   |             | 17,924  |         |   |   | 8,992   |        
|                                                                                                  |                                                                                                                                        |                |            |             |   |             |         |         |   |   |         |        
|(Decrease) increase in cash and cash equivalents                                                  |                                                                                                                                        |                | (509,139   | )           |   |             | 198,012 |         |   |   | 52,346  |        
|Cash and cash equivalents at beginning of period                                                  |                                                                                                                                        |                | 842,296    |             |   |             | 644,284 |         |   |   | 565,063 |        
|                                                                                                  |                                                                                                                                        |                |            |             |   |             |         |         |   |   |         |        
|Cash and cash equivalents at end of period                                                        |                                                                                                                                        | $              | 333,157    |             |   | $           | 842,296 |         |   | $ | 617,409 |        
|                                                                                                  |                                                                                                                                        |                |            |             |   |             |         |         |   |   |         |        

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

4



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##### 



QUINTILES TRANSNATIONAL CORP. AND
SUBSIDIARIES



NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS


(Unaudited)


September 30, 2003


1.     Basis of
Presentation

The accompanying unaudited condensed consolidated
financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of
America for interim financial information and with the
instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the
information and notes required by accounting principles
generally accepted in the United States of America for complete
financial statements. In the opinion of management, all
adjustments (consisting of normal recurring adjustments)
considered necessary for a fair presentation have been included.
Operating results for the periods presented are not necessarily
indicative of the results that may be expected for the year
ending December 31, 2003. For further information, refer to
the Consolidated Financial Statements and Notes thereto included
in the Annual Report on Form 10-K for the year ended
December 31, 2002, as amended, of Quintiles Transnational
Corp. (the Company).

The balance sheet at December 31, 2002 has
been derived from the audited consolidated financial statements
of the Company. Certain amounts in the 2002 financial statements
have been re-classed or modified to conform with the 2003
financial statement presentation.

On September 25, 2003, the Company completed
its merger transaction with Pharma Services Holding, Inc.
(Pharma Services) pursuant to which Pharma Services
Acquisition Corp. (Acquisition Corp.) was merged
with and into the Company, with the Company continuing as the
surviving corporation and an indirect wholly-owned subsidiary of
Pharma Services (the Transaction) as further
described in Note 2. As a result of the Transaction, the
Companys results of operations, financial position and
cash flows prior to the date of the Transaction are presented as
the Predecessor. The financial effects of the
Transaction and the Companys results of operations,
financial position and cash flows as the surviving corporation
following the Transaction are presented as the
Successor. To clarify and emphasize that the
Successor Company has been presented on an entirely new basis of
accounting, the Company has separated Predecessor and Successor
operations with a vertical black line, where appropriate.

The Transaction has been accounted for as a
purchase at the Pharma Services level with the related purchase
accounting pushed-down to the Company.

2.     Going-Private
and Financing Transactions.

Pursuant to a merger agreement dated as of
April 10, 2003, as amended on August 18, 2003, by and
among the Company, Acquisition Corp. and its parent company,
Pharma Services, Acquisition Corp. was merged with and into the
Company on September 25, 2003, with the Company continuing
as the surviving corporation and an indirect wholly owned
subsidiary of Pharma Services. Pharma Services was formed for
purposes of the Transaction by Dr. Gillings, the
Companys Executive Chairman, Chief Executive Officer and
founder, and One Equity Partners LLC, the private equity unit of
Bank One Corporation. Dr. Gillings and certain of his
affiliates as well as other selected shareholders, including one
Predecessor Company director (in addition to Dr. Gillings)
and certain members of senior management (including certain
executive officers), exchanged all or a portion of their equity
interests in the Company for equity securities of Pharma
Services. Pharma Services paid $14.50 in cash for each
outstanding share of the Companys common stock, except for
shares held by Pharma Services and Acquisition Corp. In
addition, Pharma Services paid the excess, if any, of $14.50
over the per share exercise price of each option outstanding at
the effective time of the merger to purchase the Companys
Common Stock granted under any of the Companys option
plans, other than options held by Dr. Gillings and any
other person who exchanged Company options for equity securities
of Pharma Services. No merger consideration was paid for shares
and/or options to purchase shares that were exchanged for equity
securities of Pharma Services.

5



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##### 



QUINTILES TRANSNATIONAL CORP. AND
SUBSIDIARIES


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

The purchase price including transaction costs
was approximately $1.82 billion. The Transaction was funded
with approximately $508.1 million of the Companys
cash, $550.0 million of equity investments in Pharma
Services including cash and equity rollover, $310.0 million
from a senior term loan and the issuance of $450.0 million
principal amount of 10% Senior Subordinated Notes due in the
year 2013 (the 2013 Notes). In addition, the Company
has $75.0 million available under a revolving credit
facility. The credit agreements and the indenture governing the
2013 Notes contain significant restrictions and covenants
affecting, among other things, the operations and finances of
the Company and its subsidiaries. The $550.0 million of
equity investments in Pharma Services resulted in Pharma
Services issuing approximately $522.5 million of preferred
stock and $27.5 million of common stock. Shares of
preferred stock are subject to mandatory redemption on the
earliest to occur of (i) a sale by Pharma Services of
securities representing a majority of the voting power of the
common stock of Pharma Services or substantially all of its
assets (whether by merger or otherwise), (ii) the
consummation of an underwritten public offering of the common
stock of Pharma Services that, together with any prior
underwritten offerings, results in gross proceeds to Pharma
Services of at least $100.0 million or
(iii) September 26 2023. Dividends on the preferred
stock are to be cumulative and will initially accrue at the rate
of 12% per annum.

The Company has prepared a preliminary allocation
of the purchase price to the assets acquired and liabilities
assumed based upon their respective fair values. The fair values
are preliminary and subject to refinement as information
relative to the fair values as of September 25, 2003
becomes available. Of the approximately $406.2 million
allocated to intangible assets, $145.7 million relates to
the Companys trademarks, trade names and other related
intangibles and the remaining $260.5 million is
attributable to commercial rights and royalties, licenses and
customer relationships. In accordance with Emerging Issues Task
Force (EITF) Issue No. 88-16, Basis in
Leveraged Buyout Transactions, Dr. Gillings
continuing residual interest has been reflected at its original
cost adjusted for his share of the Companys earnings,
losses and equity adjustments since the date of original
acquisition (predecessor basis). In accordance with
EITF Issue No. 90-12, Allocating Basis to Individual
Assets and Liabilities within the Scope of Issue 88-16,
only a partial step-up of assets and liabilities to fair value
has been recorded in purchase accounting. The partial step-up
has resulted in the Companys assets and liabilities being
adjusted by approximately 93.74% of the difference between their
fair value at the date of acquisition and their historical
carrying cost.

The following table presents the unaudited pro
forma results as if the Transaction and related financing had
occurred at the beginning of each of the periods presented (in
thousands):

|                                |  |                    |         |                   |  |      |         |      |  |   |           |   |  |   |           |  
|------------------------------- |  | ------------------ | ------- | ----------------- |  | ---- | ------- | ---- |  | - | --------- | - |  | - | --------- | -
|                                |  |                    |         |                  
|                                |  | Three Months Ended |         | Nine Months Ended
|                                |  | September 30,      |         | September 30,    
|                                |  |                    |         |                  
|                                |  | 2003               |         | 2002              |  | 2003 |         | 2002
|                                |  |                    |         |                   |  |      |         |     
|Gross revenues                  |  | $                  | 490,174 |                   |  | $    | 490,965 |      |  | $ | 1,521,814 |   |  | $ | 1,482,494 |  
|Loss from continuing operations |  |                    | (35,806 | )                 |  |      | (2,242  | )    |  |   | (22,233   | ) |  |   | (13,346   | )
|Net (loss) income               |  |                    | (35,806 | )                 |  |      | (2,242  | )    |  |   | (22,233   | ) |  |   | 32,313    |  

The unaudited pro forma results have been
prepared for comparative purposes only and do not purport to be
indicative of the results that would have actually been attained
if the Transaction and related financing had occurred at the
beginning of the periods presented.

3.     Employee Stock
Compensation

The Company has elected to follow Accounting
Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees (APB 25) and related
interpretations in accounting for its employee stock options
because the alternative fair value accounting provided for under
Statement of Financial Accounting Standard (SFAS)
No. 123, Accounting for Stock-Based
Compensation, as amended by SFAS

6



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##### 



QUINTILES TRANSNATIONAL CORP. AND
SUBSIDIARIES


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

No. 148, requires use of option valuation
models that were not developed for use in valuing employee stock
options. Under APB 25, because the exercise price of the
Companys employee stock options equals the market price of
the underlying stock on the date of grant, no compensation
expense is recognized.

Pro forma information regarding net income and
net income per share is required by SFAS No. 123, as
amended by SFAS No. 148, and has been determined as if the
Company had accounted for its employee stock options under the
fair value method of SFAS No. 123. The per share
weighted-average fair value of stock options granted between
July 1, 2003 and September 25, 2003, and the three
months ended September 30, 2002, was $4.45 and $2.94 per
share, respectively, on the date of grant using the
Black-Scholes option pricing model with the following
assumptions:

|                                      |  |                        |      |                    |  |  |      |  
|------------------------------------- |  | ---------------------- | ---- | ------------------ |  |  | ---- | -
|                                      |  |                       
|                                      |  | Employee Stock Options
|                                      |  |                       
|                                      |  | July 1 Through         |      | Three Months Ended
|                                      |  | September 25,          |      | September 30,     
|                                      |  | 2003                   |      | 2002              
|                                      |  |                        |      |                   
|Expected dividend yield               |  |                        | 0    | %                  |  |  | 0    | %
|Risk-free interest rate               |  |                        | 2.1  | %                  |  |  | 2.1  | %
|Expected volatility                   |  |                        | 40.0 | %                  |  |  | 40.0 | %
|Expected life (in years from vesting) |  |                        | 0.90 |                    |  |  | 0.90 |  

The Black-Scholes option pricing model was
developed for use in estimating the fair value of traded options
that have no vesting restrictions and are freely transferable.
All available option pricing models require the input of highly
subjective assumptions including the expected stock price
volatility. Because the Companys employee stock options
have characteristics significantly different from those of
traded options and changes in the subjective input assumptions
can materially affect the fair value estimate, in
managements opinion, the existing models do not provide a
reliable single measure of the fair value of its employee stock
options.

There were no outstanding stock options for the
period from September 26, 2003 through September 30,
2003. The Company suspended its employee stock purchase plan
effective April 2003, due to the Transaction with Pharma
Services.

The Companys pro forma information follows
(in thousands, except for net income per share information):

|                                                                                                       |  |               |         |                    |  |               |        |                   |  |   |         |   |  |   |         |  
|------------------------------------------------------------------------------------------------------ |  | ------------- | ------- | ------------------ |  | ------------- | ------ | ----------------- |  | - | ------- | - |  | - | ------- | -
|                                                                                                       |  |               |         |                    |  | January 1,    |        |                  
|                                                                                                       |  | July 1, 2003  |         |                    |  | 2003          |        |                  
|                                                                                                       |  | Through       |         | Three Months Ended |  | Through       |        | Nine Months Ended
|                                                                                                       |  | September 25, |         | September 30,      |  | September 25, |        | September 30,    
|                                                                                                       |  | 2003          |         | 2002               |  | 2003          |        | 2002             
|                                                                                                       |  |               |         |                    |  |               |        |                  
|                                                                                                       |  | Predecessor   |         | Predecessor        |  | Predecessor   |        | Predecessor      
|Net (loss) income as reported                                                                          |  | $             | (17,592 | )                  |  | $             | 21,179 |                   |  | $ | 37,161  |   |  | $ | 104,725 |  
|Add: stock based compensation expense included in
    net (loss) income as reported, net of income tax |  |               | 7,262   |                    |  |               |       |                   |  |   | 7,262   |   |  |   |        |  
|Less: pro forma adjustment for stock-based
    compensation, net of income tax                         |  |               | (10,955 | )                  |  |               | (4,017 | )                 |  |   | (18,435 | ) |  |   | (11,886 | )
|                                                                                                       |  |               |         |                    |  |               |        |                   |  |   |         |   |  |   |         |  
|Pro forma net (loss) income                                                                            |  | $             | (21,285 | )                  |  | $             | 17,162 |                   |  | $ | 25,988  |   |  | $ | 92,839  |  
|                                                                                                       |  |               |         |                    |  |               |        |                   |  |   |         |   |  |   |         |  

7



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##### 



QUINTILES TRANSNATIONAL CORP. AND
SUBSIDIARIES


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

|                                     |  |               |       |                    |  |               |       |                   |  |   |       |   |  |   |       |  
|------------------------------------ |  | ------------- | ----- | ------------------ |  | ------------- | ----- | ----------------- |  | - | ----- | - |  | - | ----- | -
|                                     |  |               |       |                    |  | January 1,    |       |                  
|                                     |  | July 1, 2003  |       |                    |  | 2003          |       |                  
|                                     |  | Through       |       | Three Months Ended |  | Through       |       | Nine Months Ended
|                                     |  | September 25, |       | September 30,      |  | September 25, |       | September 30,    
|                                     |  | 2003          |       | 2002               |  | 2003          |       | 2002             
|                                     |  |               |       |                    |  |               |       |                  
|                                     |  | Predecessor   |       | Predecessor        |  | Predecessor   |       | Predecessor      
|Basic net (loss) income per share:   |  |               |       |                    |  |               |       |                   |  |   |       |   |  |   |       |  
|As reported                          |  | $             | (0.15 | )                  |  | $             | 0.18  |                   |  | $ | 0.31  |   |  | $ | 0.89  |  
|Pro forma                            |  |               | (0.18 | )                  |  |               | 0.15  |                   |  |   | 0.22  |   |  |   | 0.79  |  
|                                     |  |               |       |                    |  |               |       |                   |  |   |       |   |  |   |       |  
|Effect of pro forma adjustment       |  | $             | (0.03 | )                  |  | $             | (0.03 | )                 |  | $ | (0.09 | ) |  | $ | (0.10 | )
|                                     |  |               |       |                    |  |               |       |                   |  |   |       |   |  |   |       |  
|Diluted net (loss) income per share: |  |               |       |                    |  |               |       |                   |  |   |       |   |  |   |       |  
|As reported                          |  | $             | (0.15 | )                  |  | $             | 0.18  |                   |  | $ | 0.31  |   |  | $ | 0.88  |  
|Pro forma                            |  |               | (0.18 | )                  |  |               | 0.15  |                   |  |   | 0.22  |   |  |   | 0.78  |  
|                                     |  |               |       |                    |  |               |       |                   |  |   |       |   |  |   |       |  
|Effect of pro forma adjustment       |  | $             | (0.03 | )                  |  | $             | (0.03 | )                 |  | $ | (0.09 | ) |  | $ | (0.10 | )
|                                     |  |               |       |                    |  |               |       |                   |  |   |       |   |  |   |       |  

4.     Commercial
Rights and Royalties

Commercial rights and royalties related assets
are classified as commercial rights and royalties, accounts
receivable  unbilled or advances to customers in the
non-current asset section of the accompanying balance sheet.
Below is a summary of the commercial rights and royalties
related assets (in thousands):

|                                                         |  |           |         |             |  |   |         | 
|-------------------------------------------------------- |  | --------- | ------- | ----------- |  | - | ------- | 
|                                                         |  | September |         | December   
|                                                         |  | 30,       |         | 31,        
|                                                         |  | 2003      |         | 2002       
|                                                         |  |           |         |            
|                                                         |  | Successor |         | Predecessor
|Commercial rights and royalties                          |  | $         | 10,813  |             |  | $ | 1,786   | 
|Accounts receivable  unbilled                           |  |           | 33,450  |             |  |   | 59,750  | 
|Advances to customer                                     |  |           | 70,000  |             |  |   | 70,000  | 
|                                                         |  |           |         |             |  |   |         | 
|Total commercial rights and royalties related
    assets |  | $         | 114,263 |             |  | $ | 131,536 | 
|                                                         |  |           |         |             |  |   |         | 

Below is a brief description of these agreements:

In May 1999, the Company entered into an
agreement with CV Therapeutics, Inc. (CVTX) to
commercialize RanexaTM for angina in the United
States and Canada. Under the terms of the May 1999 agreement,
the Company purchased 1,043,705 shares of CVTXs common
stock for $5 million; the Company owned no shares of CVTX
as of September 30, 2003. The May 1999 agreement also made
available a $10 million credit line for pre-launch sales
and marketing activities. The May 1999 agreement further
provided that if RanexaTM, which has been submitted
to the United States Food and Drug Administration
(FDA) under a New Drug Application (NDA)
for review, were approved, the Company would provide a
$10 million milestone payment to CVTX which was to be used
to pay off any outstanding balances on the credit line. The May
1999 agreement also required the Company to make available an
additional line of credit to help fund a portion of the first
year sales and marketing expenses. Under the May 1999 agreement,
the Company committed to provide a minimum of approximately
$14.4 million per year of commercialization services and to
fund a minimum of $7.8 million per year of marketing
activities, for a period of five years. In return the Company
was to receive payment for services rendered by the Company in
year one and royalties based on the net sales of
RanexaTM in years two through five subject to a cap
not to exceed 300% of funding by the Company in any year or over
the life of the contract. In addition, the Company was also to
receive royalties in years six and seven. As of
September 30, 2003, the Company had not made any payments
to CVTX under the May 1999 agreement in connection with the line
of credit or milestone arrangement and had not funded
commercialization and

8



---



##### 



QUINTILES TRANSNATIONAL CORP. AND
SUBSIDIARIES


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

marketing activities nor had the Company received
any royalties from CVTX. In July 2003, CVTX and the Company
entered into a new agreement that superceded the prior
agreement. Under the terms of the July 2003 agreement, all
rights to RanexaTM reverted back to CVTX, and CVTX
will owe no royalty payments to the Company. Under the July 2003
agreement, the Company received 200,000 warrants to purchase
shares of CVTX common stock at $32.93 per share during the
five-year term commencing July 9, 2003. The Company
recorded a gain of $700,000 in connection with the receipt of
these warrants. CVTX also is obligated to purchase from the
Company, within six months of the approval of
RanexaTM, services of at least $10 million in
aggregate value or to pay the Company a lump sum amount equal to
10% of any shortfall from $10 million in purchased services.

In December 1999, the Company obtained the
distribution rights to market four pharmaceutical products in
the Philippines from a large pharmaceutical customer in exchange
for providing certain commercialization services amounting to
approximately $5.1 million during the two-year period ended
December 31, 2001. As of September 30, 2003, the
Company has capitalized 251.8 million philippino pesos
(approximately $4.6 million) related to the cost of
acquiring these commercial rights, and is amortizing these costs
over five years. Under the terms of the agreement, the customer
has the option to reacquire the rights to the four products from
the Company after seven years for a price to be determined at
the exercise date.

In January 2001, the Company entered into an
agreement with Scios Inc. (SCIO) to market
Natrecor® for acute congestive heart failure in the United
States and Canada. Under the terms of the agreement, the Company
agreed to provide $30 million in funding over a two and
one-half year period for sales and marketing activities
following product launch. As of September 30, 2003, the
Company had paid $30 million. The payments are reported in
the accompanying statement of cash flows as an investing
activity  acquisition of commercial rights and
royalties. In addition to receiving payments on a fee for
service basis for providing commercialization services, the
Company was to receive royalties based on net sales of the
product from 2002 through 2008. The royalty payments were
subject to minimum and maximum amounts of $50 million and
$65 million, respectively, over the life of the agreement.
Through September 30, 2003, the Company received payments
totaling approximately $63.6 million, of which approximately
$62.7 million was received during the nine months ended
September 30, 2003. The proceeds are reported in the
accompanying statement of cash flows as an operating
activity  change in operating assets and liabilities.
Initially, the Company also received a warrant to purchase
700,000 shares of SCIOs common stock at $20 per share,
exercisable in installments over two and one-half years. During
December 2002, the Company agreed to permit SCIO to hire the
sales force the Company had previously provided under the
contract effective December 31, 2002 in return for
(a) SCIO reimbursing the Company for the operating profit
that the Company would have earned between that date and
May 31, 2003, the date on which SCIO would be permitted to
hire the sales force under the contract, and (b) advancing
from May 31, 2003 to December 31, 2002, the
Companys ability to exercise the remaining unexercisable
warrant. The early settlement of the Companys service
obligation resulted in accelerating the recognition of revenues
of approximately $9.3 million in the fourth quarter of
2002. The early settlement of the Companys service
obligation did not affect the continuing royalty obligation of
SCIO. On April 29, 2003, Johnson & Johnson consummated
its acquisition of SCIO and the Company received $17.5 million
for the warrant that the Company owned (see
Derivatives). In August 2003, SCIO made a final
payment to the Company in the amount of $46.1 million under
an agreement reached to terminate the SCIO agreement, including
the payment and royalty obligations. This final payment reduced
the SCIO commercial rights and royalties balance to zero at
September 30, 2003. Total royalty payments received were
$63.6 million. The Company reported income of approximately
$15.9 million in the third quarter of 2003, related to
these events.

In June 2001, the Company entered into an
agreement with Pilot Therapeutics, Inc. (PLTT) to
commercialize a natural therapy for asthma,
AIROZINTM, in the United States and Canada. Under the

9



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##### 



QUINTILES TRANSNATIONAL CORP. AND
SUBSIDIARIES


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

terms of the agreement, the Company will provide
commercialization services for AIROZINTM and a
milestone-based $6 million line of credit which is
convertible into PLTTs common stock, of which
$4 million was funded by the Company as of
September 30, 2003. Further, based on achieving certain
milestones, the Company has committed to paying 50% of sales and
marketing activities for AIROZINTM over five years
with a $6 million limit per year. Following product launch,
the Company will receive royalties based on the net sales of
AIROZINTM. The royalty percentage will vary to allow
the Company to achieve a minimum rate of return. The
Form 10-QSB filed by PLTT on September 5, 2003
indicated that PLTT will need significant additional financing
to continue operations beyond September 15, 2003. As such,
the Company has recorded an impairment of $4 million on the
loan receivable from PLTT and has reduced its five-year
contingent commitment for the sales force and marketing
activities to zero at September 30, 2003.

In December 2001, the Company entered into an
agreement with Discovery Laboratories, Inc. (DSCO)
to commercialize, in the United States, DSCOs humanized
lung surfactant, Surfaxin®, which is currently in Phase III
studies. Under the terms of the agreement, the Company acquired
791,905 shares of DSCOs common stock and a warrant to
purchase 357,143 shares of DSCOs common stock at $3.48 per
share for a total of $3 million, and has agreed to make
available a line of credit up to $10 million for pre-launch
commercialization services as certain milestones are achieved by
DSCO. As of September 30, 2003, the Company has made
$5.7 million available under the line of credit, of which
$2.1 million has been funded. In addition, the Company
receives warrants to purchase approximately 38,000 shares of
DSCO common stock at an exercise price of $3.03 per share for
each million dollars made available by the Company under the
line of credit as milestones are achieved. The Company has also
agreed to pay the sales and marketing activities of this product
up to $10 million per year for seven years. In return, the
Company will receive commissions based on net sales of
Surfaxin® for meconium aspiration syndrome, infant
respiratory distress syndrome and all off-label uses
for 10 years. The subscription agreements under which the
Company acquired its shares of DSCO common stock included
participation rights to acquire additional shares of DSCO. The
Company exercised its participation rights in two such
transactions with DSCO. During November 2002, the Company
purchased an additional 266,246 shares of DSCO common stock
along with detachable warrants to purchase 119,811 shares of
DSCO common stock for $517,000. Using the cashless exercise
feature, the Company exercised the November 2002 warrants and
received 83,357 shares of DSCO common stock. During June 2003,
the Company purchased an additional 218,059 shares of DSCO
common stock along with detachable warrants to purchase 43,612
shares of DSCO common stock for $1.2 million.

In December 2001, the Company acquired the
license to market SkyePharmas SolarazeTM skin
treatment in the United States, Canada and Mexico for
14 years from Bioglan Pharma Plc for a total consideration
of $26.7 million. The Company will amortize the rights in
proportion to the revenues earned over the 14 year life of
the license. The Company has a commitment to pay royalties to
SkyePharma based on a percentage of net sales of
SolarazeTM. Pursuant to the license, the Company may
pursue additional indications for the compound, which will be
facilitated through the Companys ownership rights in the
SolarazeTM NDA and Investigational New Drug.

In January 2002, the Company entered into an
agreement with Kos Pharmaceuticals, Inc. (KOSP) to
commercialize, in the United States, KOSPs treatments for
cholesterol disorders, Advicor® and Niaspan®.
Advicor® was launched in January 2002, and
Niaspan® is also on the market. Under the terms of the
agreement, the Company will provide, at its own expense, a
dedicated sales force of 150 cardiovascular-trained
representatives who, in combination with KOSPs sales force
of 300 representatives, will commercialize Advicor® and
Niaspan® for two years. In return, the Company received
warrants to purchase 150,000 shares of KOSPs common stock
at $32.79 per share, exercisable in installments over two years.
Further, the Company will receive commissions based on net sales
of the product from 2002 through 2006. The commission payments
are subject to minimum and maximum amounts, as amended

10



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##### 



QUINTILES TRANSNATIONAL CORP. AND
SUBSIDIARIES


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

June 30, 2003, of $50 million and
$65 million, respectively, over the life of the agreement.
Through September 30, 2003, the Company has received
payments totaling approximately $7.1 million. The proceeds
are reported in the accompanying statement of cash flows as an
operating activity  change in operating assets
and liabilities.

In March 2002, the Company acquired certain
assets of Bioglan Pharma, Inc., for a total consideration of
approximately $27.9 million. The assets included
distribution rights to market ADOXATM in the United
States for nine years along with other products and product
rights that Bioglan Pharma, Inc., had previously marketed, as
well as approximately $1.6 million in cash. Under the
purchase method of accounting, the results of operations of
Bioglan Pharma, Inc. are included in the Companys results
of operations as of March 22, 2002 and the assets and
liabilities of Bioglan Pharma, Inc. were recorded at their
respective fair values. The acquisition did not have a material
impact on the financial position or results of operations for
the Company. The acquisition resulted in total intangible assets
of $29.3 million. The Company will amortize the intangible
assets in proportion to the estimated revenues over the lives of
these products. Under certain of the contracts acquired, the
Company has commitments to pay royalties based on a percentage
of net sales of the acquired product rights.

During the second quarter of 2002, the Company
finalized the arrangements under its previously announced letter
of intent with a large pharmaceutical customer to market
pharmaceutical products in Belgium, Germany and Italy. Either
party may cancel the contract at six-month intervals in the
event that sales are not above certain levels specified. In the
first quarter of 2003 and the third quarter of 2003, the
agreements in Germany and Belgium, respectively, were
terminated. For the remaining portion of the contract in Italy,
the Company will provide, at its own expense, sales and
marketing resources over the five-year life of the agreement. As
of September 30, 2003, the Company estimates the cost of
its minimum obligation over the remaining contract life for the
remaining territory of Italy to be approximately
$16 million, in return for which the customer will pay the
Company royalties on product sales in excess of certain
baselines. The total royalty is comprised of a minimal royalty
on the baseline sales targets for these products plus a share of
incremental net sales above these baselines.

In July 2002, the Company entered into an
agreement with Eli Lilly and Company (LLY) to
support LLY in its commercialization efforts for
CymbaltaTM in the United States. LLY has submitted a
NDA for CymbaltaTM, which is currently under review
by the FDA for the treatment of depression. Under the terms of
the agreement, the Company will provide, at its expense, more
than 500 sales representatives to supplement the extensive LLY
sales force in the promotion of CymbaltaTM for the
five years following product launch. The sales force will
promote CymbaltaTM in its primary, or P1, position
within sales calls. During the first three years, LLY will pay
for the remainder of the capacity of this sales force, referred
to as the P2 and P3 positions, on a fee-for-service basis. The
Company will make marketing and milestone payments to LLY
totaling $110 million of which $70 million was paid in
2002 and the remaining $40 million is due throughout the
four quarters following FDA approval. The $70 million in
payments made by the Company is on an at-risk basis, and is not
refundable in the event the FDA does not grant final approval
for CymbaltaTM. However, if any such non-approval
occurs solely as a result of regulatory issues the FDA cites
with respect to LLYs manufacturing processes and
facilities, the Company will be entitled to recoup its
pre-approval outlays, plus interest at the prime rate plus five
percent, from a percentage of any revenues or royalties LLY
derives from the sales of CymbaltaTM by LLY or
sublicense of CymbaltaTM to third parties, if any.
The $110 million in payments will be capitalized and
amortized in proportion to the estimated revenues as a reduction
of revenue over the five-year service period. The sales force
costs will be expensed as incurred. The payments are reported in
the accompanying statement of cash flows as an investing
activity  advances to customer. In return for the P1
position for CymbaltaTM and the marketing and
milestone payments, LLY will pay to the Company 8.25% of U.S.
CymbaltaTM sales for depression and other
neuroscience indications over the five-year service period
followed by a 3%

11



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##### 



QUINTILES TRANSNATIONAL CORP. AND
SUBSIDIARIES


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

royalty over the subsequent three years. In
addition to the Companys obligations, LLY is obligated to
spend at specified levels. The Company or LLY has the ability to
cancel this agreement if CymbaltaTM is not approved
by January 31, 2005, in which case the Company would
write-off any payments made through that date, unless the FDA
had failed to grant approval for CymbaltaTM based on
concerns over LLYs manufacturing processes and facilities.

In July 2002, the Company entered into an
agreement with Columbia Laboratories, Inc. (COB) to
commercialize, in the United States, the following womens
health products: ProchieveTM 8%,
ProchieveTM 4%, Advantage-S® and
RepHreshTM. Under the terms of the agreement, the
Company purchased 1,121,610 shares of COB common stock for $5.5
million. The Company will also pay to COB four quarterly
payments of $1.125 million each which commenced in the third
quarter of 2002. In return the Company will receive royalties of
5% on the sales of the four COBs womens healthcare
products in the United States for a five-year period beginning
in the third quarter of 2003. The Company has paid
$4.5 million as of September 30, 2003. The payments are
reported in the accompanying statement of cash flows as an
investing activity-acquisition of commercial rights and
royalties. The royalties are subject to minimum and maximum
amounts of $8.0 million and $12.0 million,
respectively, over the life of the agreement. In addition, the
Company will provide to COB, at COBs expense on a
fee-for-service basis, a sales force to commercialize the
products. The purchase of the COB common stock included
participation rights to acquire additional shares of COB. During
July 2003, the Company exercised its participation rights and
purchased an additional 56,749 shares of COB for $664,000.

In December 2002, the Company entered into an
agreement with a large pharmaceutical customer to market two
products in Belgium. Under the terms of an asset purchase
agreement, the Company will have the rights to one product in
Belgium in exchange for payments of 5.5 million euros
(approximately $6.3 million). The customer will continue to
manufacture the product through 2005. Under the terms of a
distribution agreement, the Company will have the rights to
market the other product in Belgium for a period of six years in
exchange for payments of 6.9 million euros (approximately
$7.9 million) of which 2.2 million euros (approximately
$2.5 million) are in the form of services to be completed
by December 31, 2008, based on the Companys standard
pricing. The Company has paid 6.5 million euros
(approximately $7.5 million) as of September 30, 2003. The
payments are reported in the accompanying statement of cash
flows as an investing activity  acquisition of
intangible assets. The Company has also provided 900,000 euros
in services to the customer under the 2.2 million euros service
component. The Companys service obligation is recorded as
a cost of the distribution rights and is being amortized over
the six-year distribution agreement. The customer will continue
to manufacture the product for the six years of the distribution
agreement.

In March 2003, the Company entered into an
agreement with COB to commercialize COBs
StriantTM testosterone buccal bioadhesive product in
the United States. COB has submitted an NDA for
StriantTM, which was approved in June 2003 by the FDA
for the treatment of hypogonadism. Under the terms of the
agreement, the Company will pay to COB five quarterly payments
of $3.0 million each which commenced in the second quarter
of 2003. In return, the Company will receive a 9% royalty on the
net sales of StriantTM in the United States up to
agreed levels of annual sales revenues, and a 4.5% royalty of
net sales above those levels. The royalty term is seven years.
Royalty payments will commence with the launch of
StriantTM and are subject to minimum and maximum
amounts of $30.0 million and $55.0 million,
respectively, over the life of the agreement. The Company has
paid $9.0 million as of September 30, 2003. The
payments are reported in the accompanying statement of cash
flows as an investing activity  acquisition of
commercial rights and royalties. In addition, the Company will
provide to COB, at COBs expense on a fee-for-service
basis, a sales force to commercialize the products for a
two-and-a-half year term.

12



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##### 



QUINTILES TRANSNATIONAL CORP. AND
SUBSIDIARIES


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

The Company has firm commitments under the
arrangements described above to provide funding of approximately
$250.0 million in exchange for various commercial rights.
As of September 30, 2003, the Company has funded
approximately $191.2 million. Further, the Company has
additional future funding commitments that are contingent upon
satisfaction of certain milestones being met by the third party
such as receiving FDA approval, obtaining funding from
additional third parties, agreeing to a marketing plan and other
similar milestones. Due to the uncertainty of the amounts and
timing, these contingent commitments are not included in the
firm commitment amounts. If all of these contingencies were
satisfied over approximately the same time period, the Company
estimates these commitments to be a minimum of approximately
$90-110 million per year for a period of five to six years,
subject to certain limitations and varying time periods.

Below is a summary of the remaining firm
commitments with pre-determined payment schedules under such
arrangements (in thousands):

|                                  |  |      |        |      |  |      |        |      |  |      |        |            |  |       |       |  |  |   |       |  |  |   |     |  |  |   |        | 
|--------------------------------- |  | ---- | ------ | ---- |  | ---- | ------ | ---- |  | ---- | ------ | ---------- |  | ----- | ----- |  |  | - | ----- |  |  | - | --- |  |  | - | ------ | 
|                                  |  | 2003 |        | 2004 |  | 2005 |        | 2006 |  | 2007 |        | Thereafter |  | Total
|                                  |  |      |        |      |  |      |        |      |  |      |        |            |  |      
|Milestone payments                |  | $    | 3,000  |      |  | $    | 3,000  |      |  | $    |       |            |  | $     |      |  |  | $ |      |  |  | $ |    |  |  | $ | 6,000  | 
|Sales force commitments           |  |      | 7,633  |      |  |      | 16,548 |      |  |      | 15,070 |            |  |       | 3,806 |  |  |   | 3,916 |  |  |   | 608 |  |  |   | 47,581 | 
|Licensing and distribution rights |  |      | 1,346  |      |  |      | 2,588  |      |  |      | 1,332  |            |  |       |      |  |  |   |      |  |  |   |    |  |  |   | 5,266  | 
|                                  |  |      |        |      |  |      |        |      |  |      |        |            |  |       |       |  |  |   |       |  |  |   |     |  |  |   |        | 
|                                  |  | $    | 11,979 |      |  | $    | 22,136 |      |  | $    | 16,402 |            |  | $     | 3,806 |  |  | $ | 3,916 |  |  | $ | 608 |  |  | $ | 58,847 | 
|                                  |  |      |        |      |  |      |        |      |  |      |        |            |  |       |       |  |  |   |       |  |  |   |     |  |  |   |        | 

5.     Investments 
Marketable Equity Securities

The Company has entered into financial
arrangements with various customers and other parties in which
the Company makes payments in return for equity investments. The
equity investments may be subject to certain trading
restrictions including lock-up agreements. The
Companys portfolio in such transactions as of
September 30, 2003 is as follows (in thousands, except
share data):

|                                   |  |         |      |           |  |            |           |             |  |   |        |  |  |   |        | 
|---------------------------------- |  | ------- | ---- | --------- |  | ---------- | --------- | ----------- |  | - | ------ |  |  | - | ------ | 
|                                   |  | Trading |      | Number of |  |            |           | Fair Market
|Company                            |  | Symbol  |      | Shares    |  | Cost Basis |           | Value      
|                                   |  |         |      |           |  |            |           |            
|Common Stock:                      |  |         |      |           |  |            |           |             |  |   |        |  |  |   |        | 
|The Medicines Company              |  |         | MDCO |           |  |            | 1,330,320 |             |  | $ | 34,522 |  |  | $ | 34,522 | 
|Columbia Laboratories, Inc.        |  |         | COB  |           |  |            | 1,178,359 |             |  |   | 14,234 |  |  |   | 14,234 | 
|Discovery Laboratories, Inc.       |  |         | DSCO |           |  |            | 1,359,567 |             |  |   | 9,789  |  |  |   | 9,789  | 
|Other                              |  |         |      |           |  |            |           |             |  |   | 1,301  |  |  |   | 1,301  | 
|                                   |  |         |      |           |  |            |           |             |  |   |        |  |  |   |        | 
|Total marketable equity securities |  |         |      |           |  |            |           |             |  | $ | 59,846 |  |  | $ | 59,846 | 
|                                   |  |         |      |           |  |            |           |             |  |   |        |  |  |   |        | 

In accordance with its policy to continually
review declines in fair value of the marketable equity
securities for declines that may be other-than-temporary, the
Company recognized losses for the period from January 1,
2003 through September 25, 2003 of $282,000 due to the
impairment of marketable equity securities. No such losses were
recognized in the period from September 26, 2003 through
September 30, 2003 or the nine months ended September 30,
2002.

6.     Investments 
Non-marketable Equity Securities and Loans

The Company has entered into financial
arrangements with various customers and other parties in which
the Company provides funding in the form of an equity investment
in non-marketable securities or loans. These financial
arrangements are comprised of direct and indirect investments.
The indirect

13



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##### 



QUINTILES TRANSNATIONAL CORP. AND
SUBSIDIARIES


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

investments are made through eight venture
capital funds in which the Company is an investor. The
Companys portfolio in such transactions as of
September 30, 2003 is as follows (in thousands):

|                                     |                                                  |            |        |                   |  |   |        |        | 
|------------------------------------ | ------------------------------------------------ | ---------- | ------ | ----------------- |  | - | ------ | ------ | 
|                                     |                                                  |            |        | Remaining Funding
|Company                              |                                                  | Cost Basis |        | Commitment       
|                                     |                                                  |            |        |                  
|Venture capital funds                |                                                  | $          | 33,111 |                   |  | $ | 16,832 |       
|Equity investments (seven companies) |                                                  |            | 9,352  |                   |  |   |       |       
|Convertible loans (three companies)  |                                                  |            | 768    |                   |  |   | 420    |       
|Loans (two companies)                |                                                  |            | 2,247  |                   |  |   | 6,366  |       
|                                     |                                                  |            |        |                   |  |   |        |       
|                                     | Total non-marketable equity securities and loans |            | $      | 45,478            |  |   | $      | 23,618 | 
|                                     |                                                  |            |        |                   |  |   |        |       

Below is a table representing managements
estimate as of September 30, 2003 of the amount and timing
of the above remaining funding commitments ($ in thousands):

|                      |  |      |       |      |  |       |        |  |  |   |        | 
|--------------------- |  | ---- | ----- | ---- |  | ----- | ------ |  |  | - | ------ | 
|                      |  | 2003 |       | 2004 |  | Total
|                      |  |      |       |      |  |      
|Venture capital funds |  | $    | 4,340 |      |  | $     | 12,492 |  |  | $ | 16,832 | 
|Convertible loans     |  |      | 200   |      |  |       | 220    |  |  |   | 420    | 
|Loans                 |  |      | 750   |      |  |       | 5,616  |  |  |   | 6,366  | 
|                      |  |      |       |      |  |       |        |  |  |   |        | 
|                      |  | $    | 5,290 |      |  | $     | 18,328 |  |  | $ | 23,618 | 
|                      |  |      |       |      |  |       |        |  |  |   |        | 

The amount and timing of such funding events are
subject to a number of different variables and may differ
materially from managements estimates.

The Company reviews the carrying value of each
individual investment at each balance sheet date to determine
whether or not an other-than-temporary decline in fair value has
occurred. The Company employs alternative valuation techniques
including: (1) the review of financial statements including
assessments of liquidity, (2) the review of valuations
available to the Company prepared by independent third parties
used in raising capital, (3) the review of publicly
available information including press releases and
(4) direct communications with the investees
management, as appropriate. If the review indicates that such a
decline in fair value has occurred, the Company adjusts the
carrying value to the estimated fair value of the investment and
recognizes a loss for the amount of the adjustment. The Company
recognized $10.3 million and $1.4 million of losses
due to such impairments in the period from January 1, 2003
through September 25, 2003 and the nine months ended
September 30, 2002, respectively, relating to
non-marketable equity securities and loans mainly due to
declining financial condition of investees that was deemed by
management to be other-than-temporary.

7.     Derivatives

The Company may from time to time acquire
derivative instruments, primarily warrants, of companies in
which a current market value is not readily available. As such,
these instruments are included in deposits and other assets.
When acquired, the Company records warrants at their fair value.
Subsequently, warrants are marked to market each period with
changes in their fair values being recognized as investment
gains and losses in the accompanying statement of operations. As
a result of subsequent evaluations and completion of the SCIO
acquisition by Johnson & Johnson, Inc., the Company
recognized a gain of $12.1 million on the warrant to
acquire 700,000 shares of SCIO in the period from
January 1, 2003 through September 25, 2003.

As of September 30, 2003, the Company held
warrants from various contracts valued at $4.2 million
which are included in the accompanying balance sheet as deposits
and other assets. During the periods from January 1, 2003
through September 25, 2003 and September 26, 2003
through September 30, 2003,

14



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##### 



QUINTILES TRANSNATIONAL CORP. AND
SUBSIDIARIES


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

the Company recognized investment revenues of
$2.6 million and $213,000, respectively, related to changes
in the fair value of the warrants.

During 2003, the Company entered into some
exchange-traded option contracts; however, these contracts had
expired as of September 30, 2003. During the period from
January 1, 2003 through September 25, 2003, the
Company recorded investment revenues of $87,000 related to
changes in the fair value of the exchange-traded option
contracts.

8.     Goodwill and
Identifiable Intangible Assets

The Company has allocated approximately
$406.2 million to intangible assets based upon a
preliminary allocation of the purchase price of the assets
acquired and the liabilities assumed in the Transaction. The
fair values are preliminary and subject to refinement as
information relative to the fair values as of September 25,
2003 becomes available.

Identifiable intangible assets consist primarily
of software and customer relationships, which are amortized over
the estimated useful life ranging from three to 10 years,
and licensing and distribution rights, which are amortized
ratably, based on estimated cash flows, over the life of the
rights or service period ranging from five to 15 years.
Amortization expense associated with identifiable intangible
assets were as follows:

|                     |  |               |         |               |  |               |             |               |  |               |             |               |  |   |         |  |  |   |               |  |  |   |               | 
|-------------------- |  | ------------- | ------- | ------------- |  | ------------- | ----------- | ------------- |  | ------------- | ----------- | ------------- |  | - | ------- |  |  | - | ------------- |  |  | - | ------------- | 
|                     |  | September 26, |         | July 1,       |  |               |             | September 26, |  | January 1,    |             |              
|                     |  | 2003          |         | 2003          |  | Three Months  |             | 2003          |  | 2003          |             | Nine Months  
|                     |  | Through       |         | Through       |  | Ended         |             | Through       |  | Through       |             | Ended        
|                     |  | September 30, |         | September 30, |  | September 30, |             | September 30, |  | September 30, |             | September 30,
|                     |  | 2003          |         | 2003          |  | 2002          |             | 2003          |  | 2003          |             | 2002         
|                     |  |               |         |               |  |               |             |               |  |               |             |              
|                     |  | Successor     |         | Predecessor   |  | Predecessor   |             | Successor     |  | Predecessor   |             | Predecessor  
|Amortization expense |  | $             | 993,000 |               |  | $             | 7.8 million |               |  | $             | 6.6 million |               |  | $ | 993,000 |  |  | $ | 27.8  million |  |  | $ | 19.0  million | 

The following is a summary of identifiable
intangible assets as of September 30, 2003 (in thousands):

|                                |                                                                          |              |         |              |  |            |     |     |  |   |         |         | 
|------------------------------- | ------------------------------------------------------------------------ | ------------ | ------- | ------------ |  | ---------- | --- | --- |  | - | ------- | ------- | 
|                                |                                                                          |              |         | Accumulated  |  |           
|                                |                                                                          | Gross Amount |         | Amortization |  | Net Amount
|                                |                                                                          |              |         |              |  |           
|Identifiable intangible assets: |                                                                          |              |         |              |  |            |     |     |  |   |         |        
|                                | Software and related assets                                              |              | $       | 156,667      |  |            | $   | 306 |  |   | $       | 56,361  | 
|                                | Commercial rights and royalties, licenses and
    customer relationships |              |         | 203,902      |  |            |     | 687 |  |   |         | 203,215 | 
|                                | Trademarks, trade names and other                                        |              |         | 145,672      |  |            |     |    |  |   |         | 145,672 | 
|                                |                                                                          |              |         |              |  |            |     |     |  |   |         |        
|                                |                                                                          | $            | 406,241 |              |  | $          | 993 |     |  | $ | 405,248 |        
|                                |                                                                          |              |         |              |  |            |     |     |  |   |         |        

Estimated amortization expense for existing
identifiable intangible assets is targeted to be approximately
$68.2 million, $55.5 million, $29.5 million,
$21.3 million and $17.8 million for each of the years in
the five-year period ending December 31, 2008,
respectively. Estimated amortization expense can be affected by
various factors including future acquisitions or divestitures of
product and/or licensing and distribution rights.

In connection with the Transaction, the Company
recorded approximately $192.4 million of goodwill. Pursuant
to SFAS No. 142, Goodwill and Other Intangible
Assets, the goodwill resulting from the Transaction will
not be amortized but will be subject to an annual impairment
test. The Companys Predecessor goodwill balance of
approximately $70.1 million at December 31, 2002 was
eliminated in purchase accounting.

15



---



##### 



QUINTILES TRANSNATIONAL CORP. AND
SUBSIDIARIES


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

Goodwill arising form the Transaction has been
allocated to the Companys segments on a preliminary basis
as follows (in thousands):

|                      |  |   |         | 
|--------------------- |  | - | ------- | 
|Product development   |  | $ | 102,706 | 
|Commercial services   |  |   | 29,311  | 
|PharmaBio development |  |   | 60,334  | 
|                      |  |   |         | 
|                      |  | $ | 192,351 | 
|                      |  |   |         | 

9.     Credit
Arrangements

The following is a summary of the credit
facilities available to the Company at September 30, 2003:

|                                                                                                                                       |  |                                                                                                                
|-------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------
|Facility                                                                                                                               |  | Interest Rates                                                                                                 
|                                                                                                                                       |  |                                                                                                                
|$75.0 million                                                                                                                          |  | Either at LIBOR (1.13% at September 30,
    2003) plus 3.25% or ABR (4.0% at September 30, 2003) plus
    2.25%
|£10.0 million (approximately
    $16.6 million) unsecured line of credit                                                               |  | Base (3.5% at September 30, 2003) plus 0.75%                                                                   
|£1.5 million (approximately
    $2.5 million) general banking facility with the same U.K.
    bank used for the issuance of guarantees |  | 1% per annum fee for each guarantee issued                                                                     

The Company did not have any outstanding balances
on these facilities at September 30, 2003.

Long-term debt and obligations consist of the
following (in thousands):

|                                                                     |                             |                    |         |                   |  |   |        |        | 
|-------------------------------------------------------------------- | --------------------------- | ------------------ | ------- | ----------------- |  | - | ------ | ------ | 
|                                                                     |                             | September 30, 2003 |         | December 31, 2002
|                                                                     |                             |                    |         |                  
|                                                                     |                             | Successor          |         | Predecessor      
|10% Subordinated Notes due 2013                                      |                             | $                  | 450,000 |                   |  | $ |       |       
|Senior Term Loan (ABR  4.0% at
    September 30, 2003  plus 3.25%) |                             |                    | 310,000 |                   |  |   |       |       
|Missouri tax incentive bonds due October 2009                        |                             |                    |         |                   |  |   |        |       
|                                                                     | (6.7% annual interest rate) |                    |         | 4,042             |  |   |        | 4,288  | 
|Other notes payable                                                  |                             |                    | 5,166   |                   |  |   | 7,269  |       
|                                                                     |                             |                    |         |                   |  |   |        |       
|                                                                     |                             |                    | 769,208 |                   |  |   | 11,557 |       
|Capital leases                                                       |                             |                    | 23,640  |                   |  |   | 29,017 |       
|                                                                     |                             |                    |         |                   |  |   |        |       
|                                                                     | Total credit arrangements   |                    | $       | 792,848           |  |   | $      | 40,574 | 
|                                                                     |                             |                    |         |                   |  |   |        |       

Other notes payable include various notes
payables, primarily in foreign currencies, with interest rates
ranging between 1.875% and 12.92%.

16



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##### 



QUINTILES TRANSNATIONAL CORP. AND
SUBSIDIARIES


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

Maturities of long-term debt and obligations at
September 30, 2003 consist of the following (in thousands):

|                              |  |   |         | 
|----------------------------- |  | - | ------- | 
|October to December 31, 2003. |  | $ | 1,464   | 
|2004                          |  |   | 5,392   | 
|2005                          |  |   | 5,153   | 
|2006                          |  |   | 4,881   | 
|2007                          |  |   | 4,060   | 
|2008                          |  |   | 3,793   | 
|Thereafter                    |  |   | 744,465 | 
|                              |  |   |         | 
|                              |  | $ | 769,208 | 
|                              |  |   |         | 

The fair value of the Companys long-term
debt approximates its carrying value.

10.     Shareholders
Equity

At September 30, 2003, the Company is
authorized to issue 125 million shares of common stock,
$.01 per share par value.

The Company was authorized by its Board of
Directors in March 2001 to repurchase up to $100 million of
the Companys Common Stock until March 1, 2002. On
February 7, 2002, the Board of Directors extended this
authorization until March 1, 2003. The authorization
expired March 1, 2003. The Company did not repurchase any
shares of its Common Stock during the period from
January 1, 2003 through September 30, 2003.

11.     Significant
Customers

No customer accounted for 10% of consolidated
gross service revenues less reimbursed service costs for any
period presented for 2003. One customer accounted for 10.9% and
11.7% of consolidated gross service revenues less reimbursed
service costs for the three and nine months ended
September 30, 2002, respectively. The revenues were derived
from the product development, commercial services and
informatics groups.

17



---



##### 



QUINTILES TRANSNATIONAL CORP. AND
SUBSIDIARIES


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

12.     Investment
Revenues

The following table is a summary of investment
revenues (in thousands):

|                                             |                       |               |     |               |  |               |        |               |   |               |       |               |   |   |     |     |  |   |        |         |   |   |        |        |  
|-------------------------------------------- | --------------------- | ------------- | --- | ------------- |  | ------------- | ------ | ------------- | - | ------------- | ----- | ------------- | - | - | --- | --- |  | - | ------ | ------- | - | - | ------ | ------ | -
|                                             |                       | September 26, |     |               |  | Three         |        | September 26, |   | January 1,    |       |              
|                                             |                       | 2003          |     | July 1, 2003  |  | Months        |        | 2003          |   | 2003          |       | Nine Months  
|                                             |                       | Through       |     | Through       |  | Ended         |        | Through       |   | Through       |       | Ended        
|                                             |                       | September 30, |     | September 25, |  | September 30, |        | September 30, |   | September 25, |       | September 30,
|                                             |                       | 2003          |     | 2003          |  | 2002          |        | 2003          |   | 2003          |       | 2002         
|                                             |                       |               |     |               |  |               |        |               |   |               |       |              
|                                             |                       | Successor     |     | Predecessor   |  | Predecessor   |        | Successor     |   | Predecessor   |       | Predecessor  
|Marketable equity and derivative securities: |                       |               |     |               |  |               |        |               |   |               |       |               |   |   |     |     |  |   |        |         |   |   |        |       
|                                             | Gross realized gains  |               | $   | 213           |  |               | $      | 6,715         |   |               | $     | 4,455         |   |   | $   | 213 |  |   | $      | 38,724  |   |   | $      | 16,062 |  
|                                             | Gross realized losses |               |     |              |  |               |        |              |   |               |       |              |   |   |     |    |  |   |        |        |   |   |        | (92    | )
|                                             | Impairment losses     |               |     |              |  |               |        |              |   |               |       |              |   |   |     |    |  |   |        | (282    | ) |   |        |       |  
|Non-marketable equity securities and loans:  |                       |               |     |               |  |               |        |               |   |               |       |               |   |   |     |     |  |   |        |         |   |   |        |       
|                                             | Gross realized gains  |               |     |              |  |               |        |              |   |               |       |              |   |   |     |    |  |   |        |        |   |   |        |       |  
|                                             | Gross realized losses |               |     |              |  |               |        |              |   |               |       |              |   |   |     |    |  |   |        |        |   |   |        |       |  
|                                             | Impairment losses     |               |     |              |  |               |        | (7,801        | ) |               |       | (1,000        | ) |   |     |    |  |   |        | (10,269 | ) |   |        | (1,400 | )
|                                             |                       |               |     |               |  |               |        |               |   |               |       |               |   |   |     |     |  |   |        |         |   |   |        |       
|                                             |                       | $             | 213 |               |  | $             | (1,086 | )             |   | $             | 3,455 |               |   | $ | 213 |     |  | $ | 28,173 |         |   | $ | 14,570 |       
|                                             |                       |               |     |               |  |               |        |               |   |               |       |               |   |   |     |     |  |   |        |         |   |   |        |       

13.     Restructuring
Charge

During the period from July 1, 2003 through
September 25, 2003 in connection with the Transaction, the
Company reviewed its estimates of restructuring plans adopted
during 2002, 2001 and 2000. This review resulted in a decrease
of $1.0 million and $310,000 in severance payments for a
plan adopted in 2002 and 2001, respectively. The decrease in
severance payments was a result of the number of actual
voluntary employee terminations exceeding the Companys
estimates. In addition, there was an increase of
$6.4 million and $421,000 in exit costs for abandoned
leased facilities for a plan adopted in 2001 and 2000,
respectively. The increase was due to several factors including:
(1) an increase in managements previously estimated
time required to sublet, (2) a decrease in the expected
price per square foot to sublet or (3) an increase in the
estimated cost to otherwise terminate the Companys
obligation under those leases brought about by prolonged
stagnant conditions in local real estate markets.

During the second quarter of 2002, the Company
revised its estimates of the restructuring plan adopted during
2001 (2001 Plan) which resulted in a reduction
of $9.1 million in accruals for the 2001 Plan. The
reduction included approximately $5.7 million in severance
payments and $3.4 million of exit costs. The reductions are
primarily the result of a higher than expected number of
voluntary terminations and the reversal of restructuring
accruals due to the Companys contribution of its
informatics segment to the Verispan, L.L.C. joint venture.

Also during the second quarter of 2002, the
Company recognized $9.1 million of restructuring charges as
a result of the continued implementation of the strategic plan
announced during 2001. This restructuring charge included
revisions to the 2001 and 2000 restructuring plans of
approximately $2.5 million and $1.9 million,
respectively, due to a revision in the estimates for the exit
costs relating to the abandoned leased facilities. In addition,
the adopted follow-on restructuring plan (2002 Plan)
consisted of $4.3 million related to severance payments,
$310,000 related to exit costs and $112,000 of asset write-offs.
As part of the 2002 Plan, approximately 99 positions are to be
eliminated mostly in the Europe and Africa region. As of
September 30, 2003, 89 individuals have been terminated.

18



---



##### 



QUINTILES TRANSNATIONAL CORP. AND
SUBSIDIARIES


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

As of September 25, 2003, the following
amounts were recorded for the 2002 restructuring plans (in
thousands):

|                            |  |                                                     |       |           |  |            |        |             |  |               |       |  |  |   |        |   |  |   |     | 
|--------------------------- |  | --------------------------------------------------- | ----- | --------- |  | ---------- | ------ | ----------- |  | ------------- | ----- |  |  | - | ------ | - |  | - | --- | 
|                            |  |                                                     |       |          
|                            |  | Activity January 1, 2003 Through September 25, 2003 |       |          
|                            |  |                                                     |       |          
|                            |  | Balance at                                          |       |           |  | Balance at
|                            |  | December 31,                                        |       |           |  | Revised    |        | Write-Offs/ |  | September 25,
|                            |  | 2002                                                |       | Revisions |  | Accrual    |        | Payments    |  | 2003         
|                            |  |                                                     |       |           |  |            |        |             |  |              
|Severance and related costs |  | $                                                   | 2,066 |           |  | $          | (1,042 | )           |  | $             | 1,024 |  |  | $ | (1,024 | ) |  | $ |    | 
|Exit costs                  |  |                                                     | 154   |           |  |            |       |             |  |               | 154   |  |  |   | (20    | ) |  |   | 134 | 
|                            |  |                                                     |       |           |  |            |        |             |  |               |       |  |  |   |        |   |  |   |     | 
|                            |  | $                                                   | 2,220 |           |  | $          | (1,042 | )           |  | $             | 1,178 |  |  | $ | (1,044 | ) |  | $ | 134 | 
|                            |  |                                                     |       |           |  |            |        |             |  |               |       |  |  |   |        |   |  |   |     | 

There was no activity for the 2002 restructuring
plans for the period from September 26, 2003 through
September 30, 2003.

During the second quarter of 2001, the Company
recognized a $2.1 million restructuring charge relating
primarily to severance costs from the reorganization of the
Internet initiative and the commercial services group in the
United States. All of the 40 positions to be eliminated as part
of this restructuring were terminated as of September 30,
2001.

During the third quarter of 2001, the Company
recognized a $50.9 million restructuring charge. In
addition, the Company recognized a restructuring charge of
approximately $1.1 million as a revision of an estimate to
a 2000 restructuring plan. The restructuring charge consisted of
$31.1 million related to severance payments,
$8.2 million related to asset impairment write-offs and
$12.7 million of exit costs. As part of this restructuring,
approximately 1,000 positions worldwide were to be eliminated
and as of September 30, 2003, all individuals which were to
be terminated under this plan have been terminated. In certain
circumstances, international regulations and restrictions have
caused the terminations to extend beyond one year. Positions
have been eliminated in each of the segments.

As of September 25, 2003, the following
amounts were recorded for the 2001 restructuring plans (in
thousands):

|                            |  |                                                     |       |           |  |            |       |             |  |               |        |  |  |   |        |   |  |   |       | 
|--------------------------- |  | --------------------------------------------------- | ----- | --------- |  | ---------- | ----- | ----------- |  | ------------- | ------ |  |  | - | ------ | - |  | - | ----- | 
|                            |  |                                                     |       |          
|                            |  | Activity January 1, 2003 Through September 25, 2003 |       |          
|                            |  |                                                     |       |          
|                            |  | Balance at                                          |       |           |  | Balance at
|                            |  | December 31,                                        |       |           |  | Revised    |       | Write-Offs/ |  | September 25,
|                            |  | 2002                                                |       | Revisions |  | Accrual    |       | Payments    |  | 2003         
|                            |  |                                                     |       |           |  |            |       |             |  |              
|Severance and related costs |  | $                                                   | 1,306 |           |  | $          | (310  | )           |  | $             | 996    |  |  | $ | (996   | ) |  | $ |      | 
|Exit costs                  |  |                                                     | 3,381 |           |  |            | 6,403 |             |  |               | 9,784  |  |  |   | (1,583 | ) |  |   | 8,201 | 
|                            |  |                                                     |       |           |  |            |       |             |  |               |        |  |  |   |        |   |  |   |       | 
|                            |  | $                                                   | 4,687 |           |  | $          | 6,093 |             |  | $             | 10,780 |  |  | $ | (2,579 | ) |  | $ | 8,201 | 
|                            |  |                                                     |       |           |  |            |       |             |  |               |        |  |  |   |        |   |  |   |       | 

There was no activity for the 2001 restructuring
plans for the period from September 26, 2003 through
September 30, 2003.

In January 2000, the Company announced the
adoption of a restructuring plan (January 2000
Plan). In connection with this plan, the Company
recognized a restructuring charge of $58.6 million. The
restructuring charge consisted of $33.2 million related to
severance payments, $11.3 million related to asset
impairment write-offs and $14.0 million of exit costs. As
part of this plan, approximately 770 positions worldwide were
eliminated as of December 31, 2001. Although positions
eliminated were across all functions, most of the eliminated
positions were in the product development group.

In the fourth quarter of 2000, the Company
revised its estimates of the January 2000 Plan. This revision
resulted in a reduction of the January 2000 Plan of
$6.9 million. This reduction included $6.3 million in
severance payments and $632,000 in exit costs. The severance
reduction resulted primarily from a higher than expected number
of voluntary terminations, reduced outplacement costs and
related fringes.

19



---



##### 



QUINTILES TRANSNATIONAL CORP. AND
SUBSIDIARIES


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

Also, during the fourth quarter of 2000,
management conducted a detailed review of the resource levels
within each business group. Based on this review, the Company
adopted a follow-on restructuring plan (2000 Follow-On
Plan) resulting in a restructuring charge of
$7.1 million. The restructuring charge consisted of
$5.8 million related to severance payments and
$1.3 million related to exit costs. As part of this plan,
approximately 220 positions were to be eliminated mostly in the
commercial services group. As of September 30, 2003, all
individuals which were to be terminated under this plan have
been terminated. In certain circumstances, international
regulations and restrictions have caused the terminations to
extend beyond one year.

As of September 25, 2003, the following
amounts were recorded for the 2000 restructuring plans (in
thousands):

|                            |  |                                                     |       |           |  |            |     |             |  |               |       |  |  |   |        |   |  |   |     | 
|--------------------------- |  | --------------------------------------------------- | ----- | --------- |  | ---------- | --- | ----------- |  | ------------- | ----- |  |  | - | ------ | - |  | - | --- | 
|                            |  |                                                     |       |          
|                            |  | Activity January 1, 2003 Through September 25, 2003 |       |          
|                            |  |                                                     |       |          
|                            |  | Balance at                                          |       |           |  | Balance at
|                            |  | December 31,                                        |       |           |  | Revised    |     | Write-Offs/ |  | September 25,
|                            |  | 2002                                                |       | Revisions |  | Accrual    |     | Payments    |  | 2003         
|                            |  |                                                     |       |           |  |            |     |             |  |              
|Severance and related costs |  | $                                                   | 117   |           |  | $          |    |             |  | $             | 117   |  |  | $ | (77    | ) |  | $ | 40  | 
|Exit costs                  |  |                                                     | 1,443 |           |  |            | 421 |             |  |               | 1,864 |  |  |   | (1,443 | ) |  |   | 421 | 
|                            |  |                                                     |       |           |  |            |     |             |  |               |       |  |  |   |        |   |  |   |     | 
|                            |  | $                                                   | 1,560 |           |  | $          | 421 |             |  | $             | 1,981 |  |  | $ | (1,520 | ) |  | $ | 461 | 
|                            |  |                                                     |       |           |  |            |     |             |  |               |       |  |  |   |        |   |  |   |     | 

There was no activity for the 2000 restructuring
plans for the period from September 26, 2003 through
September 30, 2003.

14.     Income
Taxes

As a result of the September 25, 2003
Transaction, the net book values of the Companys assets
and liabilities have been reestablished. Accordingly, deferred
income taxes have been provided, based upon the preliminary
purchase allocation which is subject to change, at
September 30, 2003 based upon these reestablished values.

The components of income tax expense (benefit)
attributable to continuing operations are as follows (in
thousands):

|                            |                   |                            |     |                         |  |   |        |        |  
|--------------------------- | ----------------- | -------------------------- | --- | ----------------------- |  | - | ------ | ------ | -
|                            |                   | September 26, 2003 Through |     | January 1, 2003 Through
|                            |                   | September 30, 2003         |     | September 25, 2003     
|                            |                   |                            |     |                        
|                            |                   | Successor                  |     | Predecessor            
|Current:                    |                   |                            |     |                         |  |   |        |       
|                            | Federal           |                            | $   | 429                     |  |   | $      | (429   | )
|                            | State             |                            |     | 19                      |  |   |        | 7,668  |  
|                            | Foreign           |                            |     |                        |  |   |        | 22,953 |  
|                            |                   |                            |     |                         |  |   |        |       
|                            |                   |                            | 448 |                         |  |   | 30,192 |       
|                            |                   |                            |     |                         |  |   |        |       
|Deferred expense (benefit): |                   |                            |     |                         |  |   |        |       
|                            | Federal and state |                            |     |                        |  |   |        | 3,639  |  
|                            | Foreign           |                            |     |                        |  |   |        | (5,647 | )
|                            |                   |                            |     |                         |  |   |        |       
|                            |                   |                            |    |                         |  |   | (2,008 | )     
|                            |                   |                            |     |                         |  |   |        |       
|                            |                   | $                          | 448 |                         |  | $ | 28,184 |       
|                            |                   |                            |     |                         |  |   |        |       

20



---



##### 



QUINTILES TRANSNATIONAL CORP. AND
SUBSIDIARIES


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

The differences between the Companys
consolidated income tax expense (benefit) attributable to
continuing operations and the expense (benefit) computed at the
35% U.S. statutory income tax rate were as follows (in
thousands):

|                                                                     |  |               |     |               |  |   |        |  
|-------------------------------------------------------------------- |  | ------------- | --- | ------------- |  | - | ------ | -
|                                                                     |  | September 26, |     | January 1,   
|                                                                     |  | 2003          |     | 2003         
|                                                                     |  | Through       |     | Through      
|                                                                     |  | September 30, |     | September 25,
|                                                                     |  | 2003          |     | 2003         
|                                                                     |  |               |     |              
|                                                                     |  | Successor     |     | Predecessor  
|Federal income tax provision (benefit) at
    statutory rate         |  | $             | 436 |               |  | $ | 22,869 |  
|State and local income taxes, net of federal
    benefit (detriment) |  |               | 12  |               |  |   | 1,482  |  
|Non-deductible expenses and transaction costs                        |  |               |    |               |  |   | 4,943  |  
|Foreign earnings taxed at different rates                            |  |               |    |               |  |   | (749   | )
|Losses not utilized                                                  |  |               |    |               |  |   |       |  
|Other                                                                |  |               |    |               |  |   | (361   | )
|                                                                     |  |               |     |               |  |   |        |  
|                                                                     |  | $             | 448 |               |  | $ | 28,184 |  
|                                                                     |  |               |     |               |  |   |        |  

Undistributed earnings of the Companys
foreign subsidiaries amounted to approximately
$239.6 million at September 30, 2003. As a result of
the significant debt service requirements and other costs
relating to the Transaction, those earnings are no longer
considered to be indefinitely reinvested and, accordingly, the
Company has recorded a deferred income tax liability of
$83.4 million based upon the U.S. federal income tax rate.
Upon distribution of those earnings in the form of dividends or
otherwise, the Company would be subject to both U.S. income
taxes (subject to an adjustment for foreign tax credits) and
withholding taxes payable to the various countries.

The income tax effects of temporary differences
from continuing operations that give rise to significant
portions of deferred income tax assets (liabilities) are
presented below (in thousands):

|                                                   |                                              |                    |          |         |  
|-------------------------------------------------- | -------------------------------------------- | ------------------ | -------- | ------- | -
|                                                   |                                              | September 30, 2003
|                                                   |                                              |                   
|                                                   |                                              | Successor         
|Deferred income tax liabilities:                   |                                              |                    |          |        
|                                                   | Depreciation and amortization                |                    | $        | (98,193 | )
|                                                   | Prepaid expenses                             |                    |          | (8,725  | )
|                                                   | Unrealized gain on equity investments        |                    |          | (14,371 | )
|                                                   | Undistributed foreign earnings               |                    |          | (83,406 | )
|                                                   | Deferred revenue and other                   |                    |          | (11,664 | )
|                                                   | Other                                        |                    |          | (4,439  | )
|Deferred income tax assets:                        |                                              |                    |          |        
|                                                   | Depreciation and amortization                |                    |          |        |  
|                                                   | Net operating and capital loss carryforwards |                    |          | 125,752 |  
|                                                   | Accrued expenses and unearned income         |                    |          | 32,449  |  
|                                                   | Goodwill, net of amortization                |                    |          | 59,900  |  
|                                                   | Other                                        |                    |          | 13,349  |  
|Valuation allowance for deferred income tax assets |                                              |                    | (124,502 | )      
|                                                   |                                              |                    |          |        
|Net deferred income tax liabilities                |                                              | $                  | (113,850 | )      
|                                                   |                                              |                    |          |        

The Companys valuation allowance of
$124.5 million for deferred income tax assets increased by
$105.1 million during 2003 due to the uncertainty related
to realization of the deferred income tax asset

21



---



##### 



QUINTILES TRANSNATIONAL CORP. AND
SUBSIDIARIES


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

for certain federal, state, and foreign net
operating and capital losses. This uncertainty arose from the
significant debt service requirements and other costs relating
to the Transaction and its expected impact on the Companys
future operating results.

The Companys deferred income tax expense
(benefit) attributable to continuing operations results from the
following (in thousands):

|                                                                |  |                    |        |  
|--------------------------------------------------------------- |  | ------------------ | ------ | -
|                                                                |  | January 1, 2003   
|                                                                |  | Through           
|                                                                |  | September 25, 2003
|                                                                |  |                   
|                                                                |  | Predecessor       
|Excess (deficiency) of income tax over financial
    reporting: |  |                    |        |  
|Depreciation and amortization                                   |  | $                  | 6,276  |  
|Net operating and capital loss carryforwards                    |  |                    | (5,031 | )
|Valuation allowance increase (decrease)                         |  |                    |       |  
|Accrued expenses and unearned income                            |  |                    | (6,405 | )
|Prepaid expenses                                                |  |                    | 2,921  |  
|Deferred revenue                                                |  |                    | (877   | )
|Other items, net                                                |  |                    | 1,108  |  
|                                                                |  |                    |        |  
|                                                                |  | $                  | (2,008 | )
|                                                                |  |                    |        |  

There was no deferred income tax expense
(benefit) for the period September 26, 2003 through
September 30, 2003.

15.     Net Income
Per Share

The following table sets forth the computation of
the weighted-average shares used when calculating the basic and
diluted net income per share (in thousands):

|                         |                                 |               |  |               |  |               |  |               |  |               |  |               |  |  |  |         |  |  |  |         |  |  |  |         | 
|------------------------ | ------------------------------- | ------------- |  | ------------- |  | ------------- |  | ------------- |  | ------------- |  | ------------- |  |  |  | ------- |  |  |  | ------- |  |  |  | ------- | 
|                         |                                 | September 26, |  | July 1,       |  |               |  | September 26, |  | January 1,    |  |              
|                         |                                 | 2003          |  | 2003          |  | Three Months  |  | 2003          |  | 2003          |  | Nine Months  
|                         |                                 | Through       |  | Through       |  | Ended         |  | Through       |  | Through       |  | Ended        
|                         |                                 | September 30, |  | September 25, |  | September 30, |  | September 30, |  | September 25, |  | September 30,
|                         |                                 | 2003          |  | 2003          |  | 2002          |  | 2003          |  | 2003          |  | 2002         
|                         |                                 |               |  |               |  |               |  |               |  |               |  |              
|                         |                                 | Successor     |  | Predecessor   |  | Predecessor   |  | Successor     |  | Predecessor   |  | Predecessor  
|Weighted average shares: |                                 |               |  |               |  |               |  |               |  |               |  |               |  |  |  |         |  |  |  |         |  |  |  |        
|                         | Basic weighted average shares   |               |  | 125,000       |  |               |  | 118,560       |  |               |  | 117,694       |  |  |  | 125,000 |  |  |  | 118,358 |  |  |  | 118,240 | 
|                         | Effect of dilutive securities:  |               |  |               |  |               |  |               |  |               |  |               |  |  |  |         |  |  |  |         |  |  |  |         | 
|                         | Stock options                   |               |  |              |  |               |  |              |  |               |  | 151           |  |  |  |        |  |  |  | 692     |  |  |  | 280     | 
|                         |                                 |               |  |               |  |               |  |               |  |               |  |               |  |  |  |         |  |  |  |         |  |  |  |        
|                         | Diluted weighted average shares |               |  | 125,000       |  |               |  | 118,560       |  |               |  | 117,845       |  |  |  | 125,000 |  |  |  | 119,050 |  |  |  | 118,520 | 
|                         |                                 |               |  |               |  |               |  |               |  |               |  |               |  |  |  |         |  |  |  |         |  |  |  |        

Options to purchase 14.8 million shares of
the Companys Common Stock that were outstanding during the
period of July 1, 2003 through September 25, 2003,
were not included in the computation of diluted net
(loss) income per share because the effect on net loss
would have been antidilutive. Options to purchase approximately
20.6 million shares of the Companys Common Stock were
outstanding during the period of January 1 through
September 25, 2003, but were not included in the
computation of diluted net income per share because the
options exercise price was greater than the average market
price of the

22



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##### 



QUINTILES TRANSNATIONAL CORP. AND
SUBSIDIARIES


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

Companys Common Stock and, therefore, the
effect would be antidilutive. The Company did not have any
outstanding stock options for the period of September 26 through
September 30, 2003.

16.     Comprehensive
Income

The following table represents the Companys
comprehensive income (in thousands):

|                                   |                                                                          |               |     |               |  |               |         |               |   |               |        |               |   |   |     |   |  |   |        |         |   |   |         |         |  
|---------------------------------- | ------------------------------------------------------------------------ | ------------- | --- | ------------- |  | ------------- | ------- | ------------- | - | ------------- | ------ | ------------- | - | - | --- | - |  | - | ------ | ------- | - | - | ------- | ------- | -
|                                   |                                                                          | September 26, |     |               |  |               |         | September 26, |   | January 1,    |        |              
|                                   |                                                                          | 2003          |     | July 1, 2003  |  | Three Months  |         | 2003          |   | 2003          |        | Nine Months  
|                                   |                                                                          | Through       |     | Through       |  | Ended         |         | Through       |   | Through       |        | Ended        
|                                   |                                                                          | September 30, |     | September 25, |  | September 30, |         | September 30, |   | September 30, |        | September 30,
|                                   |                                                                          | 2003          |     | 2003          |  | 2002          |         | 2003          |   | 2003          |        | 2002         
|                                   |                                                                          |               |     |               |  |               |         |               |   |               |        |              
|                                   |                                                                          | Successor     |     | Predecessor   |  | Predecessor   |         | Successor     |   | Predecessor   |        | Predecessor  
|Net income                         |                                                                          | $             | 819 |               |  | $             | (17,592 | )             |   | $             | 21,179 |               |   | $ | 819 |   |  | $ | 37,161 |         |   | $ | 104,725 |        
|Other comprehensive income (loss): |                                                                          |               |     |               |  |               |         |               |   |               |        |               |   |   |     |   |  |   |        |         |   |   |         |        
|                                   | Unrealized gain (loss) on marketable securities,
    net of income taxes |               |     |              |  |               |         | 6,428         |   |               |        | 1,382         |   |   |     |  |  |   |        | 19,637  |   |   |         | (9,796  | )
|                                   | Reclassification adjustment, net of income taxes                         |               |     |              |  |               |         | (1,516        | ) |               |        | (5,364        | ) |   |     |  |  |   |        | (11,103 | ) |   |         | (13,114 | )
|                                   | Minimum pension liability, net of income taxes                           |               |     |              |  |               |         |              |   |               |        |              |   |   |     |  |  |   |        | (3,098  | ) |   |         |        |  
|                                   | Foreign currency adjustment                                              |               |     |              |  |               |         | 3,881         |   |               |        | (932          | ) |   |     |  |  |   |        | 25,178  |   |   |         | 23,545  |  
|                                   |                                                                          |               |     |               |  |               |         |               |   |               |        |               |   |   |     |   |  |   |        |         |   |   |         |        
|Comprehensive income               |                                                                          | $             | 819 |               |  | $             | (8,799  | )             |   | $             | 16,265 |               |   | $ | 819 |   |  | $ | 67,775 |         |   | $ | 105,360 |        
|                                   |                                                                          |               |     |               |  |               |         |               |   |               |        |               |   |   |     |   |  |   |        |         |   |   |         |        

17.     Segments

The following table presents the Companys
operations by reportable segment. The Company is managed through
three reportable segments, namely, the product development
group, the commercial services group, and the PharmaBio
Development group. The informatics group was transferred to a
joint venture in May 2002. Management has distinguished these
segments based on the normal operations of the Company. The
product development group is primarily responsible for all
phases of clinical research and outcomes research consulting.
The commercial services group is primarily responsible for sales
force deployment and strategic marketing services. Before being
transferred to the joint venture, the informatics group was
primarily responsible for providing market research solutions
and strategic analysis to support healthcare decisions. The
PharmaBio Development group is primarily responsible for
facilitating non-traditional customer alliances and its results
consist primarily of product revenues, royalties and commissions
and investment revenues relating to the financial arrangements
with customers and other third parties. The Company does not
include general and administrative expenses, depreciation and
amortization except amortization of commercial rights, interest
(income) expense, other (income) expense and income

23



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##### 



QUINTILES TRANSNATIONAL CORP. AND
SUBSIDIARIES


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

tax expense (benefit) in determining segment
profitability. Intersegment revenues have been eliminated (in
thousands):

|                                                                                                                               |                          |                                                           |        |            |  |             |       |              |  |              |       |   |  |   |      |      |   |   |        |        | 
|------------------------------------------------------------------------------------------------------------------------------ | ------------------------ | --------------------------------------------------------- | ------ | ---------- |  | ----------- | ----- | ------------ |  | ------------ | ----- | - |  | - | ---- | ---- | - | - | ------ | ------ | 
|                                                                                                                               |                          |                                                           |        |           
|                                                                                                                               |                          | September 26, 2003 Through September 30, 2003  Successor |        |           
|                                                                                                                               |                          |                                                           |        |           
|                                                                                                                               |                          | Product                                                   |        | Commercial |  | PharmaBio   |       |              |  |             
|                                                                                                                               |                          | Development                                               |        | Services   |  | Development |       | Eliminations |  | Consolidated
|                                                                                                                               |                          |                                                           |        |            |  |             |       |              |  |             
|Service revenues:                                                                                                              |                          |                                                           |        |            |  |             |       |              |  |              |       |   |  |   |      |      |   |   |        |       
|                                                                                                                               | External                 |                                                           | $      | 11,884     |  |             | $     | 6,048        |  |              | $     |  |  |   | $    |     |   |   | $      | 17,932 | 
|                                                                                                                               | Intersegment             |                                                           |        |           |  |             |       | 518          |  |              |       |  |  |   |      | (518 | ) |   |        |       | 
|                                                                                                                               |                          |                                                           |        |            |  |             |       |              |  |              |       |   |  |   |      |      |   |   |        |       
|                                                                                                                               | Total net services       |                                                           |        | 11,884     |  |             |       | 6,566        |  |              |       |  |  |   |      | (518 | ) |   |        | 17,932 | 
|                                                                                                                               | Reimbursed service costs |                                                           |        | 2,857      |  |             |       | 608          |  |              |       |  |  |   |      |     |   |   |        | 3,465  | 
|                                                                                                                               |                          |                                                           |        |            |  |             |       |              |  |              |       |   |  |   |      |      |   |   |        |       
|Gross service revenues                                                                                                         |                          |                                                           | 14,741 |            |  |             | 7,174 |              |  |              |      |   |  |   | (518 | )    |   |   | 21,397 |       
|Commercial rights and royalties                                                                                                |                          |                                                           |       |            |  |             |      |              |  |              | 1,382 |   |  |   |     |      |   |   | 1,382  |       
|Investment                                                                                                                     |                          |                                                           |       |            |  |             |      |              |  |              | 213   |   |  |   |     |      |   |   | 213    |       
|                                                                                                                               |                          |                                                           |        |            |  |             |       |              |  |              |       |   |  |   |      |      |   |   |        |       
|Total revenues                                                                                                                 |                          | $                                                         | 14,741 |            |  | $           | 7,174 |              |  | $            | 1,595 |   |  | $ | (518 | )    |   | $ | 22,992 |       
|                                                                                                                               |                          |                                                           |        |            |  |             |       |              |  |              |       |   |  |   |      |      |   |   |        |       
|Contribution (revenues less costs of revenues,
    excluding depreciation and amortization expense except as noted
    below): |                          |                                                           |        |            |  |             |       |              |  |              |       |  
|                                                                                                                               |                          | $                                                         | 6,601  |            |  | $           | 2,823 |              |  | $            | 83    |   |  | $ |     |      |   | $ | 9,507  |       
|                                                                                                                               |                          |                                                           |        |            |  |             |       |              |  |              |       |   |  |   |      |      |   |   |        |       

|                                                                                                                               |                          |                                                       |         |            |  |             |         |              |  |              |        |   |  |   |         |         |   |   |         |         | 
|------------------------------------------------------------------------------------------------------------------------------ | ------------------------ | ----------------------------------------------------- | ------- | ---------- |  | ----------- | ------- | ------------ |  | ------------ | ------ | - |  | - | ------- | ------- | - | - | ------- | ------- | 
|                                                                                                                               |                          |                                                       |         |           
|                                                                                                                               |                          | July 1, 2003 Through September 25, 2003  Predecessor |         |           
|                                                                                                                               |                          |                                                       |         |           
|                                                                                                                               |                          | Product                                               |         | Commercial |  | PharmaBio   |         |              |  |             
|                                                                                                                               |                          | Development                                           |         | Services   |  | Development |         | Eliminations |  | Consolidated
|                                                                                                                               |                          |                                                       |         |            |  |             |         |              |  |             
|Service revenues:                                                                                                              |                          |                                                       |         |            |  |             |         |              |  |              |        |   |  |   |         |         |   |   |         |        
|                                                                                                                               | External                 |                                                       | $       | 233,319    |  |             | $       | 115,694      |  |              | $      |  |  |   | $       |        |   |   | $       | 349,013 | 
|                                                                                                                               | Intersegment             |                                                       |         |           |  |             |         | 10,789       |  |              |        |  |  |   |         | (10,789 | ) |   |         |        | 
|                                                                                                                               |                          |                                                       |         |            |  |             |         |              |  |              |        |   |  |   |         |         |   |   |         |        
|                                                                                                                               | Total net services       |                                                       |         | 233,319    |  |             |         | 126,483      |  |              |        |  |  |   |         | (10,789 | ) |   |         | 349,013 | 
|                                                                                                                               | Reimbursed service costs |                                                       |         | 63,912     |  |             |         | 13,633       |  |              |        |  |  |   |         |        |   |   |         | 77,545  | 
|                                                                                                                               |                          |                                                       |         |            |  |             |         |              |  |              |        |   |  |   |         |         |   |   |         |        
|Gross service revenues                                                                                                         |                          |                                                       | 297,231 |            |  |             | 140,116 |              |  |              |       |   |  |   | (10,789 | )       |   |   | 426,558 |        
|Commercial rights and royalties                                                                                                |                          |                                                       |        |            |  |             |        |              |  |              | 41,710 |   |  |   |        |         |   |   | 41,710  |        
|Investment                                                                                                                     |                          |                                                       |        |            |  |             |        |              |  |              | (1,086 | ) |  |   |        |         |   |   | (1,086  | )      
|                                                                                                                               |                          |                                                       |         |            |  |             |         |              |  |              |        |   |  |   |         |         |   |   |         |        
|Total revenues                                                                                                                 |                          | $                                                     | 297,231 |            |  | $           | 140,116 |              |  | $            | 40,624 |   |  | $ | (10,789 | )       |   | $ | 467,182 |        
|                                                                                                                               |                          |                                                       |         |            |  |             |         |              |  |              |        |   |  |   |         |         |   |   |         |        
|Contribution (revenues less costs of revenues,
    excluding depreciation and amortization expense except as noted
    below): |                          |                                                       |         |            |  |             |         |              |  |              |        |  
|                                                                                                                               |                          | $                                                     | 120,731 |            |  | $           | 46,521  |              |  | $            | 10,885 |   |  | $ |        |         |   | $ | 178,137 |        
|                                                                                                                               |                          |                                                       |         |            |  |             |         |              |  |              |        |   |  |   |         |         |   |   |         |        

24



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##### 



QUINTILES TRANSNATIONAL CORP. AND
SUBSIDIARIES


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

|                                                                                                                               |                          |                                                     |         |            |         |             |         |             |         |              |   |              |   |   |        |   |        |   |         |         |         |   |         |         |         | 
|------------------------------------------------------------------------------------------------------------------------------ | ------------------------ | --------------------------------------------------- | ------- | ---------- | ------- | ----------- | ------- | ----------- | ------- | ------------ | - | ------------ | - | - | ------ | - | ------ | - | ------- | ------- | ------- | - | ------- | ------- | ------- | 
|                                                                                                                               |                          |                                                     |         |           
|                                                                                                                               |                          | Three Months Ended September 30, 2002  Predecessor |         |           
|                                                                                                                               |                          |                                                     |         |           
|                                                                                                                               |                          | Product                                             |         | Commercial |         |             |         | PharmaBio   |         |              |   |             
|                                                                                                                               |                          | Development                                         |         | Services   |         | Informatics |         | Development |         | Eliminations |   | Consolidated
|                                                                                                                               |                          |                                                     |         |            |         |             |         |             |         |              |   |             
|Service revenues:                                                                                                              |                          |                                                     |         |            |         |             |         |             |         |              |   |              |   |   |        |   |        |   |         |         |         |   |         |        
|                                                                                                                               | External                 |                                                     | $       | 242,333    |         |             | $       | 122,448     |         |              | $ |             |   |   | $      |  |        |   | $       |        |         |   | $       | 364,781 |        
|                                                                                                                               | Intersegment             |                                                     |         |           |         |             |         | 13,194      |         |              |   |             |   |   |        |  |        |   |         | (13,194 | )       |   |         |        |        
|                                                                                                                               |                          |                                                     |         |            |         |             |         |             |         |              |   |              |   |   |        |   |        |   |         |         |         |   |         |        
|                                                                                                                               | Total net services       |                                                     |         | 242,333    |         |             |         | 135,642     |         |              |   |             |   |   |        |  |        |   |         | (13,194 | )       |   |         | 364,781 |        
|                                                                                                                               | Reimbursed service costs |                                                     |         | 78,189     |         |             |         | 15,869      |         |              |   |             |   |   |        |  |        |   |         |        |         |   |         | 94,058  |        
|                                                                                                                               |                          |                                                     |         |            |         |             |         |             |         |              |   |              |   |   |        |   |        |   |         |         |         |   |         |        
|Gross service revenues                                                                                                         |                          |                                                     | 320,522 |            |         |             | 151,511 |             |         |              |  |              |   |   |       |   |        |   | (13,194 | )       |         |   | 458,839 |        
|Commercial rights and royalties                                                                                                |                          |                                                     |        |            |         |             |        |             |         |              |  |              |   |   | 28,671 |   |        |   |        |         |         |   | 28,671  |        
|Investment                                                                                                                     |                          |                                                     |        |            |         |             |        |             |         |              |  |              |   |   | 3,455  |   |        |   |        |         |         |   | 3,455   |        
|                                                                                                                               |                          |                                                     |         |            |         |             |         |             |         |              |   |              |   |   |        |   |        |   |         |         |         |   |         |        
|                                                                                                                               |                          | Total revenues                                      |         | $          | 320,522 |             |         | $           | 151,511 |              |   | $            |  |   |        | $ | 32,126 |   |         | $       | (13,194 | ) |         | $       | 490,965 | 
|                                                                                                                               |                          |                                                     |         |            |         |             |         |             |         |              |   |              |   |   |        |   |        |   |         |         |         |   |         |        
|Contribution (revenues less costs of revenues,
    excluding depreciation and amortization expense except as noted
    below): |                          |                                                     |         |            |         |             |         |             |         |              |   |              |   |   |        |  
|                                                                                                                               |                          | $                                                   | 125,912 |            |         | $           | 52,759  |             |         | $            |  |              |   | $ | 3,023  |   |        | $ |        |         |         | $ | 181,694 |        
|                                                                                                                               |                          |                                                     |         |            |         |             |         |             |         |              |   |              |   |   |        |   |        |   |         |         |         |   |         |        

|                                                                                                                               |                          |                                                          |         |            |         |             |         |              |         |              |         |   |         |   |         |         |         |   |           |           |           | 
|------------------------------------------------------------------------------------------------------------------------------ | ------------------------ | -------------------------------------------------------- | ------- | ---------- | ------- | ----------- | ------- | ------------ | ------- | ------------ | ------- | - | ------- | - | ------- | ------- | ------- | - | --------- | --------- | --------- | 
|                                                                                                                               |                          |                                                          |         |           
|                                                                                                                               |                          | January 1, 2003 Through September 25, 2003  Predecessor |         |           
|                                                                                                                               |                          |                                                          |         |           
|                                                                                                                               |                          | Product                                                  |         | Commercial |         | PharmaBio   |         |              |         |             
|                                                                                                                               |                          | Development                                              |         | Services   |         | Development |         | Eliminations |         | Consolidated
|                                                                                                                               |                          |                                                          |         |            |         |             |         |              |         |             
|Service revenues:                                                                                                              |                          |                                                          |         |            |         |             |         |              |         |              |         |   |         |   |         |         |         |   |           |          
|                                                                                                                               | External                 |                                                          | $       | 734,729    |         |             | $       | 362,273      |         |              | $       |  |         |   | $       |        |         |   | $         | 1,097,002 |          
|                                                                                                                               | Intersegment             |                                                          |         |           |         |             |         | 29,777       |         |              |         |  |         |   |         | (29,777 | )       |   |           |          |          
|                                                                                                                               |                          |                                                          |         |            |         |             |         |              |         |              |         |   |         |   |         |         |         |   |           |          
|                                                                                                                               | Total net services       |                                                          |         | 734,729    |         |             |         | 392,050      |         |              |         |  |         |   |         | (29,777 | )       |   |           | 1,097,002 |          
|                                                                                                                               | Reimbursed service costs |                                                          |         | 225,695    |         |             |         | 42,988       |         |              |         |  |         |   |         |        |         |   |           | 268,683   |          
|                                                                                                                               |                          |                                                          |         |            |         |             |         |              |         |              |         |   |         |   |         |         |         |   |           |          
|Gross service revenues                                                                                                         |                          |                                                          | 960,424 |            |         |             | 435,038 |              |         |              |        |   |         |   | (29,777 | )       |         |   | 1,365,685 |          
|Commercial rights and royalties                                                                                                |                          |                                                          |        |            |         |             |        |              |         |              | 104,964 |   |         |   |        |         |         |   | 104,964   |          
|Investment                                                                                                                     |                          |                                                          |        |            |         |             |        |              |         |              | 28,173  |   |         |   |        |         |         |   | 28,173    |          
|                                                                                                                               |                          |                                                          |         |            |         |             |         |              |         |              |         |   |         |   |         |         |         |   |           |          
|                                                                                                                               |                          | Total revenues                                           |         | $          | 960,424 |             |         | $            | 435,038 |              |         | $ | 133,137 |   |         | $       | (29,777 | ) |           | $         | 1,498,822 | 
|                                                                                                                               |                          |                                                          |         |            |         |             |         |              |         |              |         |   |         |   |         |         |         |   |           |          
|Contribution (revenues less costs of revenues,
    excluding depreciation and amortization expense except as noted
    below): |                          |                                                          |         |            |         |             |         |              |         |              |         |  
|                                                                                                                               |                          | $                                                        | 375,125 |            |         | $           | 142,144 |              |         | $            | 43,001  |   |         | $ |        |         |         | $ | 560,270   |          
|                                                                                                                               |                          |                                                          |         |            |         |             |         |              |         |              |         |   |         |   |         |         |         |   |           |          

25



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##### 



QUINTILES TRANSNATIONAL CORP. AND
SUBSIDIARIES


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

|                                                             |                          |                                                    |         |            |         |             |         |             |         |              |        |              |        |   |        |   |        |   |         |         |         |   |           |           |           | 
|------------------------------------------------------------ | ------------------------ | -------------------------------------------------- | ------- | ---------- | ------- | ----------- | ------- | ----------- | ------- | ------------ | ------ | ------------ | ------ | - | ------ | - | ------ | - | ------- | ------- | ------- | - | --------- | --------- | --------- | 
|                                                             |                          |                                                    |         |           
|                                                             |                          | Nine Months Ended September 30, 2002  Predecessor |         |           
|                                                             |                          |                                                    |         |           
|                                                             |                          | Product                                            |         | Commercial |         |             |         | PharmaBio   |         |              |        |             
|                                                             |                          | Development                                        |         | Services   |         | Informatics |         | Development |         | Eliminations |        | Consolidated
|                                                             |                          |                                                    |         |            |         |             |         |             |         |              |        |             
|Service revenues:                                            |                          |                                                    |         |            |         |             |         |             |         |              |        |              |        |   |        |   |        |   |         |         |         |   |           |          
|External                                                     |                          | $                                                  | 704,021 |            |         | $           | 380,560 |             |         | $            | 20,347 |              |        | $ |       |   |        | $ |        |         |         | $ | 1,104,928 |          
|                                                             | Intersegment             |                                                    |         |           |         |             |         | 36,748      |         |              |        |             |        |   |        |  |        |   |         | (36,748 | )       |   |           |          |          
|                                                             |                          |                                                    |         |            |         |             |         |             |         |              |        |              |        |   |        |   |        |   |         |         |         |   |           |          
|                                                             | Total net services       |                                                    |         | 704,021    |         |             |         | 417,308     |         |              |        | 20,347       |        |   |        |  |        |   |         | (36,748 | )       |   |           | 1,104,928 |          
|                                                             | Reimbursed service costs |                                                    |         | 231,689    |         |             |         | 65,419      |         |              |        | 22           |        |   |        |  |        |   |         |        |         |   |           | 297,130   |          
|                                                             |                          |                                                    |         |            |         |             |         |             |         |              |        |              |        |   |        |   |        |   |         |         |         |   |           |          
|Gross service revenues                                       |                          |                                                    | 935,710 |            |         |             | 482,727 |             |         |              | 20,369 |              |        |   |       |   |        |   | (36,748 | )       |         |   | 1,402,058 |          
|Commercial rights and royalties                              |                          |                                                    |        |            |         |             |        |             |         |              |       |              |        |   | 65,866 |   |        |   |        |         |         |   | 65,866    |          
|Investment                                                   |                          |                                                    |        |            |         |             |        |             |         |              |       |              |        |   | 14,570 |   |        |   |        |         |         |   | 14,570    |          
|                                                             |                          |                                                    |         |            |         |             |         |             |         |              |        |              |        |   |        |   |        |   |         |         |         |   |           |          
|                                                             |                          | Total revenues                                     |         | $          | 935,710 |             |         | $           | 482,727 |              |        | $            | 20,369 |   |        | $ | 80,436 |   |         | $       | (36,748 | ) |           | $         | 1,482,494 | 
|                                                             |                          |                                                    |         |            |         |             |         |             |         |              |        |              |        |   |        |   |        |   |         |         |         |   |           |          
|Contribution (revenues less costs of revenues,
    excluding |                          |                                                    |         |            |         |             |         |             |         |              |        |              |        |   |        |  
|depreciation and amortization expense except as
    noted    |                          |                                                    |         |            |         |             |         |             |         |              |        |              |        |   |        |  
|below):                                                      |                          | $                                                  | 354,024 |            |         | $           | 153,144 |             |         | $            | 8,024  |              |        | $ | 10,306 |   |        | $ |        |         |         | $ | 525,498   |          
|                                                             |                          |                                                    |         |            |         |             |         |             |         |              |        |              |        |   |        |   |        |   |         |         |         |   |           |          

|                                            |                                                  |               |       |               |  |               |        |               |  |               |        |               |  |   |       |       |  |   |        |        |  |   |        |        | 
|------------------------------------------- | ------------------------------------------------ | ------------- | ----- | ------------- |  | ------------- | ------ | ------------- |  | ------------- | ------ | ------------- |  | - | ----- | ----- |  | - | ------ | ------ |  | - | ------ | ------ | 
|                                            |                                                  | September 26, |       | July 1,       |  |               |        | September 26, |  | January 1,    |        |              
|                                            |                                                  | 2003          |       | 2003          |  | Three Months  |        | 2003          |  | 2003          |        | Nine Months  
|                                            |                                                  | Through       |       | Through       |  | Ended         |        | Through       |  | Through       |        | Ended        
|                                            |                                                  | September 30, |       | September 30, |  | September 30, |        | September 30, |  | September 25, |        | September 30,
|                                            |                                                  | 2003          |       | 2003          |  | 2002          |        | 2003          |  | 2003          |        | 2002         
|                                            |                                                  |               |       |               |  |               |        |               |  |               |        |              
|                                            |                                                  | Successor     |       | Predecessor   |  | Predecessor   |        | Successor     |  | Predecessor   |        | Predecessor  
|Depreciation and amortization expense:      |                                                  |               |       |               |  |               |        |               |  |               |        |               |  |   |       |       |  |   |        |        |  |   |        |       
|                                            | Product development                              |               | $     | 1,078         |  |               | $      | 13,768        |  |               | $      | 14,762        |  |   | $     | 1,078 |  |   | $      | 43,142 |  |   | $      | 43,876 | 
|                                            | Commercial services                              |               |       | 385           |  |               |        | 4,654         |  |               |        | 5,839         |  |   |       | 385   |  |   |        | 15,520 |  |   |        | 16,353 | 
|                                            | Informatics                                      |               |       |              |  |               |        |              |  |               |        |              |  |   |       |      |  |   |        |       |  |   |        | 2,559  | 
|                                            | PharmaBio Development (included in contribution) |               |       | 87            |  |               |        | 1,512         |  |               |        | 763           |  |   |       | 87    |  |   |        | 6,602  |  |   |        | 1,882  | 
|                                            | Corporate                                        |               |       | 105           |  |               |        | 194           |  |               |        | 236           |  |   |       | 105   |  |   |        | 607    |  |   |        | 717    | 
|                                            |                                                  |               |       |               |  |               |        |               |  |               |        |               |  |   |       |       |  |   |        |        |  |   |        |       
|Total depreciation and amortization expense |                                                  | $             | 1,655 |               |  | $             | 20,128 |               |  | $             | 21,600 |               |  | $ | 1,655 |       |  | $ | 65,871 |        |  | $ | 65,386 |       
|                                            |                                                  |               |       |               |  |               |        |               |  |               |        |               |  |   |       |       |  |   |        |        |  |   |        |       

Total assets by segment will change as a result
of the Transaction. As the Companys valuation is
preliminary, the Company has not determined the total assets by
segment.

18.     Commitments
and Contingencies

On January 26, 2001, a purported class
action lawsuit was filed in the State Court of Richmond County,
Georgia, naming Novartis Pharmaceuticals Corp., Pharmed Inc.,
Debra Brown, Bruce I. Diamond and Quintiles Laboratories
Limited, a subsidiary of the Company, on behalf of 185
Alzheimers patients who participated in drug studies
involving an experimental drug manufactured by defendant
Novartis, and their surviving spouses. The complaint alleges
claims for breach of fiduciary duty, civil conspiracy, unjust
enrichment, misrepresentation, Georgia RICO violations,
infliction of emotional distress, battery,

26



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##### 



QUINTILES TRANSNATIONAL CORP. AND
SUBSIDIARIES


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

negligence and loss of consortium as to class
member spouses. The complaint seeks unspecified damages, plus
costs and expenses, including attorneys fees and
experts fees. On September 27, 2003, the parties
entered into a settlement memorandum following a mediated
settlement conference. The parties are in the process of
preparing final settlement documents, which would memorialize
payments by several defendants to individual study participants
or their representatives. The Company believes that its
contribution will be covered by insurance or, in the
alternative, will not represent a material amount to the Company.

On January 22, 2002, Federal Insurance
Company (Federal) and Chubb Custom Insurance Company
(Chubb) filed suit against the Company, Quintiles
Pacific, Inc. and Quintiles Laboratories Limited, two of the
Companys subsidiaries, in the United States District Court
for the Northern District of Georgia. In the suit, Chubb, the
Companys primary commercial general liability carrier, and
Federal, the Companys excess liability carrier, seek to
rescind the policies issued to the Company for coverage years
2000-2001 and 2001-2002 based on an alleged misrepresentation by
the Company on the policy application. Alternatively, Chubb and
Federal seek a declaratory judgment that there is no coverage
under the policies for some or all of the claims asserted
against the Company and its subsidiaries in the class action
lawsuit filed on January 26, 2001 and described above and,
if one or more of such claims is determined to be covered, Chubb
and Federal request an allocation of the defense costs between
the claims they contend are covered and non-covered claims. The
Company has filed an answer with counterclaims against Federal
and Chubb in response to their complaint. Additionally, the
Company has amended its pleadings to add AON Risk Services
(AON) as a counterclaim defendant, as an alternative
to the Companys position that Federal and Chubb are liable
under the policies. In order to preserve its rights, on
March 27, 2003, the Company also filed a separate action
against AON in the United States District Court for the Middle
District of North Carolina. The Company believes the allegations
made by Federal and Chubb are without merit and is defending
this case vigorously.

In October 2002, seven purported class action
lawsuits were filed in Superior Court, Durham County, North
Carolina by certain of the Companys shareholders seeking
to enjoin the consummation of the initial transaction proposed
by Pharma Services Company (a company controlled by Dennis B.
Gillings, Ph.D.) to acquire all the Companys
outstanding shares for $11.25 per share in cash. All of the
lawsuits were subsequently transferred to the North Carolina
Business Court. The lawsuits name as defendants
Dr. Gillings, other members of the Companys Board of
Directors, the Company and, in some cases Pharma Services
Company. The complaints allege, among other things, a breach of
fiduciary duties by the directors with respect to the proposal.
The complaints seek to enjoin the transaction proposed by Pharma
Services Company, and the plaintiffs seek to recover damages. On
November 11, 2002, a Special Committee of the
Companys Board of Directors announced its rejection of the
proposal by Pharma Services Company and its intention to
investigate strategic alternatives available to the Company for
purposes of enhancing shareholder value, including the
possibility of a sale of the Company and alternatives that would
keep the Company independent and publicly owned. On
January 6, 2003, the North Carolina Business Court entered
a Case Management Order consolidating all seven lawsuits for all
purposes and staying the lawsuits until March 29, 2003 or
until the Company provides notice of a change-of-control
transaction.

On March 28, 2003, the Court entered an
Order Maintaining the Status Quo, which continued its prior Case
Management Order in all respects until the earlier of a date
selected by the Court or until the Company provides the notice
contemplated by the Case Management Order. On April 10,
2003, the Companys Board of Directors approved a merger
agreement with Pharma Services Holding, Inc. which provides for
payment to the Companys shareholders of $14.50 per share
in cash. On June 25, 2003, counsel for the parties signed a
Memorandum of Understanding, in which they agreed upon the terms
of a settlement of the litigation, which would include the
dismissal with prejudice of all claims against all defendants
including the Company and the Companys Board of Directors.
On August 28, 2003, lead counsel for the plaintiffs and
counsel for the defendants executed a formal Stipulation and
Agreement of

27



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##### 



QUINTILES TRANSNATIONAL CORP. AND
SUBSIDIARIES


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

Compromise, Settlement and Release (the
Stipulation of Settlement). On August 29, 2003,
the Court entered an Order for Notice and Hearing on Settlement
of Class Action (Order for Notice) and a Notice
of Pendency of Class Action, Preliminary and Proposed
Class Action Certification, Proposed Settlement of
Class Action, Settlement Hearing and Right to Appear (the
Class Notice). The Class Notice sets a
hearing date of October 10, 2003 (the Settlement
Hearing) to determine whether the Court should approve the
settlement as fair, adequate and in the best interest of the
settlement class, end the action, and to consider other matters
including a request by plaintiffs counsel for
attorneys fees and reimbursement of costs, in an amount
not to exceed a total of $450,000. In accordance with the terms
of the Order of Notice, the Company mailed the Class Notice to
the record holders of the Companys common stock and
options, as of the record date of August 19, 2003. A
special meeting of the shareholders was held on
September 25, 2003, at which time the shareholders approved
the proposed transaction and the merger was consummated. On
October 10, 2003, the Court certified a class for purposes
of the settlement, approved the settlement as fair and
reasonable and entered an Order and Final Judgment dismissing
the lawsuit with prejudice. The Court also awarded
plaintiffs counsel $450,000 in attorneys fees and
costs, which are to be paid by the Company pursuant to the terms
of the settlement. No other payments are required from the
Company or any other party under the terms of the settlement and
the Courts Order.

On June 13, 2003, ENVOY Corporation
(ENVOY) and Federal filed suit against the Company,
in the United States District Court for the Middle District of
Tennessee. One or both plaintiffs in this case have alleged
claims for breach of contract, contractual subrogation,
equitable subrogation, and equitable contribution. Plaintiffs
reached settlement in principle, in the amount of $11 million,
of the case pending in the same court captioned In Re Envoy
Corporation Securities Litigation, Case No. 3-98-0760 (the
Envoy Securities Litigation). Plaintiffs claim that
the Company is responsible for payment of the settlement amount
and associated fees and costs in the Envoy Securities Litigation
based on merger and settlement agreements between WebMD
Corporation, ENVOY and the Company. The Company has filed a
motion to dismiss the suit, and the plaintiffs have filed
motions for summary judgment. These motions are pending before
the court. All parties have agreed to a stay of discovery. The
Company believes that the allegations made by ENVOY and Federal
are without merit and intends to defend the case vigorously.

The Company also is party to other legal
proceedings incidental to its business. While the Companys
management currently believes that the ultimate outcome of these
proceedings, individually and in the aggregate, will not have a
material adverse effect on the Companys consolidated
financial statements, litigation is subject to inherent
uncertainties. Were an unfavorable ruling to occur, there exists
the possibility of a material adverse impact on the results of
operations for the period in which the ruling occurs.

19.     Recently
Issued Accounting Standards

In January 2003, the Financial Accounting
Standards Board issued Interpretation No. 46
(FIN 46), Consolidation of Variable
Interest Entities, which requires the assets, liabilities
and results of operations of variable interest entities
(VIE) be consolidated into the financial statements
of the company that has controlling financial interest.
FIN 46 also provides the framework for determining whether
a VIE should be consolidated based on voting interest or
significant financial support provided to the VIE. The Company
adopted these provisions, as required, with respect to VIEs
created after January 31, 2003. The effective date for
applying the provisions of FIN 46 for interests held by
public entities in VIEs or potential VIEs created before
February 1, 2003 has been deferred and will be effective as
of December 31, 2003. The Company is currently evaluating
the impact of FIN 46 on these interests held prior to
February 1, 2003.

28



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##### 





|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 2. | Managements Discussion and Analysis
    of Financial Condition and Results of Operations

Cautionary Statement for Forward-Looking
Information

Information set forth in this Form 10-Q,
including Managements Discussion and Analysis of Financial
Condition and Results of Operations, contains various
forward looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as
amended. Forward-looking statements represent our judgment
concerning the future and are subject to risks and uncertainties
that could cause our actual operating results and financial
position to differ materially. Such forward looking statements
can be identified by the use of forward looking terminology such
as may, will, expect,
anticipate, estimate,
believe, continue, or target
or the negative thereof or other variations thereof or
comparable terminology.

We caution you that any such forward looking
statements are further qualified by important factors that could
cause our actual operating results to differ materially from
those in the forward looking statements, including without
limitation, the risk that our substantial debt could adversely
affect our financial condition, the limitations on the operation
of our business imposed by the covenants contained in the senior
subordinated notes and the senior secured facility, the risk
that the market for our products and services will not grow as
we expect, the risk that our PharmaBio Development transactions
will not generate revenues, profits or return on investment at
the rate or levels we expect or that royalty revenues under our
PharmaBio Development arrangements may not be adequate to offset
our upfront and on-going expenses in providing sales and
marketing services or in making milestone and marketing
payments, our ability to efficiently distribute backlog among
project management groups and match demand to resources, our
actual operating performance, variation in the actual savings
and operating improvements resulting from previous
restructurings, our ability to maintain large customer contracts
or to enter into new contracts, changes in trends in the
pharmaceutical industry, our ability to operate successfully a
new line of business, the risk that Verispan, our joint venture
with McKesson Corporation relating to the informatics business,
will not be successful, and liability risks associated with our
business which could result in losses or indemnity to others not
covered by insurance. See Risk Factors below for
additional factors that could cause actual results to differ.

Results of Operations

As a result of the going-private merger
transaction, the Condensed Consolidated Financial Statements
present our results of operations, financial position and cash
flows prior to the date of the merger transaction as the
Predecessor. The financial effects of the
going-private merger transaction and our results of operations,
financial position and cash flows following the closing of the
Transaction are presented as the Successor. In
accordance with generally accepted accounting principles in the
United States, or GAAP, our predecessor results have not been
aggregated with our successor results and, accordingly, our
Condensed Consolidated Financial Statements do not show results
of operations or cash flows for the three or nine months ended
September 30, 2003. However, in order to facilitate an
understanding of our results of operations for the three and
nine months ended September 30, 2003 in comparison with the
three and nine months ended September 30, 2002, in this
section our predecessor results and our successor results are
presented and discussed on a combined basis. The combined
results of operations are non-GAAP financial measures and should
not be used in isolation or substitution of the Predecessor and
Successor results.

29



---



##### 



Below is a reconciliation of the combined results
for the three and nine months ended September 30, 2003:

|                                                                                   |  |               |        |               |  |               |         |               |  |               |         |               |  |   |        |   |  |   |           |   |  |   |           |  
|---------------------------------------------------------------------------------- |  | ------------- | ------ | ------------- |  | ------------- | ------- | ------------- |  | ------------- | ------- | ------------- |  | - | ------ | - |  | - | --------- | - |  | - | --------- | -
|                                                                                   |  | September 26, |        |               |  | Three         |         | September 26, |  | January 1,    |         |              
|                                                                                   |  | 2003          |        | July 1, 2003  |  | Months        |         | 2003          |  | 2003          |         | Nine Months  
|                                                                                   |  | Through       |        | Through       |  | Ended         |         | Through       |  | Through       |         | Ended        
|                                                                                   |  | September 30, |        | September 25, |  | September 30, |         | September 30, |  | September 25, |         | September 30,
|                                                                                   |  | 2003          |        | 2003          |  | 2003          |         | 2003          |  | 2003          |         | 2003         
|                                                                                   |  |               |        |               |  |               |         |               |  |               |         |              
|                                                                                   |  | Successor     |        | Predecessor   |  | Combined      |         | Successor     |  | Predecessor   |         | Combined     
|Gross revenues                                                                     |  | $             | 22,992 |               |  | $             | 467,182 |               |  | $             | 490,174 |               |  | $ | 22,992 |   |  | $ | 1,498,822 |   |  | $ | 1,521,814 |  
|Costs, expenses and other:                                                         |  |               |        |               |  |               |         |               |  |               |         |               |  |   |        |   |  |   |           |   |  |   |           |  
|Costs of revenues                                                                  |  |               | 15,052 |               |  |               | 307,662 |               |  |               | 322,714 |               |  |   | 15,052 |   |  |   | 997,822   |   |  |   | 1,012,874 |  
|General and administrative                                                         |  |               | 5,971  |               |  |               | 129,082 |               |  |               | 135,053 |               |  |   | 5,971  |   |  |   | 397,318   |   |  |   | 403,289   |  
|Interest (income) expense, net                                                     |  |               | 1,033  |               |  |               | (2,246  | )             |  |               | (1,213  | )             |  |   | 1,033  |   |  |   | (10,374   | ) |  |   | (9,341    | )
|Other (income) expense, net                                                        |  |               | (309   | )             |  |               | 17      |               |  |               | (292    | )             |  |   | (309   | ) |  |   | (5,433    | ) |  |   | (5,742    | )
|Transaction and restructuring                                                      |  |               |       |               |  |               | 50,261  |               |  |               | 50,261  |               |  |   |       |   |  |   | 54,148    |   |  |   | 54,148    |  
|                                                                                   |  |               |        |               |  |               |         |               |  |               |         |               |  |   |        |   |  |   |           |   |  |   |           |  
|                                                                                   |  |               | 21,747 |               |  |               | 484,776 |               |  |               | 506,523 |               |  |   | 21,747 |   |  |   | 1,433,481 |   |  |   | 1,455,228 |  
|                                                                                   |  |               |        |               |  |               |         |               |  |               |         |               |  |   |        |   |  |   |           |   |  |   |           |  
|Income (loss) before income taxes                                                  |  |               | 1,245  |               |  |               | (17,594 | )             |  |               | (16,349 | )             |  |   | 1,245  |   |  |   | 65,341    |   |  |   | 66,586    |  
|Income tax expense (benefit)                                                       |  |               | 448    |               |  |               | (14     | )             |  |               | 434     |               |  |   | 448    |   |  |   | 28,184    |   |  |   | 28,632    |  
|                                                                                   |  |               |        |               |  |               |         |               |  |               |         |               |  |   |        |   |  |   |           |   |  |   |           |  
|Income (loss) before equity in earnings of
    unconsolidated affiliates and other |  |               | 797    |               |  |               | (17,580 | )             |  |               | (16,783 | )             |  |   | 797    |   |  |   | 37,157    |   |  |   | 37,954    |  
|Equity in earnings of unconsolidated affiliates
    and other                      |  |               | 22     |               |  |               | (12     | )             |  |               | 10      |               |  |   | 22     |   |  |   | 4         |   |  |   | 26        |  
|                                                                                   |  |               |        |               |  |               |         |               |  |               |         |               |  |   |        |   |  |   |           |   |  |   |           |  
|Net income (loss)                                                                  |  | $             | 819    |               |  | $             | (17,592 | )             |  | $             | (16,773 | )             |  | $ | 819    |   |  | $ | 37,161    |   |  | $ | 37,980    |  
|                                                                                   |  |               |        |               |  |               |         |               |  |               |         |               |  |   |        |   |  |   |           |   |  |   |           |  

Below is a reconciliation of the results by
segment on a combined basis for the three and nine months ended
September 30, 2003:

|              |                       |               |        |               |   |               |         |               |   |                 |         |               |   |   |        |        |   |   |           |         |   |   |           |         |  
|------------- | --------------------- | ------------- | ------ | ------------- | - | ------------- | ------- | ------------- | - | --------------- | ------- | ------------- | - | - | ------ | ------ | - | - | --------- | ------- | - | - | --------- | ------- | -
|              |                       | September 26, |        |               |   |               |         | September 26, |   |                 |         |              
|              |                       | 2003          |        | July 1, 2003  |   | Three Months  |         | 2003          |   | January 1, 2003 |         | Nine Months  
|              |                       | Through       |        | Through       |   | Ended         |         | Through       |   | Through         |         | Ended        
|              |                       | September 30, |        | September 25, |   | September 30, |         | September 30, |   | September 25,   |         | September 30,
|              |                       | 2003          |        | 2003          |   | 2003          |         | 2003          |   | 2003            |         | 2003         
|              |                       |               |        |               |   |               |         |               |   |                 |         |              
|              |                       | Successor     |        | Predecessor   |   | Combined      |         | Successor     |   | Predecessor     |         | Combined     
|Net revenues: |                       |               |        |               |   |               |         |               |   |                 |         |               |   |   |        |        |   |   |           |         |   |   |           |        
|              | Product development   |               | $      | 11,884        |   |               | $       | 233,319       |   |                 | $       | 245,203       |   |   | $      | 11,884 |   |   | $         | 734,729 |   |   | $         | 746,613 |  
|              | Commercial services   |               |        | 6,566         |   |               |         | 126,483       |   |                 |         | 133,049       |   |   |        | 6,566  |   |   |           | 392,050 |   |   |           | 398,616 |  
|              | PharmaBio Development |               |        | 1,595         |   |               |         | 40,624        |   |                 |         | 42,219        |   |   |        | 1,595  |   |   |           | 133,137 |   |   |           | 134,732 |  
|              | Eliminations          |               |        | (518          | ) |               |         | (10,789       | ) |                 |         | (11,307       | ) |   |        | (518   | ) |   |           | (29,777 | ) |   |           | (30,295 | )
|              |                       |               |        |               |   |               |         |               |   |                 |         |               |   |   |        |        |   |   |           |         |   |   |           |        
|              |                       | $             | 19,527 |               |   | $             | 389,637 |               |   | $               | 409,164 |               |   | $ | 19,527 |        |   | $ | 1,230,139 |         |   | $ | 1,249,666 |        
|              |                       |               |        |               |   |               |         |               |   |                 |         |               |   |   |        |        |   |   |           |         |   |   |           |        
|Contribution: |                       |               |        |               |   |               |         |               |   |                 |         |               |   |   |        |        |   |   |           |         |   |   |           |        
|              | Product development   |               | $      | 6,601         |   |               | $       | 120,731       |   |                 | $       | 127,332       |   |   | $      | 6,601  |   |   | $         | 375,125 |   |   | $         | 381,726 |  
|              | Commercial services   |               |        | 2,823         |   |               |         | 46,521        |   |                 |         | 49,344        |   |   |        | 2,823  |   |   |           | 142,144 |   |   |           | 144,967 |  
|              | PharmaBio Development |               |        | 83            |   |               |         | 10,885        |   |                 |         | 10,968        |   |   |        | 83     |   |   |           | 43,001  |   |   |           | 43,084  |  
|              |                       |               |        |               |   |               |         |               |   |                 |         |               |   |   |        |        |   |   |           |         |   |   |           |        
|              |                       | $             | 9,507  |               |   | $             | 178,137 |               |   | $               | 187,644 |               |   | $ | 9,507  |        |   | $ | 560,270   |         |   | $ | 569,777   |        
|              |                       |               |        |               |   |               |         |               |   |                 |         |               |   |   |        |        |   |   |           |         |   |   |           |        

30



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##### 



Below is a reconciliation of certain items of the
combined statement of cash flows for the nine months ended
September 30, 2003:

|                                                        |                                                                   |               |            |               |   |               |         |         |   |   |            |            |  
|------------------------------------------------------- | ----------------------------------------------------------------- | ------------- | ---------- | ------------- | - | ------------- | ------- | ------- | - | - | ---------- | ---------- | -
|                                                        |                                                                   | September 26, |            | January 1,    |   | Nine Months  
|                                                        |                                                                   | 2003 Through  |            | 2003 Through  |   | Ended        
|                                                        |                                                                   | September 30, |            | September 25, |   | September 30,
|                                                        |                                                                   | 2003          |            | 2003          |   | 2003         
|                                                        |                                                                   |               |            |               |   |              
|Net cash provided by operations                         |                                                                   | $             |           |               |   | $             | 169,869 |         |   | $ | 169,869    |           
|Investing activities:                                   |                                                                   |               |            |               |   |               |         |         |   |   |            |           
|                                                        | Acquisition of property and equipment                             |               |            |              |   |               |         | (39,682 | ) |   |            | (39,682    | )
|                                                        | Repurchase of common stock in going-private merger                |               |            | (1,617,567    | ) |               |         |        |   |   |            | (1,617,567 | )
|                                                        | Payment of transaction costs in going-private
    merger          |               |            | (16,073       | ) |               |         | (2,896  | ) |   |            | (18,969    | )
|                                                        | Acquisition of intangible assets                                  |               |            |              |   |               |         | (5,898  | ) |   |            | (5,898     | )
|                                                        | Acquisition of commercial rights and royalties                    |               |            |              |   |               |         | (17,710 | ) |   |            | (17,710    | )
|                                                        | Proceeds from disposition of property and
    equipment           |               |            |              |   |               |         | 6,219   |   |   |            | 6,219      |  
|                                                        | Proceeds from (purchases of) debt securities, net                 |               |            |              |   |               |         | 25,267  |   |   |            | 25,267     |  
|                                                        | Purchases of equity securities and other
    investments          |               |            |              |   |               |         | (10,645 | ) |   |            | (10,645    | )
|                                                        | Proceeds from sale of equity securities and other
    investments |               |            |              |   |               |         | 61,741  |   |   |            | 61,741     |  
|                                                        |                                                                   |               |            |               |   |               |         |         |   |   |            |           
|Net cash used in (provided by) investing
    activities |                                                                   |               | (1,633,640 | )             |   |               | 16,396  |         |   |   | (1,617,244 | )         
|Financing activities:                                   |                                                                   |               |            |               |   |               |         |         |   |   |            |           
|                                                        | Borrowings                                                        |               |            | 735,776       |   |               |         |        |   |   |            | 735,776    |  
|                                                        | Principal payments on credit arrangements, net                    |               |            | (912          | ) |               |         | (14,131 | ) |   |            | (15,043    | )
|                                                        | Capital contribution                                              |               |            | 390,549       |   |               |         |        |   |   |            | 390,549    |  
|                                                        | Issuance of common stock (predecessor)                            |               |            |              |   |               |         | 7,042   |   |   |            | 7,042      |  
|                                                        |                                                                   |               |            |               |   |               |         |         |   |   |            |           
|Net cash provided by (used in) financing
    activities |                                                                   | $             | 1,125,413  |               |   | $             | (7,089  | )       |   | $ | 1,118,324  |           



| |                                                   
| | --------------------------------------------------
| | Three Months Ended September 30, 2003
    and 2002

Gross revenues for the third quarter of 2003 were
$490.2 million versus $491.0 million for the third
quarter of 2002. Gross revenues include service revenues,
revenues from commercial rights and royalties and revenues from
investments. Net revenues are gross revenues less reimbursed
service costs. Reimbursed service costs may fluctuate due, in
part, to the payment provisions of the respective service
contract. Below is a summary of revenues (in thousands):

|                                |  |                    |         |      |  |   |         | 
|------------------------------- |  | ------------------ | ------- | ---- |  | - | ------- | 
|                                |  |                   
|                                |  | Three Months Ended
|                                |  | September 30,     
|                                |  |                   
|                                |  | 2003               |         | 2002
|                                |  |                    |         |     
|Service revenues                |  | $                  | 447,955 |      |  | $ | 458,839 | 
|Less: reimbursed service costs  |  |                    | 81,010  |      |  |   | 94,058  | 
|                                |  |                    |         |      |  |   |         | 
|Net service revenues            |  |                    | 366,945 |      |  |   | 364,781 | 
|Commercial rights and royalties |  |                    | 43,092  |      |  |   | 28,671  | 
|Investments                     |  |                    | (873    | )    |  |   | 3,455   | 
|                                |  |                    |         |      |  |   |         | 
|Total net revenues              |  | $                  | 409,164 |      |  | $ | 396,907 | 
|                                |  |                    |         |      |  |   |         | 



| |   |                                                                                                                                                                                                                      
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Service revenues were $448.0 million for the
    third quarter of 2003 compared to $458.8 million for the
    third quarter of 2002. Service revenues less reimbursed service
    costs, or net service revenues, for

31



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##### 



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | the third quarter of 2003 were
    $366.9 million, a slight increase of $2.2 million or
    0.6% over net service revenues of $364.8 million for the third
    quarter of 2002. Net service revenues for the third quarter of
    2003 were positively impacted by approximately
    $15.7 million due to the effect of the weakening of the US
    Dollar relative to the euro, the British pound, the South
    African Rand and the Japanese yen. Net service revenues
    increased in the Asia Pacific region $9.8 million or 19.3%
    to $60.4 million for the third quarter of 2003 from the
    third quarter of 2002 including a positive impact of
    approximately $1.9 million due to the effect of foreign
    currency fluctuations. Net service revenues decreased
    $3.3 million or (2.0%) to $161.2 million for the third
    quarter of 2003 from the third quarter of 2002 in the Europe and
    Africa region although it was positively impacted by
    approximately $13.7 million due to the effect of foreign
    currency fluctuations. The commercial services group experienced
    difficult business conditions with our syndicated sales forces
    in two of the countries, primarily the United Kingdom and
    France. Net service revenues decreased $4.3 million or
    (2.8%) to $145.4 million for the third quarter of 2003 from
    the third quarter of 2002 in the Americas region.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |  | Commercial rights and royalties revenues, which
    include product revenues, royalties and commissions, for the
    third quarter of 2003 were $43.1 million, an increase of
    $14.4 million over third quarter 2002 commercial rights and
    royalties revenues of $28.7 million. Commercial rights and
    royalties revenues were positively impacted by approximately
    $2.0 million due to the effect of foreign currency
    fluctuations related to the weakening of the US Dollar relative
    to the euro. Commercial rights and royalties revenues for the
    third quarter of 2003 were reduced by approximately
    $1.6 million versus $4.3 million for the third quarter
    of 2002 for payments made by us to our customers. These payments
    are considered incentives and are amortized against revenues
    over the service period of the contract. The $14.4 million
    increase is primarily the result of (1) our contracts with
    Kos Pharmaceuticals, Inc., or KOSP, and Columbia Labs, Inc., or
    COB, which contributed $11.1 million during the third
    quarter of 2003 versus $5.4 million during the third
    quarter of 2002, (2) contracts in Europe with two large
    pharmaceutical customers which contributed approximately
    $8.6 million of revenues during the third quarter of 2003
    versus $7.3 million during the third quarter of 2002 and
    (3) our contract and subsequent termination agreement with
    SCIO which contributed $15.9 million of revenues during the
    third quarter of 2003 versus $8.5 million during the third
    quarter of 2002. For the third quarter of 2003, approximately
    36.9% of our commercial rights and royalties revenues was
    attributable to the termination of our contract with SCIO,
    approximately 25.7% was attributable to our contracts with KOSP
    and COB, approximately 20.0% was attributable to our contracts
    with two large pharmaceutical customers in Europe, approximately
    13.0% was attributable to our suite of dermatology products, and
    the remaining 4.3% was attributable to miscellaneous contracts
    and activities.
|
| |  | Investment revenues related to our PharmaBio
    Development groups financing arrangements, which include
    gains and losses from the sale of equity securities and
    impairments from other-than-temporary declines in the fair
    values of our direct and indirect investments, for the third
    quarter of 2003 were a loss of ($873,000) versus a gain of
    $3.5 million for the third quarter of 2002. Investment
    revenues for the third quarter of 2003 included gross realized
    gains of $4.4 million from the sale of a portion of our
    equity investments, primarily in The Medicines Company, or MDCO.
    In addition, during the third quarter of 2003, we recognized
    $7.8 million of impairment losses on investments whose decline
    in fair value was considered to be other-than-temporary.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

32



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##### 



Costs of revenues were $322.7 million for
the third quarter of 2003 versus $330.1 million for the
third quarter of 2002. Below is a summary of the costs of
revenues (in thousands):

|                                      |  |                    |         |      |  |   |         | 
|------------------------------------- |  | ------------------ | ------- | ---- |  | - | ------- | 
|                                      |  |                   
|                                      |  | Three Months Ended
|                                      |  | September 30,     
|                                      |  |                   
|                                      |  | 2003               |         | 2002
|                                      |  |                    |         |     
|Reimbursed service costs              |  | $                  | 81,010  |      |  | $ | 94,058  | 
|Service costs                         |  |                    | 190,269 |      |  |   | 186,111 | 
|Commercial rights and royalties costs |  |                    | 31,251  |      |  |   | 29,064  | 
|Investment costs                      |  |                    |        |      |  |   | 38      | 
|Depreciation and amortization         |  |                    | 20,184  |      |  |   | 20,837  | 
|                                      |  |                    |         |      |  |   |         | 
|                                      |  | $                  | 322,714 |      |  | $ | 330,108 | 
|                                      |  |                    |         |      |  |   |         | 



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Reimbursed service costs were $81.0 million
    and $94.1 million for the third quarter of 2003 and 2002,
    respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| |  | Service costs, which include compensation and
    benefits for billable employees, and certain other expenses
    directly related to service contracts, were $190.3 million
    or 51.9% of net service revenues versus $186.1 million or
    51.0% of net service revenues for the third quarter of 2003 and
    2002, respectively. Bonus expense included in service costs
    decreased approximately $1.0 million in the third quarter
    of 2003 as compared to the third quarter of 2002. Service costs
    were negatively impacted by approximately $8.4 million from
    the effect of foreign currency fluctuations.                                
|
| |  | Commercial rights and royalties costs, which
    include compensation and related benefits for employees,
    amortization of commercial rights, infrastructure costs of the
    PharmaBio Development group and other expenses directly related
    to commercial rights and royalties, were $31.3 million for
    the third quarter of 2003 versus $29.1 million for the
    third quarter of 2002. These costs include services and products
    provided by third parties, as well as services provided by our
    other service groups, totaling approximately $11.3 million and
    $13.2 million for the third quarter of 2003 and 2002,
    respectively.
|
| |  | Investment costs, which include costs directly
    related to direct and indirect investments in our customers or
    other strategic partners as part of the PharmaBio Development
    groups financing arrangements, were $38,000 for the third
    quarter of 2002.                                                                                                                                                                                                                                                                                                                                                                                          
|
| |  | Depreciation and amortization, which include
    depreciation of our property and equipment and amortization of
    our definite-lived intangible assets except commercial rights,
    decreased slightly to $20.2 million for the third quarter
    of 2003 versus $20.8 million for the third quarter of 2002.                                                                                                                                                                                                                                                                                                                                                 

General and administrative expenses, which
include compensation and benefits for administrative employees,
non-billable travel, professional services, and expenses for
advertising, information technology and facilities, were $135.1
million or 33.0% of total net revenues for the third quarter of
2003 versus $128.8 million or 32.5% of total net revenues
for the third quarter of 2002. General and administrative
expenses were negatively impacted by approximately
$5.4 million resulting from the effect of foreign currency
fluctuations, primarily the euro and British pound. Bonus
expense included in general and administrative expenses
decreased approximately $1.3 million in the third quarter
of 2003 as compared to the third quarter of 2002.

Net interest income, which represents interest
income received from bank balances and investments in debt
securities, and the accretion of discounts provided pursuant to
commercial rights and royalties assets relating to certain
PharmaBio contracts, net of interest expense incurred on lines
of credit, notes and capital leases, was $1.2 million for
the third quarter of 2003 versus $3.3 million for the third
quarter of 2002. Interest income decreased approximately
$1.1 million to $2.9 million for the third quarter of
2003 as a result of the decline in interest rates. Interest
expense increased approximately $961,000 as a result of the
$760.0 million of debt incurred in connection with the
going-private merger transaction.

33



---



##### 



Other income was $292,000 for the third quarter
of 2003 versus other expense of $1.5 million for the third
quarter of 2002. The third quarter of 2002 included losses of
approximately $1.1 million on the disposal of assets.

We recognized $50.3 million of transaction
expenses and restructuring charges for the third quarter of 2003
which consisted of approximately $44.8 million of
transaction related expenses including expenses of the special
committee of our Board of Directors and its financial and legal
advisors and a $5.5 million restructuring charge. During
the third quarter of 2003 in connection with our going-private
merger transaction, we reviewed our estimates of the
restructuring plans we adopted in prior years. This review
resulted in a net increase of approximately $5.5 million in
our accruals, including an increase of $6.8 million in exit
costs for abandoned leased facilities and a decrease of
approximately $1.3 million for severance payments. The
decrease in severance payments is a result of the number of
actual voluntary employee terminations exceeding our estimates.

Loss before income taxes was $16.3 million
for the third quarter of 2003 versus income before income taxes
of $33.8 million or 8.5% of total net revenues for the
third quarter of 2002.

The effective income tax rate was (2.7%) for the
third quarter of 2003 versus 34.3% for the third quarter of
2002. Our effective income tax rate was negatively impacted by
the repatriation of cash in connection with the going-private
merger transaction for which no foreign tax credits were
available and the transaction related expenses some of which
were not deductible for income tax purposes. Since we conduct
operations on a global basis, our effective income tax rate may
vary.

During the third quarter of 2003, we recognized
$10,000 of income from equity in unconsolidated affiliates and
other which represents our pro rata share of the net income of
unconsolidated affiliates, primarily Verispans net income,
net of a minority interest in a consolidated subsidiary.

Net loss was $16.8 million for the third
quarter of 2003 versus net income of $21.2 million for the
third quarter of 2002.

Analysis by Segment:

The following table summarizes the operating
activities for our reportable segments for the third quarter of
2003 and 2002, respectively. We do not include reimbursed
service costs, general and administrative expenses, depreciation
and amortization except amortization of commercial rights,
interest (income) expense, other (income) expense and
income tax expense (benefit) in our segment analysis.
Intersegment revenues have been eliminated and the profit on
intersegment revenues is reported within the service group
providing the services (dollars in millions).

|                      |  |                    |       |              |  |          |       |      |  |          |       |      |  |          |       |  |  |  |      |   |  |   |       |  |  |  |      |  
|--------------------- |  | ------------------ | ----- | ------------ |  | -------- | ----- | ---- |  | -------- | ----- | ---- |  | -------- | ----- |  |  |  | ---- | - |  | - | ----- |  |  |  | ---- | -
|                      |  |                    |       |             
|                      |  | Total Net Revenues |       | Contribution
|                      |  |                    |       |             
|                      |  |                    |       |              |  | % of Net |       |      |  | % of Net
|                      |  | 2003               |       | 2002         |  | Growth % |       | 2003 |  | Revenues |       | 2002 |  | Revenues
|                      |  |                    |       |              |  |          |       |      |  |          |       |      |  |         
|Product development   |  | $                  | 245.2 |              |  | $        | 242.3 |      |  |          | 1.2   | %    |  | $        | 127.3 |  |  |  | 51.9 | % |  | $ | 125.9 |  |  |  | 52.0 | %
|Commercial services   |  |                    | 133.0 |              |  |          | 135.6 |      |  |          | (1.9  | )    |  |          | 49.3  |  |  |  | 37.1 |   |  |   | 52.8  |  |  |  | 38.9 |  
|PharmaBio Development |  |                    | 42.2  |              |  |          | 32.1  |      |  |          | 31.4  |      |  |          | 11.0  |  |  |  | 26.0 |   |  |   | 3.0   |  |  |  | 9.4  |  
|Eliminations          |  |                    | (11.3 | )            |  |          | (13.2 | )    |  |          | (14.3 | )    |  |          |      |  |  |  |     |   |  |   |      |  |  |  |     |  
|                      |  |                    |       |              |  |          |       |      |  |          |       |      |  |          |       |  |  |  |      |   |  |   |       |  |  |  |      |  
|                      |  | $                  | 409.2 |              |  | $        | 396.9 |      |  |          | 3.1   | %    |  | $        | 187.6 |  |  |  | 45.9 | % |  | $ | 181.7 |  |  |  | 45.8 | %
|                      |  |                    |       |              |  |          |       |      |  |          |       |      |  |          |       |  |  |  |      |   |  |   |       |  |  |  |      |  

Net service revenues for the product development
group were $245.2 million for the third quarter of 2003
compared to $242.3 million for the third quarter of 2002.
Net service revenues for the third quarter of 2003 were
positively impacted by approximately $10.2 million due to
the effect of foreign currency fluctuations. Net service
revenues increased in the Asia Pacific region $2.2 million
or 8.6% to $27.6 million including a positive impact of
approximately $772,000 due to the effect of foreign currency
fluctuations. Net service revenues increased $9.8 million
or 10.0% to $107.6 million in the Europe and Africa region
primarily as a result of the positive impact of approximately
$8.9 million due to the effect of foreign

34



---



##### 



currency fluctuations. Net service revenues
decreased $9.1 million or (7.6%) to $110.0 million in
the Americas region primarily as a result of increased
competition.


Contribution for the product development group
was $127.3 million for the third quarter of 2003 compared
to $125.9 million for the third quarter of 2002. As a
percentage of net service revenues, contribution margin was
51.9% for the third quarter of 2003 compared to 52.0% for the
third quarter of 2002. Our product development group experiences
slight fluctuations in contribution as a percent of net service
revenues from period to period as a result of executed contract
scope changes and the timing of project expenses for which
revenue is not recognized such as start-up or setup costs.

Net service revenues for the commercial services
group were $133.0 million for the third quarter of 2003
compared to $135.6 million for the third quarter of 2002.
Net service revenues for the third quarter of 2003 were
positively impacted by approximately $5.7 million due to
the effect of foreign currency fluctuations. Net service
revenues increased in the Asia Pacific region $7.7 million
or 33.9% to $30.3 million, which was positively impacted by
$1.1 million due to the effect of foreign currency
fluctuations. Net service revenues decreased by approximately
$4.3 million or (7.1%) to $55.6 million in the Europe
and Africa region although it was positively impacted by
$4.8 million due to the effect of foreign currency
fluctuations. We continued to experience difficult business
conditions with our syndicated sales forces in two of the
markets, primarily the United Kingdom and France. Net service
revenues decreased $6.0 million or (11.3%) to
$47.1 million in the Americas region representing the
continuation of a trend resulting from reductions in new product
launches and increases in the number of drugs losing patent
protection.

Contribution for the commercial services group
was $49.3 million for the third quarter of 2003 compared to
$52.8 million for the third quarter of 2002. As a
percentage of net service revenues, contribution margin was
37.1% for the third quarter of 2003 compared to 38.9% for the
third quarter of 2002. The decrease in contribution primarily
resulted from the difficult business conditions for our
syndicated sales forces which consist of costs which are fixed
and, therefore, do not increase or decrease in proportion to the
revenue generated by these sales forces.

Net revenues for the PharmaBio Development group
increased approximately $10.1 million during the third
quarter of 2003 as compared to the third quarter of 2002 due to
a $14.4 million increase in commercial rights and royalties
revenues which was partially offset by a $4.3 million
decrease in investment revenues. Although revenues related to
the Bioglan dermatology products remained relatively constant
for the quarter ended September 30, 2003 when compared to
the same period in 2002, this group experienced a decrease in
Bioglan revenues when compared to the first two quarters of
2003. This decrease is due to the normalization of inventory
levels at the drug distributors as a result of increases in
distributor purchases during the first half of 2003. The
commercial rights and royalties costs increased by approximately
$2.2 million during the same period primarily as a result
of several factors including $4.6 million of costs
associated with the marketing of SolarazeTM and
ADOXATM for the third quarter of 2003 as compared to
$3.0 million for the third quarter of 2002. These factors
were partially offset by a decrease of approximately
$1.9 million in service costs provided by our commercial
services group relating primarily to the completion of the
service portion of our contract with SCIO.

The contribution for the PharmaBio Development
group increased by $7.9 million from the third quarter of
2002 to the third quarter of 2003. The commercial rights and
royalties revenues (net of related costs) in the third quarter
of 2003 increased the contribution of this group by
approximately $12.2 million when compared to the third
quarter of 2002 due to the successful performance of our
commercial rights and royalties contracts including the SCIO
royalty contract termination agreement. The contribution from
the commercial rights and royalties revenues was negatively
impacted by costs of approximately $2.1 million related to
the CymbaltaTM contract for which no revenues are
being recognized. Investment revenues (net of related costs) in
the third quarter of 2003 decreased the contribution of this
group by approximately $4.3 million when compared to the
third quarter of 2002.

35



---



##### 



Nine Months Ended September 30, 2003 and
2002

Gross revenues for the first nine months of 2003
were $1.52 billion versus $1.48 billion for the first
nine months of 2002. Below is a summary of revenues (in
thousands):

|                                |  |                   |           |      |  |   |           | 
|------------------------------- |  | ----------------- | --------- | ---- |  | - | --------- | 
|                                |  |                  
|                                |  | Nine Months Ended
|                                |  | September 30,    
|                                |  |                  
|                                |  | 2003              |           | 2002
|                                |  |                   |           |     
|Service revenues                |  | $                 | 1,387,082 |      |  | $ | 1,402,058 | 
|Less: reimbursed service costs  |  |                   | 272,148   |      |  |   | 297,130   | 
|                                |  |                   |           |      |  |   |           | 
|Net service revenues            |  |                   | 1,114,934 |      |  |   | 1,104,928 | 
|Commercial rights and royalties |  |                   | 106,346   |      |  |   | 65,866    | 
|Investments                     |  |                   | 28,386    |      |  |   | 14,570    | 
|                                |  |                   |           |      |  |   |           | 
|Total net revenues              |  | $                 | 1,249,666 |      |  | $ | 1,185,364 | 
|                                |  |                   |           |      |  |   |           | 



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Service revenues were $1.39 billion for the
    first nine months of 2003 compared to $1.40 billion for the
    first nine months of 2002. Service revenues less reimbursed
    service costs, or net service revenues, for the first nine
    months of 2003 were $1.11 billion, an increase of
    $10.0 million or 0.9% over net service revenues of
    $1.10 billion for the first nine months of 2002. Included
    in net service revenues for the first nine months of 2002 was
    $20.3 million from our informatics group, which was
    transferred to a joint venture during May 2002 and, therefore,
    there were no net service revenues from that group for the first
    nine months of 2003. Net service revenues for the first nine
    months of 2003 were positively impacted by approximately
    $70.1 million due to the effect of the weakening of the US
    Dollar relative to the euro, the British pound, the South
    African Rand and the Japanese yen. Net service revenues
    increased in the Asia Pacific region $30.6 million or 22.1%
    to $169.3 million for the first nine months of 2003 from
    the first nine months of 2002 and was positively impacted by
    approximately $10.3 million due to the effect of foreign
    currency fluctuations. Net service revenues increased
    $42.6 million or 9.1% to $513.4 million for the first
    nine months of 2003 from the first nine months of 2002 in the
    Europe and Africa region, which was positively impacted by
    $60.4 million due to the effect of foreign currency
    fluctuations. The commercial services group experienced
    difficult business conditions with our syndicated sales forces
    in two markets, primarily the United Kingdom and France. Net
    service revenues decreased $63.2 million or (12.8%) to
    $432.3 million for the first nine months of 2003 from the
    first nine months of 2002 in the Americas region.
|
| |  | Commercial rights and royalties revenues for the
    first nine months of 2003 were $106.3 million, an increase
    of $40.5 million over the first nine months of 2002
    commercial rights and royalties revenues of $65.9 million.
    Commercial rights and royalties revenues were positively
    impacted by approximately $9.7 million primarily due to the
    effect of foreign currency fluctuations related to the weakening
    of the US Dollar relative to the euro. Commercial rights and
    royalties revenues for the first nine months of 2003 were
    reduced by approximately $2.2 million versus
    $11.6 million for the first nine months of 2002 for
    payments made by us to our customers. These payments are
    considered incentives and are amortized against revenues over
    the service period of the contract. The $40.5 million
    increase is primarily the result of (1) our March 2002
    acquisition of certain assets of Bioglan Pharma, Inc., or
    Bioglan, and its successful launch of dermatology products which
    contributed approximately $34.2 million of revenues for the
    first nine months of 2003 versus $10.3 million for the
    first nine months of 2002, (2) our contracts with KOSP and
    COB, which contributed approximately $25.8 million of
    revenues for the first nine months of 2003 versus
    $15.3 million for the first nine months of 2002, and
    (3) our contracts in Europe with two large pharmaceutical
    customers which contributed approximately $27.4 million of
    revenues for the first nine months of 2003 versus
    $12.1 million for the first nine months of 2002. These
    increases were partially offset by a reduction in revenue of
    approximately $7.6 million as a result of the completion of
    the services portion of our SCIO contract during the fourth
    quarter of 2002 and a $1.7 million                                     

36



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##### 



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | decrease in revenues from miscellaneous
    contracts. For the first nine months of 2003, approximately
    32.1% of our commercial rights and royalties revenues was
    attributable to our suite of dermatology products, approximately
    25.8% was attributable to our contracts with two large
    pharmaceutical customers in Europe, approximately 24.2% was
    attributable to our contracts with KOSP and COB, approximately
    15.0% was attributable to the termination of the SCIO contract,
    and the remaining 2.9% was attributable to miscellaneous
    contracts and activities.                                                                                                                                                                                                   
|
| |  | Investment revenues related to our PharmaBio
    Development groups financing arrangements for the first
    nine months of 2003 were $28.4 million versus
    $14.6 million for the first nine months of 2002. Investment
    revenues for the first nine months of 2003 included
    $23.4 million of gains on the sale of equity investments in
    Triangle Pharmaceuticals, Inc., or VIRS, MDCO and CVTX, and a
    $12.1 million gain on the warrants to acquire 700,000
    shares of SCIO as a result of the acquisition of SCIO by Johnson
    & Johnson, Inc. During the first nine months of 2003 and
    2002, we recognized $10.6 million and $1.4 million,
    respectively, of impairment losses on investments whose decline
    in fair value was considered to be other than temporary.



| |                                                                                                                                                                                                       
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Costs of revenues were $1.01 billion for the
    first nine months of 2003 versus $1.02 billion for the
    first nine months of 2002. Below is a summary of the costs of
    revenues (in thousands):

|                                      |  |                   |           |      |  |   |           | 
|------------------------------------- |  | ----------------- | --------- | ---- |  | - | --------- | 
|                                      |  |                  
|                                      |  | Nine Months Ended
|                                      |  | September 30,    
|                                      |  |                  
|                                      |  | 2003              |           | 2002
|                                      |  |                   |           |     
|Reimbursed service costs              |  | $                 | 272,148   |      |  | $ | 297,130   | 
|Service costs                         |  |                   | 588,241   |      |  |   | 589,737   | 
|Commercial rights and royalties costs |  |                   | 91,648    |      |  |   | 69,912    | 
|Investment costs                      |  |                   |          |      |  |   | 217       | 
|Depreciation and amortization         |  |                   | 60,837    |      |  |   | 63,504    | 
|                                      |  |                   |           |      |  |   |           | 
|                                      |  | $                 | 1,012,874 |      |  | $ | 1,020,500 | 
|                                      |  |                   |           |      |  |   |           | 



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Reimbursed service costs were $272.1 million
    and $297.1 million for the first nine months of 2003 and
    2002, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| |  | Service costs were $588.2 million or 52.8%
    of net service revenues versus $589.7 million or 53.4% of
    net service revenues for the first nine months of 2003 and 2002,
    respectively. Service costs were negatively impacted by
    approximately $37.3 million from the effect of foreign
    currency fluctuations. Bonus expense included in service costs
    increased approximately $2.2 million in the nine months
    ended September 30, 2003 as compared to the nine months
    ended September 30, 2002 as a result of our migration to a
    cash-based incentive program for our employees. The reduction in
    service costs, as a percentage of net service revenues, is
    primarily a result of the residual effect of our process
    enhancements and cost reduction efforts.
|
| |  | Commercial rights and royalties costs were
    $91.6 million for the first nine months of 2003 versus
    $69.9 million for the first nine months of 2002. These
    costs include services and products provided by third parties,
    as well as services provided by our other service groups,
    totaling approximately $30.3 million and $36.7 million
    for the first nine months of 2003 and 2002, respectively. The
    nine months ended September 30, 2003 includes nine months
    of expenses of our Bioglan operations, which we acquired in
    March 2002, as well as the costs related to the launch and
    marketing of SolarazeTM and ADOXATM and
    our contracts in Europe with two large pharmaceutical customers.                                                                
|
| |  | Investment costs were $217,000 for the first nine
    months of 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| |  | Depreciation and amortization decreased to
    $60.8 million for the first nine months of 2003 versus
    $63.5 million for the first nine months of 2002. This
    decrease is primarily a result of the transfer of our
    informatics group to Verispan.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

37



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##### 



General and administrative expenses were
$403.3 million or 32.3% of total net revenues for the first
nine months of 2003 versus $382.0 million or 32.2% of total
net revenues for the first nine months of 2002. General and
administrative expenses increased approximately
$21.3 million primarily due to a $1.5 million increase
in expenses associated with changes to our employee cash-based
incentive program and the negative impact of approximately
$24.5 million as a result of the effect of foreign currency
fluctuations. These increases offset the reduction of
approximately $8.6 million due to the transfer of our
informatics group into the Verispan joint venture.

Net interest income was $9.3 million for the
first nine months of 2003 versus $10.0 million for the
first nine months of 2002.

Other income was $5.7 million for the first
nine months of 2003 versus other expense of $344,000 for the
first nine months of 2002. Included in the nine months ended
September 30, 2003 were approximately $4.2 million in
foreign currency translation gains.

We recognized $54.1 million of transaction
expenses and restructuring charges during the nine months ended
September 30, 2003 which consisted of $48.7 million of
transaction related expenses including expenses of the special
committee of our Board of Directors and its financial and legal
advisors and a $5.5 million restructuring charge. During
the third quarter of 2003 in connection with our going-private
merger transaction, we reviewed our estimates of the
restructuring plans we adopted in prior years. This review
resulted in a net increase of approximately $5.5 million in
our accruals, including an increase of $6.8 million in exit
costs for abandoned leased facilities and a decrease of
approximately $1.3 million for severance payments. The
decrease in severance payments is a result of the number of
actual voluntary employee terminations exceeding our estimates.

Income before income taxes was $66.6 million
or 5.3% of total net revenues for the first nine months of 2003
versus $89.6 million or 7.6% of total net revenues for the
first nine months of 2002.

The effective income tax rate was 43.0% for the
first nine months of 2003 versus 33.5% for the first nine months
of 2002. Our effective income tax rate was negatively impacted
by the repatriation of cash in connection with the going-private
merger transaction for which no foreign tax credits were
available and the transaction related expenses some of which
were not deductible for income tax purposes. Since we conduct
operations on a global basis, our effective income tax rate may
vary.

During the first nine months of 2003 and 2002,
respectively, we recognized $26,000 and ($540,000) of earnings
(losses) from equity in unconsolidated affiliates and other
which represents our pro rata share of the net income of
unconsolidated affiliates, primarily Verispans net income
(loss), net of a minority interest in a consolidated subsidiary.

Effective January 2002, we changed our method for
calculating deferred income taxes related to our
multi-jurisdictional tax transactions. Under the previous
method, we followed an incremental approach to measuring the
deferred income tax benefit of our multi-jurisdictional
transactions. Under this approach, we considered the income tax
benefit from the step-up in tax basis, net of any potential
incremental foreign income tax consequences determined by
projecting taxable income, foreign source income, foreign tax
credit provisions and the interplay of these items among and
between their respective tax jurisdictions, based on different
levels of intercompany foreign debt. Under the new method, we
record deferred income taxes only for the future income tax
impact of book and tax basis differences created as a result of
multi-jurisdictional transactions. We believe the new method has
become more widely used in practice and is preferable because it
eliminates the subjectivity and complexities involved in
determining the timing and amount of the release or reversal of
the valuation allowance under the prior method. In order to
effect this change, we recorded a cumulative effect adjustment
of $45.7 million in the first quarter of 2002 which
represents the reversal of the valuation allowance related to
deferred income taxes on these multi-jurisdictional income tax
transactions.

Net income was $38.0 million for the first
nine months of 2003 versus $104.7 million for the first
nine months of 2002. The net income for the first nine months of
2002 included $45.7 million for the cumulative effect of
changing to a different method of recognizing deferred income
taxes.

38



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##### 



Analysis by Segment:

The following table summarizes the operating
activities for our reportable segments for the first nine months
of 2003 and 2002, respectively. We do not include reimbursed
service costs, general and administrative expenses, depreciation
and amortization except amortization of commercial rights,
interest (income) expense, other (income) expense and
income tax expense (benefit) in our segment analysis.
Intersegment revenues have been eliminated and the profit on
intersegment revenues is reported within the service group
providing the services (dollars in millions).

|                      |  |                    |         |              |  |          |         |      |  |          |        |      |  |          |       |  |  |  |      |   |  |   |       |  |  |  |      |  
|--------------------- |  | ------------------ | ------- | ------------ |  | -------- | ------- | ---- |  | -------- | ------ | ---- |  | -------- | ----- |  |  |  | ---- | - |  | - | ----- |  |  |  | ---- | -
|                      |  |                    |         |             
|                      |  | Total Net Revenues |         | Contribution
|                      |  |                    |         |             
|                      |  |                    |         |              |  | % of Net |         |      |  | % of Net
|                      |  | 2003               |         | 2002         |  | Growth % |         | 2003 |  | Revenues |        | 2002 |  | Revenues
|                      |  |                    |         |              |  |          |         |      |  |          |        |      |  |         
|Product development   |  | $                  | 746.6   |              |  | $        | 704.0   |      |  |          | 6.0    | %    |  | $        | 381.7 |  |  |  | 51.1 | % |  | $ | 354.0 |  |  |  | 50.3 | %
|Commercial services   |  |                    | 398.6   |              |  |          | 417.3   |      |  |          | (4.5   | )    |  |          | 145.0 |  |  |  | 36.4 |   |  |   | 153.1 |  |  |  | 36.7 |  
|PharmaBio Development |  |                    | 134.7   |              |  |          | 80.4    |      |  |          | 67.5   |      |  |          | 43.1  |  |  |  | 32.0 |   |  |   | 10.3  |  |  |  | 12.8 |  
|Informatics           |  |                    |        |              |  |          | 20.3    |      |  |          | (100.0 | )    |  |          |      |  |  |  |     |   |  |   | 8.0   |  |  |  | 39.4 |  
|Eliminations          |  |                    | (30.3   | )            |  |          | (36.7   | )    |  |          | (17.6  | )    |  |          |      |  |  |  |     |   |  |   |      |  |  |  |     |  
|                      |  |                    |         |              |  |          |         |      |  |          |        |      |  |          |       |  |  |  |      |   |  |   |       |  |  |  |      |  
|                      |  | $                  | 1,249.7 |              |  | $        | 1,185.4 |      |  |          | 5.4    | %    |  | $        | 569.8 |  |  |  | 45.6 | % |  | $ | 525.5 |  |  |  | 44.3 | %
|                      |  |                    |         |              |  |          |         |      |  |          |        |      |  |          |       |  |  |  |      |   |  |   |       |  |  |  |      |  

Net service revenues for the product development
group were $746.6 million for the first nine months of 2003
compared to $704.0 million for the first nine months of
2002. Net service revenues for the first nine months of 2003
were positively impacted by approximately $44.5 million due
to the effect of foreign currency fluctuations. Net service
revenues increased in the Asia Pacific region $11.6 million
or 16.6% to $81.3 million including a positive impact of
approximately $4.9 million due to the effect of foreign
currency fluctuations. Net service revenues increased
$42.7 million or 15.2% to $323.1 million in the Europe
and Africa region primarily as a result of the positive impact
of approximately $38.9 million due to the effect of foreign
currency fluctuations. Net service revenues decreased
$11.7 million or (3.3%) to $342.2 million in the
Americas region primarily as a result of increased competition.

Contribution for the product development group
was $381.7 million for the first nine months of 2003
compared to $354.0 million for the first nine months of
2002. As a percentage of net service revenues, contribution
margin was 51.1% for the first nine months of 2003 compared to
50.3% for the first nine months of 2002. Our product development
group experiences slight fluctuations in contribution as a
percent of net service revenues from period to period as a
result of executed contract scope changes and the timing of
project expenses for which revenue is not recognized such as
start-up or setup costs. We believe this group has realized most
of the efficiencies which we originally set out to achieve from
the prior years restructurings.

Net service revenues for the commercial services
group were $398.6 million for the first nine months of 2003
compared to $417.3 million for the first nine months of
2002. Net service revenues for the first nine months of 2003
were positively impacted by approximately $26.3 million due
to the effect of foreign currency fluctuations. Net service
revenues increased in the Asia Pacific region $19.9 million
or 32.5% to $81.0 million, which was positively impacted by
$5.2 million due to the effect of foreign currency
fluctuations. Net service revenues decreased $5.8 million
or (3.3%) to $169.1 million in the Europe and Africa region
although it was positively impacted by $21.7 million due to
the effect of foreign currency fluctuations. We experienced
difficult business conditions with our syndicated sales forces
in two of the markets, primarily the United Kingdom and France.
Net service revenues decreased $32.7 million or (18.1%) to
$148.5 million in the Americas region representing the
continuation of a trend resulting from reductions in new product
launches and increases in the number of drugs losing patent
protection.

Contribution for the commercial services group
was $145.0 million for the first nine months of 2003
compared to $153.1 million for the first nine months of
2002. As a percentage of net service revenues, contribution
margin was 36.4% for the first nine months of 2003 compared to
36.7% for the first nine months of 2002. The improvement related
to our reduction in billable headcount due to our continuation
of a migration from dependency on large primary care sales
forces with low margins to a balanced mix of

39



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##### 



strategic consulting services and specialty sales
forces with greater margins was offset by the effects of the
difficult business conditions with our syndicated sales forces.


Net revenues for the PharmaBio Development group
increased approximately $54.3 million during the first nine
months of 2003 as compared to the first nine months of 2002 due
to a $40.5 million increase in commercial rights and
royalties revenues and a $13.8 million increase in
investment revenues. This group benefited in the first half of
2003 from drug distributors increasing their inventory levels
through purchases of Bioglan products. During the third quarter
of 2003, we experienced a decrease in revenues as inventory
levels of Bioglan products began to normalize at the drug
distributors which resulted in a decrease in product purchases.
The commercial rights and royalties costs increased
approximately $21.7 million during the same period
primarily as a result of several factors including approximately
$12.9 million of costs associated with the marketing of
SolarazeTM and ADOXATM during the first
nine months of 2003 as compared to $5.9 million for the
first nine months of 2002, and an increase of approximately
$13.6 million of expenses relating to our risk sharing
contracts in Europe, including the 2002 termination of the
contract in Germany. These increases were partially offset by a
$6.5 million decrease in service costs provided by our
commercial services group relating primarily to the fourth
quarter of 2002 termination of the services portion of our
contract with SCIO.

The contribution for the PharmaBio Development
group increased by $32.8 million from the first nine months
of 2002 to 2003. The commercial rights and royalties revenues
(net of related costs) in the first nine months of 2003
increased the contribution of this group by approximately
$18.7 million when compared to the first nine months of
2002 due to the successful launch of the dermatology products
and the successful performance of our commercial rights and
royalties contracts. The contribution from the commercial rights
and royalties revenues was negatively impacted by costs of
approximately $4.9 million related to the
CymbaltaTM contract for which no revenues are being
recognized. Investment revenues (net of related costs) in the
first nine months of 2003 increased the contribution of this
group by approximately $14.0 million when compared to the
first nine months of 2002.

The informatics group was transferred into the
Verispan joint venture in May 2002 and is no longer a segment in
2003.



| |                                    
| | -----------------------------------
| | Liquidity and Capital
    Resources

Cash and cash equivalents were
$333.2 million at September 30, 2003 as compared to
$644.3 million at December 31, 2002.

Cash provided by operations was
$169.9 million for the nine months ended September 30,
2003 versus $168.9 million for the comparable period of
2002.

Cash used in investing activities was
$1.62 billion for the nine months ended September 30,
2003 versus $95.2 million for the comparable period of
2002. Investing activities consist primarily of the payments
relating to our going private transaction including the
repurchase of our common stock and the payment of transaction
costs. Investing activities also included the purchases and
sales of equity securities and other investments, capital asset
purchases, and the acquisition of commercial rights.

Capital asset purchases required an outlay of
cash of $39.7 million for the nine months ended
September 30, 2003 compared to an outlay of
$30.6 million for the same period in 2002. Included in the
nine months ended September 30, 2002, is approximately
$666,000 of capital asset purchases by our informatics group
which was transferred to Verispan in May 2002.

Cash used for the acquisition of commercial
rights and royalties related assets was $22.2 million for
the nine months ended September 30, 2003 as compared to an
outlay of $11.4 million for the comparable period in 2002.
The acquisitions for the nine months ended September 30,
2003 included payments of $11.3 million for the contracts
with COB, $6.5 million for the contract with SCIO,
$3.2 million for the contract with a large pharmaceutical
customer in Belgium and approximately $1.3 million for the
acquisition of product and marketing rights. Also during the
nine months ended September 30, 2003, we acquired
additional intangible assets for approximately $1.4 million.

40



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##### 



Purchases of equity securities and other
investments required an outlay of cash of $10.6 million for
the nine months ended September 30, 2003 compared to an
outlay of $15.0 million for the same period in 2002.
Proceeds from the sale of equity securities and other
investments were $61.7 million during the nine months ended
September 30, 2003 as compared to $24.8 million for
the same period in 2002. The proceeds received during the nine
months ended September 30, 2003 included approximately
$22.7 million from the sale of our investment in VIRS
(which was acquired by Gilead Sciences, Inc. in January 2003),
approximately $17.5 million from warrants to acquire SCIO
stock (which was acquired by Johnson & Johnson, Inc. in
May 2003), and the sale of other equity investments, including
MDCO and CVTX.

The following table is a summary of our net
service receivables outstanding (dollars in thousands):

|                                               |  |                    |          |                   |  |   |          |  
|---------------------------------------------- |  | ------------------ | -------- | ----------------- |  | - | -------- | -
|                                               |  | September 30, 2003 |          | December 31, 2002
|                                               |  |                    |          |                  
|Trade service accounts receivable, net         |  | $                  | 131,596  |                   |  | $ | 129,748  |  
|Unbilled services                              |  |                    | 107,253  |                   |  |   | 120,383  |  
|Unearned income                                |  |                    | (166,276 | )                 |  |   | (141,710 | )
|                                               |  |                    |          |                   |  |   |          |  
|Net service receivables outstanding            |  | $                  | 72,573   |                   |  | $ | 108,421  |  
|                                               |  |                    |          |                   |  |   |          |  
|Number of days of service revenues outstanding |  |                    | 15       |                   |  |   | 21       |  

The decrease in the number of days of service
revenues outstanding is a result of our continued focus on the
fundamentals of our business and efficiencies generated by our
shared service centers.

Investments in debt securities were
$11.4 million at September 30, 2003 as compared to
$36.7 million at December 31, 2002. Our investments in
debt securities consist primarily of state and municipal
securities. The decrease is a result of the redemption of our
investments in debt securities, primarily money funds.

Investments in marketable equity securities
decreased $5.1 million to $59.8 million at
September 30, 2003 as compared to $64.9 million at
December 31, 2002 primarily as a result of sales of equity
securities which was partially offset by an increase in the
market value of the securities.

Investments in non-marketable equity securities
and loans at September 30, 2003 were $45.5 million, as
compared to $46.4 million at December 31, 2002.

Investments in unconsolidated affiliates,
primarily Verispan, were $121.2 million at
September 30, 2003 as compared to $121.l million at
December 31, 2002.

On September 25, 2003, we completed the
going-private merger transaction with a total purchase price of
approximately $1.82 billion. We used approximately
$508.1 million of cash to fund this transaction and
received $390.5 million in cash for capital contributions.
In addition, we entered into a secured credit facility which
consists of a $310.0 million principal senior term loan and
a $75.0 million revolving loan facility. We also issued
$450.0 principal amount of 10% Senior Subordinated Notes due
2013. As of September 30, 2003, we did not have any
outstanding balance on the revolving loan facility.

The credit agreement governing our senior secured
credit facility and the indenture governing the notes each
contain restrictive covenants that, among other things, limit
our ability to incur additional indebtedness, make loans or
advances to subsidiaries and other entities, invest in capital
expenditures, sell our assets or declare dividends. In addition,
under our new senior secured credit facility, we are required to
achieve certain financial ratios relating to maximum total
leverage, maximum senior leverage, maximum capital expenditures
and minimum interest coverage. As of September 30, 2003, we
are in compliance with the restrictions and covenants under the
credit agreement and indenture.

We also have available to us a
£10.0 million (approximately $16.6 million)
unsecured line of credit and a £1.5 million
(approximately $2.5 million) general banking facility with
a U.K. bank. At September 30, 2003, we did not have any
outstanding balances on these facilities.

41



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##### 



Below is a summary of our future payment
commitments by year under contractual obligations as of
September 30, 2003 (dollar in thousands):

|                                                                                          |  |              |        |      |  |      |         |      |  |      |        |      |  |            |        |       |  |   |        |  |  |   |        |  |  |   |         |  |  |   |           | 
|----------------------------------------------------------------------------------------- |  | ------------ | ------ | ---- |  | ---- | ------- | ---- |  | ---- | ------ | ---- |  | ---------- | ------ | ----- |  | - | ------ |  |  | - | ------ |  |  | - | ------- |  |  | - | --------- | 
|                                                                                          |  | October 1    |        |      |  |      |         |      |  |      |        |      |  |            |        |      
|                                                                                          |  | to           |        |      |  |      |         |      |  |      |        |      |  |            |        |      
|                                                                                          |  | December 31, |        |      |  |      |         |      |  |      |        |      |  |            |        |      
|                                                                                          |  | 2003         |        | 2004 |  | 2005 |         | 2006 |  | 2007 |        | 2008 |  | Thereafter |        | Total
|                                                                                          |  |              |        |      |  |      |         |      |  |      |        |      |  |            |        |      
|Long-term debt                                                                            |  | $            | 1,464  |      |  | $    | 5,392   |      |  | $    | 5,153  |      |  | $          | 4,881  |       |  | $ | 4,060  |  |  | $ | 3,793  |  |  | $ | 744,465 |  |  | $ | 769,208   | 
|Obligations held under capital leases                                                     |  |              | 6,333  |      |  |      | 10,168  |      |  |      | 5,154  |      |  |            | 815    |       |  |   | 599    |  |  |   | 221    |  |  |   | 1,288   |  |  |   | 24,578    | 
|Operating leases                                                                          |  |              | 17,013 |      |  |      | 53,203  |      |  |      | 35,439 |      |  |            | 26,873 |       |  |   | 22,382 |  |  |   | 15,590 |  |  |   | 67,323  |  |  |   | 237,823   | 
|Service Agreement                                                                         |  |              | 7,228  |      |  |      | 27,558  |      |  |      | 21,960 |      |  |            | 20,878 |       |  |   | 20,545 |  |  |   | 15,410 |  |  |   |        |  |  |   | 113,579   | 
|PharmaBio funding commitments in various
    commercial rights and royalties:             |  |              |        |      |  |      |         |      |  |      |        |      |  |            |        |       |  |   |        |  |  |   |        |  |  |   |         |  |  |   |           | 
|Milestone payments                                                                        |  |              | 3,000  |      |  |      | 3,000   |      |  |      |       |      |  |            |       |       |  |   |       |  |  |   |       |  |  |   |        |  |  |   | 6,000     | 
|Sales force commitments                                                                   |  |              | 7,633  |      |  |      | 16,548  |      |  |      | 15,070 |      |  |            | 3,806  |       |  |   | 3,916  |  |  |   | 608    |  |  |   |        |  |  |   | 47,581    | 
|Licensing and distribution rights                                                         |  |              | 1,346  |      |  |      | 2,588   |      |  |      | 1,332  |      |  |            |       |       |  |   |       |  |  |   |       |  |  |   |        |  |  |   | 5,266     | 
|PharmaBio funding commitments to purchase
    non-marketable equity securities and loans: |  |              |        |      |  |      |         |      |  |      |        |      |  |            |        |       |  |   |        |  |  |   |        |  |  |   |         |  |  |   |           | 
|Venture capital funds                                                                     |  |              | 4,340  |      |  |      | 12,492  |      |  |      |       |      |  |            |       |       |  |   |       |  |  |   |       |  |  |   |        |  |  |   | 16,832    | 
|Convertible loans                                                                         |  |              | 200    |      |  |      | 220     |      |  |      |       |      |  |            |       |       |  |   |       |  |  |   |       |  |  |   |        |  |  |   | 420       | 
|Loans                                                                                     |  |              | 750    |      |  |      | 5,616   |      |  |      |       |      |  |            |       |       |  |   |       |  |  |   |       |  |  |   |        |  |  |   | 6,366     | 
|                                                                                          |  |              |        |      |  |      |         |      |  |      |        |      |  |            |        |       |  |   |        |  |  |   |        |  |  |   |         |  |  |   |           | 
|                                                                                          |  | $            | 49,307 |      |  | $    | 136,785 |      |  | $    | 84,108 |      |  | $          | 57,253 |       |  | $ | 51,502 |  |  | $ | 35,622 |  |  | $ | 813,076 |  |  | $ | 1,227,653 | 
|                                                                                          |  |              |        |      |  |      |         |      |  |      |        |      |  |            |        |       |  |   |        |  |  |   |        |  |  |   |         |  |  |   |           | 

We also have additional future PharmaBio funding
commitments that are contingent upon satisfaction of certain
milestones by the third party such as receiving FDA approval,
obtaining funding from additional third parties, agreement of a
marketing plan and other similar milestones. Due to the
uncertainty of the amounts and timing of these commitments, they
are not included in the commitment amounts above. If all of
these contingencies were satisfied over approximately the same
time period, then we estimate these commitments to be a minimum
of approximately $90-110 million per year for a period of
five to six years, subject to certain limitations and varying
time periods. Sales force commitments, which comprise a
significant amount of such future commitments, are not
classified as investments in either our new senior secured
facility or the indenture governing the notes and, therefore,
these future commitments do not have the same restrictions.

In March 2001, the Board of Directors authorized
us to repurchase up to $100 million of our common stock until
March 1, 2002 which was subsequently extended to
March 1, 2003. This authorization expired on March 1,
2003. We did not enter into any agreements to repurchase our
common stock during the period from January 1, 2003 through
September 25, 2003.

Shareholders equity at September 30,
2003 was $522.5 million versus $1.598 billion at
December 31, 2002.

Based on our current operating plan, we believe
that our available cash and cash equivalents, together with
future cash flows from operations and borrowings available under
our revolving portion of our senior credit facility and line of
credit agreements will be sufficient to meet our foreseeable
cash needs in connection with our operations and debt repayment
obligations. As part of our business strategy, we review many
acquisition candidates in the ordinary course of business, and
in addition to acquisitions already made, we are continually
evaluating new acquisition and expansion possibilities. In
addition, as part of our business strategy going forward, we
intend to review and consider opportunities to acquire
additional product rights, as appropriate. We may from time to
time seek to obtain debt or equity financing in our

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ordinary course of business or to facilitate
possible acquisitions or expansion. Any such acquisitions or
equity or debt financings may be limited by the terms and
restrictions contained in the credit agreement governing the
senior secured facility or the indenture.


RISK FACTORS

In addition to the other information provided in
this report, you should consider the following factors carefully
in evaluating our business and us. Additional risks and
uncertainties not presently known to us, that we currently deem
immaterial or that are similar to those faced by other companies
in our industry or business in general, such as competitive
conditions, may also impair our business operations. If any of
the following risks occur, our business, financial condition, or
results of operations could be materially adversely affected.



| |                                                                                                                                            
| | -------------------------------------------------------------------------------------------------------------------------------------------
| | Our substantial debt could adversely affect
    our financial condition and prevent us from fulfilling our
    obligations under the notes.

As of September 30, 2003, we had outstanding
debt of approximately $792.8 million. Of the total debt,
approximately $342.8 million is secured, and an additional
$75.0 million in loans available under our senior credit
facility also is secured by substantially all of our assets, if
drawn upon.

Our substantial indebtedness and the significant
reduction in our available cash resulting from the financing of
the going-private merger transaction could adversely affect our
financial condition and thus make it more difficult for us to
satisfy our obligations with respect to the notes as well as our
obligations under our senior secured credit facility. Our
substantial indebtedness and significant reduction in available
cash could also:



| |   |                                                                                                                                                                                                                                                                                                          
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | increase our vulnerability to adverse general
    economic and industry conditions;                                                                                                                                                                                                                      
|
| |  | require us to dedicate a substantial portion of
    our cash flows from operations to payments on our indebtedness,
    thereby reducing the availability of our cash flows to fund
    working capital, capital expenditures, research and development
    efforts and other general corporate purposes;
|
| |  | limit our ability to make required payments under
    our existing contractual commitments (See Results of
    Operations  Liquidity and Capital Resources);                                                                                                                                          
|
| |  | limit our flexibility in planning for, or
    reacting to, changes in our business and the industry in which
    we operate;                                                                                                                                                                             
|
| |  | place us at a competitive disadvantage compared
    to our competitors that have less debt;                                                                                                                                                                                                              
|
| |  | increase our exposure to rising interest rates
    because a portion of our borrowings will be at variable interest
    rates; and                                                                                                                                                                       
|
| |  | limit our ability to borrow additional funds on
    terms that are satisfactory to us or at all.                                                                                                                                                                                                         



| |                                                                                                                                                                          
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The senior subordinated notes and the
    senior secured credit facility contain covenants that limit our
    flexibility and prevent us from taking certain
    actions.

The indenture governing the notes and the credit
agreement governing the senior secured credit facility include a
number of significant restrictive covenants. These covenants
could adversely affect us by limiting our ability to plan for or
react to market conditions, meet our capital needs and execute
our business strategy. These covenants will, among other things,
limit our ability and the ability of our subsidiaries to:



| |   |                                                          
| | - | ---------------------------------------------------------
| |  | incur additional debt;                                   
|
| |  | pay dividends on, redeem or repurchase capital
    stock;
|
| |  | issue capital stock of restricted subsidiaries;          

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| |   |                                                               
| | - | --------------------------------------------------------------
| |  | make certain investments;                                     
|
| |  | enter into certain types of transactions with
    affiliates; 
|
| |  | engage in unrelated businesses;                               
|
| |  | create liens; and                                             
|
| |  | sell certain assets or merge with or into other
    companies.

These covenants may significantly limit our
operating and financial flexibility and limit our ability to
respond to changes in our business or competitive activities. In
addition, the senior secured credit facility includes other and
more restrictive covenants and prohibits us from prepaying our
other debt, including the notes, while borrowings under our
senior secured credit facility are outstanding. The new senior
secured credit facility also requires us to maintain certain
financial ratios and meet other financial tests. Our failure to
comply with these covenants could result in an event of default,
which, if not cured or waived, could result in our being
required to repay these borrowings before their scheduled due
date. If we were unable to make this repayment or otherwise
refinance these borrowings, the lenders under the senior secured
credit facility could elect to declare all amounts borrowed
under the senior secured credit facility, together with accrued
interest, to be due and payable, which, in some instances, would
be an event of default under the indenture governing the notes.
In addition, these lenders could foreclose on our assets. If we
were unable to refinance these borrowings on favorable terms,
our results of operations and financial condition could be
adversely impacted by increased costs and less favorable terms,
including interest rates and covenants. Any future refinancing
of the senior secured credit facility is likely to contain
similar restrictive covenants and financial tests.



| |                                                                                                                                                                                                         
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Despite our level of indebtedness, we and
    our parent companies are able to incur substantially more debt.
    Incurring such debt could further exacerbate the risks to our
    financial condition.

Although the indenture governing the notes and
the credit agreement governing our senior secured credit
facility each contain restrictions on the incurrence of
additional indebtedness, these restrictions are subject to a
number of qualifications and exceptions and the indebtedness
incurred in compliance with these restrictions could be
substantial. To the extent new debt is added to our current debt
levels, our substantial leverage risks would increase. In
addition, to the extent new debt is incurred by Pharma Services
or Pharma Services Intermediate Holding Corp., a wholly owned
subsidiary of Pharma Services, we may be required to generate
sufficient cash flow to satisfy such obligations.

While the indenture and the credit agreement also
contain restrictions on our ability to make investments, these
restrictions are subject to a number of qualifications and
exceptions and the investments incurred in compliance with these
restrictions could be substantial. The restrictions do not
prevent us from incurring certain expenses in connection with
our PharmaBio Development group transactions, including expenses
incurred to provide sales forces for the products of our
customers.



| |                                                                                                                                                                                                                    
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Changes in aggregate spending, research and
    development budgets and outsourcing trends in the pharmaceutical
    and biotechnology industries could adversely affect our
    operating results and growth rate.

Economic factors and industry trends that affect
our primary customers, pharmaceutical and biotechnology
companies, also affect our business. For example, the practice
of many companies in these industries has been to hire outside
organizations like us to conduct large clinical research and
sales and marketing projects. This practice grew substantially
during the 1990s and we benefited from this trend. Some
industry commentators believe that the rate of growth of
outsourcing will tend to decrease. If these industries reduce
their outsourcing of clinical research and sales and marketing
projects, our operations and financial condition could be
materially and adversely affected. We also believe we have been
negatively impacted recently by mergers and other factors in the
pharmaceutical industry, which appear to have slowed decision
making by our customers and delayed certain trials. We believe
our commercialization services have been particularly affected
by recent reductions in new product launches and increases in
the number of drugs losing patent protection. A continuation of
these trends would have an ongoing adverse

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effect on our business. In addition, U.S. federal
and state legislatures and numerous foreign governments have
considered various types of health care reforms and have
undertaken efforts to control growing healthcare costs through
legislation, regulation and voluntary agreements with medical
care providers and pharmaceutical companies. If future
regulatory cost containment efforts limit the profitability of
new drugs, our customers may reduce their research and
development spending, which could reduce the business they
outsource to us. We cannot predict the likelihood of any of
these events or the effects they would have on our business,
results of operations or financial condition.




| |                                                                                                                            
| | ---------------------------------------------------------------------------------------------------------------------------
| | If we are unable to successfully develop
    and market potential new services, our growth could be adversely
    affected.

A key element of our growth strategy is the
successful development and marketing of new services that
complement or expand our existing business. If we are unable to
succeed in (1) developing new services and
(2) attracting a customer base for those newly developed
services, we will not be able to implement this element of our
growth strategy, and our future business, results of operations
and financial condition could be adversely affected.



| |                                                                                                                                           
| | ------------------------------------------------------------------------------------------------------------------------------------------
| | Our plan to web-enable our product
    development and commercialization services may negatively impact
    our results in the short term.

We are currently developing an Internet platform
for our product development and commercialization services. We
have entered into agreements with certain vendors for them to
provide web-enablement services to help us develop this
platform. If such vendors fail to perform as required or if
there are substantial delays in developing and implementing this
platform, we may have to make substantial further investments,
internally or with third parties, to achieve our objectives.
Meeting our objectives is dependent on a number of factors which
may not take place as we anticipate, including obtaining
adequate web-enablement services, creating web-enablement
services which our customers will find desirable and
implementing our business model with respect to these services.
Also, these expenditures are likely to negatively impact our
profitability, at least until our web-enabled products are
operationalized. Over time, we envision continuing to invest in
extending and enhancing our Internet platform in other ways to
further support and improve our services. We cannot assure you
that any improvements in operating income resulting from our
Internet capabilities will be sufficient to offset our
investments in the Internet platform. Our results could be
further negatively impacted if our competitors are able to
execute their services on a web-based platform before we can
launch our Internet services or if they are able to structure a
platform that attracts customers away from our services.



| |                                                                                                                     
| | --------------------------------------------------------------------------------------------------------------------
| | We may not be able to derive the benefits
    we hope to achieve from Verispan, our joint venture with
    McKesson.

In May 2002, we completed the formation of a
joint venture, Verispan, with McKesson designed to leverage the
operational strengths of the healthcare information business of
each party. As part of the formation of Verispan, we contributed
our former informatics business. As a result, Verispan remains
subject to the risks to which our informatics business was
exposed. If Verispan is not successful or if it experiences any
of the difficulties described below, there could be an adverse
effect on our results of operations and financial condition, as
Verispan is a pass-through entity and, as such, its results are
reflected in our financial statements to the extent of our
interest in Verispan. We may not achieve the intended benefits
of Verispan if it is not able to secure additional data in
exchange for equity. Verispan also could encounter other
difficulties, including:



| |   |                                                                                                                                                                  
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | its ability to obtain continuous access to
    de-identified healthcare data from third parties in sufficient
    quantities to support its informatics products;
|
| |  | its ability to process and use the volume of data
    received from a variety of data providers;                                                                 
|
| |  | its ability to attract customers, besides
    Quintiles and McKesson, to purchase its products and services;                                                     

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| |   |                                                                                                                                                                                                       
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the risk of changes in healthcare information
    privacy laws and regulations that could create a risk of
    liability, increase the cost of Verispans business or
    limit its service offerings;
|
| |  | the risk that industry regulation may restrict
    Verispans ability to analyze and disseminate
    pharmaceutical and healthcare data; and                                                          
|
| |  | the risk that it will not be able to effectively
    and cost-efficiently replace services previously provided to the
    contributed businesses by the former parent corporations.                   

Although we have a license to use Verispans
commercially available data products and we may pay Verispan to
create customized data products for us, if Verispan is unable to
provide us with the quality and character of data products that
we need to support those services, we would need to seek other
strategic alternatives to achieve our goals.

In contributing our former informatics business
to Verispan, we assigned certain contracts to Verispan. Verispan
has agreed to indemnify us against any liabilities we may incur
in connection with these contracts after contributing them to
Verispan, but we still may be held liable under the contracts to
the extent Verispan is unable to satisfy its obligations, either
under the contracts or to us.



| |                                                                                           
| | ------------------------------------------------------------------------------------------
| | The potential loss or delay of our large
    contracts could adversely affect our results.

Many of our customers can terminate our contracts
upon 15-90 days notice. In the event of termination,
our contracts often provide for fees for winding down the
project, but these fees may not be sufficient for us to maintain
our margins, and termination may result in lower resource
utilization rates. In addition, we may not realize the full
benefits of our backlog of contractually committed services if
our customers cancel, delay or reduce their commitments under
their contracts with us. Thus, the loss or delay of a large
contract or the loss or delay of multiple contracts could
adversely affect our net revenue and profitability. We believe
that this risk of loss or delay of multiple contracts
potentially has greater effect as we pursue larger outsourcing
arrangements with global pharmaceutical companies. Also, over
the past two years we have observed that customers may be more
willing to delay, cancel or reduce contracts more rapidly than
in the past. If this trend continues, it could become more
difficult for us to balance our resources with demands for our
services and our financial results could be adversely affected.



| |                                                                                                                        
| | -----------------------------------------------------------------------------------------------------------------------
| | Underperformance of our commercial rights
    strategies could have a negative impact on our financial
    performance.

As part of our PharmaBio Development business
strategy, we enter into transactions with customers in which we
take on some of the risk of the potential success or failure of
the customers product. These transactions may include
making a strategic investment in a customer, providing financing
to a customer, or acquiring an interest in the revenues from a
customers product. For example, we may build or provide a
sales organization for a biotechnology customer to commercialize
a new product in exchange for a share in the revenues of the
product. We anticipate that in the early periods of many of
these relationships, our expenses will exceed revenues from
these arrangements, particularly where we are providing a sales
force for the product at our own cost. Aggregate royalty or
other payments made to us under these arrangements may not be
adequate to offset our total expenditure in providing a sales
force or in making milestone or marketing payments to our
customers. We carefully analyze and select the customers and
products with which we are willing to structure our risk-based
deals. Products underlying our commercial rights strategies may
not complete clinical trials, receive FDA approval or achieve
the level of market acceptance or consumer demand that we
expect, in which case we might not be able to earn a profit or
recoup our investment with regard to a particular transaction.
In addition, the timing of regulatory approval and product
launch and the achievement of other milestones are generally
beyond our control and can affect our actual return from these
investments. The potential negative effect to us could increase
depending on the nature and timing of these transactions and the
length of time before it becomes apparent that the product will
not achieve commercial success. Our financial results would be
adversely affected if our customers or their products do not
achieve the level of success that we anticipate and/or our
return or payment from the product investment or financing is
less than our costs with respect to these transactions.

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| |                                                                                                                                                     
| | ----------------------------------------------------------------------------------------------------------------------------------------------------
| | Our rights to market and sell certain
    pharmaceutical products expose us to product risks typically
    associated with pharmaceutical companies.

Our acquisition of the rights to market and sell
Solaraze and the rights to other dermatology products
acquired from Bioglan Pharma, Inc. at the end of 2001, as well
as any other product rights we may hold in the future, subject
us to a number of risks typical to the pharmaceutical industry.
For example, we could face product liability claims in the event
users of these products, or of any other pharmaceutical product
rights we may acquire in the future, experience negative
reactions or adverse side effects or in the event such products
cause injury, are found to be unsuitable for their intended
purpose or are otherwise defective. While we believe we
currently have adequate insurance in place to protect against
these risks, we may nevertheless be unable to satisfy any claims
for which we may be held liable as a result of the use or misuse
of products which we manufacture or sell, and any such product
liability claim could adversely affect our business, operating
results or financial condition. In addition, like pharmaceutical
companies, our commercial success in this area will depend in
part on our obtaining, securing and defending our intellectual
property rights covering our pharmaceutical product rights.

These risks may be augmented by certain risks
relating to our outsourcing of the manufacturing and
distribution of these products or any pharmaceutical product
rights we may acquire in the future. For example, as a result of
our decision to outsource the manufacturing and distribution of
Solaraze, we are unable to directly monitor quality
control in the manufacturing and distribution processes.

Our plans to market and sell Solaraze and
other pharmaceutical products also subject us to risks
associated with entering into a new line of business in which we
have limited experience. If we are unable to operate this new
line of business as we expect, the financial results from this
new line of business could have a negative impact on our results
of operations as a whole. The risk that our results may be
affected if we are unable to successfully operate our
pharmaceutical operations may increase in proportion with
(1) the number of products or product rights we license or
acquire in the future, (2) the applicable stage of the drug
approval process of the products and (3) the levels of
outsourcing involved in the development, manufacture and
commercialization of such products.

If we lose
the services of Dennis Gillings or other key personnel, our
business could be adversely affected.

Our success substantially depends on the
performance, contributions and expertise of our senior
management team, led by Dennis B. Gillings, Ph.D., our Executive
Chairman and Chief Executive Officer. Our performance also
depends on our ability to identify, attract and retain qualified
management and professional, scientific and technical operating
staff, as well as our ability to recruit qualified
representatives for our contract sales services. The departure
of Dr. Gillings or any key executive, or our inability to
continue to attract and retain qualified personnel could have a
material adverse effect on our business, results of operations
or financial condition.

Our product
development services could result in potential liability to
us.

We contract with drug companies to perform a wide
range of services to assist them in bringing new drugs to
market. Our services include supervising clinical trials, data
and laboratory analysis, electronic data capture, patient
recruitment and other related services. The process of bringing
a new drug to market is time-consuming and expensive. If we do
not perform our services to contractual or regulatory standards,
the clinical trial process could be adversely affected.
Additionally, if clinical trial services such as laboratory
analysis or electronic data capture and related services do not
conform to contractual or regulatory standards, trial
participants or trial results could be affected. These events
would create a risk of liability to us from the drug companies
with whom we contract or the study participants. Similar risks
apply to our product development services relating to medical
devices.

We also contract with physicians to serve as
investigators in conducting clinical trials. Such testing
creates risk of liability for personal injury to or death of
volunteers, particularly to volunteers with life-threatening
illnesses, resulting from adverse reactions to the drugs
administered during testing. It is possible third parties could
claim that we should be held liable for losses arising from any
professional

47



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malpractice of the investigators with whom we
contract or in the event of personal injury to or death of
persons participating in clinical trials. We do not believe we
are legally accountable for the medical care rendered by third
party investigators, and we would vigorously defend any such
claims. However, such claims may still be brought against us,
and it is possible we could be found liable for these types of
losses. For example, we are among the defendants named in a
purported class action by participants in an Alzheimers
study seeking to hold us liable for alleged damages to the
participants arising from the study.


In addition to supervising tests or performing
laboratory analysis, we also own a number of facilities where
Phase I clinical trials are conducted. Phase I clinical trials
involve testing a new drug on a limited number of healthy
individuals, typically 20 to 80 persons, to determine the
drugs basic safety. We also could be liable for the
general risks associated with ownership of such a facility.
These risks include, but are not limited to, adverse events
resulting from the administration of drugs to clinical trial
participants or the professional malpractice of Phase I medical
care providers.

We also provide some clinical trial packaging
services. We could be held liable for any problems that result
from the trial drugs we package, including any quality control
problems in our packaging facilities. For example, accounting
for controlled substances is subject to regulation by the United
States Drug Enforcement Administration, or the DEA, and some of
our facilities have been audited by the DEA. In one case, the
DEA indicated that it found that we miscounted certain drugs,
which was resolved to DEAs satisfaction by our providing a
corrected accounting of these drugs to the DEA.

We also could be held liable for errors or
omissions in connection with our services. For example, we could
be held liable for errors or omissions or breach of contract if
one of our laboratories inaccurately reports or fails to report
lab results. Although we maintain insurance to cover ordinary
risks, insurance would not cover the risk of a customer deciding
not to do business with us as a result of poor performance,
which could adversely affect our results of operations and
financial condition.

Our
insurance may not cover all of our indemnification obligations
and other liabilities associated with our
operations.

We maintain insurance designed to cover ordinary
risks associated with our operations and our ordinary
indemnification obligations. This insurance might not be
adequate coverage or may be contested by our carriers. For
example, our insurance carrier, to whom we paid premiums to
cover risks associated with our product development services,
filed suit against us seeking to rescind the insurance policies
or to have coverage denied for some or all of the claims arising
from class action litigation involving an Alzheimers
study. The availability and level of coverage provided by our
insurance could have a material impact on our profitability if
we suffer uninsured losses or are required to indemnify third
parties for uninsured losses.

As part of the formation of Verispan, Verispan
assumed our obligation under our settlement agreement with WebMD
to indemnify WebMD for losses arising out of or in connection
with the (1) canceled Data Rights Agreement with WebMD,
(2) our data business, which was contributed to the joint
venture, (3) the collection, accumulation, storage or use
of data by ENVOY for the purpose of transmitting or delivering
data to us, (4) any actual transmission or delivery by
ENVOY of data to us or (5) violations of law or contract
attributable to any of the events described in (1) 
(4) above. These indemnity obligations are limited to 50%
for the first $20 million in aggregate losses, subject to
exceptions for certain indemnity obligations that were not
transferred to Verispan. Although Verispan has assumed our
indemnity obligations to WebMD relating to our former data
business, Verispan may have insufficient resources to satisfy
these obligations or may otherwise default with respect thereto.
In addition, WebMD may seek indemnity from us, and we would have
to proceed against Verispan.

In addition, we remain subject to other indemnity
obligations to WebMD, including for losses arising out of the
settlement agreement itself or out of the sale of ENVOY to
WebMD. In particular, we could be liable for losses which may
arise in connection with a class action lawsuit filed against
ENVOY prior to its purchase by us and subsequent sale to WebMD.
ENVOY and its insurance carrier, Federal, filed a lawsuit in
June 2003 against us alleging that we should be responsible
for payment of the settlement

48



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amount of $11 million and related fees and
costs in connection with the recent settlement of the class
action lawsuit. Our indemnity obligation with regard to losses
arising from the sale of ENVOY to WebMD including ENVOYs
class action lawsuit is not subject to the limitation on the
first $20 million of aggregate losses described above.


Changes in
government regulation could decrease the need for the services
we provide.

Governmental agencies throughout the world, but
particularly in the United States, highly regulate the drug
development/approval process. A large part of our business
involves helping pharmaceutical and biotechnology companies
through the regulatory drug approval process. Any relaxation in
regulatory approval standards could eliminate or substantially
reduce the need for our services, and, as a result, our
business, results of operations and financial condition could be
materially adversely affected. Potential regulatory changes
under consideration in the United States and elsewhere include
mandatory substitution of generic drugs for patented drugs,
relaxation in the scope of regulatory requirements or the
introduction of simplified drug approval procedures. These and
other changes in regulation could have an impact on the business
opportunities available to us.

Failure to
comply with existing regulations could result in a loss of
revenue.

We are subject to a wide range of government
regulations and review by a number of regulatory agencies
including the FDA, DEA, Department of Transportation and others.
Any failure on our part to comply with applicable regulations
could materially impact our ability to perform our services. For
example, non-compliance could result in the termination of
ongoing clinical research or sales and marketing projects or the
disqualification of data for submission to regulatory
authorities, either of which could have a material adverse
effect on us. If we were to fail to verify that informed consent
is obtained from patient participants in connection with a
particular clinical trial, the data collected from that trial
could be disqualified, and we could be required to redo the
trial under the terms of our contract at no further cost to our
customer, but at substantial cost to us. Moreover, from time to
time, including the present, one or more of our customers are
investigated by regulatory authorities or enforcement agencies
with respect to regulatory compliance of their clinical trials
and programs. In these situations, we often have provided
services to our customers with respect to the trials and
programs being investigated and we are called upon to respond to
requests for information by the authorities and agencies. There
is a risk that either our customers or regulatory authorities
could claim that we performed our services improperly or that we
are responsible for trial or program compliance. For example,
our customer, Biovail Corporation, recently became the subject
of government inquiries relating to Cardizem LA P.L.A.C.E. late
phase clinical program, and has asserted publicly that we have
warranted that this program complies with all laws and
regulations, to which we have taken exception. If our customers
or regulatory authorities make such claims against us and prove
them, we could be subject to substantial damages, fines or
penalties.

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.                            

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Exchange
rate fluctuations may affect our results of operations and
financial condition.

We derive a large portion of our net revenue from
international operations. Our financial statements are
denominated in U.S. dollars; thus, factors associated with
international operations, including changes in foreign currency
exchange rates, could significantly affect our results of
operations and financial condition. Exchange rate fluctuations
between local currencies and the U.S. dollar create risk in
several ways, including:



| |   |                                                                                                                                                                                   
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Foreign Currency Translation
    Risk.The revenue and expenses of our
    foreign operations are generally denominated in local currencies.                                       
|
| |  | Foreign Currency Transaction
    Risk.Our service contracts may be
    denominated in a currency other than the currency in which we
    incur expenses related to such contracts.

We try to limit these risks through exchange rate
fluctuation provisions stated in our service contracts, or we
may hedge our transaction risk with foreign currency exchange
contracts or options. Although we may hedge our transaction
risk, there were no open foreign exchange contracts or options
relating to service contracts at September 30, 2003.
Despite these efforts, we may still experience fluctuations in
financial results from our operations outside the United States,
and we cannot assure you that we will be able to favorably
reduce our currency transaction risk associated with our service
contracts.

We face
other risks in connection with our international
operations.

We have significant operations in foreign
countries. As a result, we are subject to certain risks inherent
in conducting business internationally, including the following:



| |   |                                                                                                                                        
| | - | ---------------------------------------------------------------------------------------------------------------------------------------
| |  | foreign countries could change regulations or
    impose currency restrictions and other restraints;                                   
|
| |  | political changes and economic crises may lead to
    changes in the business environment in which we operate; and                     
|
| |  | international conflict, including terrorist acts,
    could significantly impact our financial condition and results
    of operations.

In addition we have undistributed earnings from
our foreign subsidiaries. Those earnings are considered to be
indefinitely reinvested and, accordingly, no United States
federal or state income taxes have been provided. If those
earnings were distributed, we would be subject to both United
States federal and state income taxes and withholding taxes
payable to various countries. Any resulting tax obligations
could materially adversely affect our operations.

New and
proposed laws and regulations regarding confidentiality of
patients information could result in increased risks of
liability or increased cost to us, or could limit our service
offerings.

The confidentiality and release of
patient-specific information are subject to governmental
regulation. Under the Health Insurance Portability and
Accountability Act of 1996, or HIPAA, the U.S. Department of
Health and Human Services has issued regulations mandating
heightened privacy and confidentiality protections. The federal
government and state governments have proposed or adopted
additional legislation governing the possession, use and
dissemination of medical record information and other personal
health information. Proposals being considered by state
governments may contain privacy and security protections that
are more burdensome than the federal regulations. In order to
comply with these regulations, we may need to implement new
security measures, which may require us to make substantial
expenditures or cause us to limit the products and services we
offer. In addition, if we violate applicable laws, regulations
or duties relating to the use, privacy or security of health
information, we could be subject to civil or criminal penalty.

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We may be
adversely affected by customer concentration.

Although we did not have one customer that
accounted for 10% of net service revenues for any period
presented for 2003, one customer accounted for approximately 12%
of our net service revenues for the nine months ended
September 30, 2002 due, in part, to the effect of a long
term contract that is set to expire as of the end of 2003. These
revenues resulted from services provided by the product
development and commercial services groups. If this customer or
any large customer decreases or terminates its relationship with
us, our business, results of operations or financial condition
could be materially adversely affected.

If we are
unable to submit electronic records to the FDA according to FDA
regulations, our ability to perform services for our customers
which meet applicable regulatory requirements could be adversely
affected.

If we were unable to produce electronic records,
which meet the requirements of FDA regulations, our customers
may be adversely affected when they submit the data concerned to
the FDA in support of an application for approval of a product,
which could harm our business. The FDA published 21 CFR
Part 11 Electronic Records; Electronic Signatures;
Final Rule (Part 11) in 1997. Part 11
became effective in August 1997 and defines the regulatory
requirements that must be met for FDA acceptance of electronic
records and/or electronic signatures in place of the paper
equivalents. Further, in August 2003, the FDA issued a
Guidance for Industry: Part 11, Electronic Records;
Electronic Signatures  Scope and
Application that addressed the FDAs current thinking
on this topic. Part 11 requires that those utilizing such
electronic records and/or signatures employ procedures and
controls designed to ensure the authenticity, integrity and, as
appropriate, confidentiality of electronic records and, Part 11
requires those utilizing electronic signatures to ensure that a
person appending an electronic signature cannot readily
repudiate the signed record. Pharmaceutical, medical device and
biotechnology companies are increasing their utilization of
electronic records and electronic signatures and are requiring
their service providers and partners to do likewise. Becoming
compliant with Part 11 involves considerable complexity and
cost. Our ability to provide services to our customers in full
compliance with applicable regulations includes a requirement
that, over time, we become compliant and maintain compliance
with the requirements of Part 11. We are making steady and
documented progress in bringing our critical computer
applications into compliance according to written enhancement
plans that have been reviewed and approved by third party
authorities. Lower-priority systems are, likewise, being
reviewed and revalidated. If we are unable to complete these
compliance objectives, our ability to provide services to our
customers which meet FDA requirements may be adversely affected.

The
financing arrangements for the going-private merger transaction
may increase our exposure to tax liability.

A portion of the funding for the going-private
merger transaction was derived from intercompany transactions
with our foreign subsidiaries. Although we believe, based in
part upon the advice of our tax advisors, that our intended tax
treatment of such transactions is appropriate, it is possible
that the Internal Revenue Service and other tax authorities
could seek to characterize the transactions in a manner that
could result in the immediate recognition of taxable income by
us. Any such immediate recognition of taxable income would
result in a material tax liability which could have a material
adverse effect on our business, results of operations and
financial condition.



|        |                                                              
|------- | -------------------------------------------------------------
|Item 3. | Quantitative and Qualitative Disclosure
    about Market Risk

As a result of the going-private merger
transaction, our interest rate risk has changed since
December 31, 2002.

We are subject to market risk associated with
changes in interest rates. Our principal interest rate exposure
relates to the term loans outstanding under our new senior
secured credit facility. We have approximately
$3l0.0 million outstanding under the senior secured credit
facility subject to variable rates.

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Each quarter point increase or decrease in the
applicable interest rate would change our interest expense by
approximately $775,000 per year.


At September 30, 2003, our investment in
debt securities portfolio consists primarily of state and
municipal securities. The portfolio is primarily classified as
available-for-sale and therefore these investments are recorded
at fair value in the financial statements. These securities are
exposed to market price risk which also takes into account
interest rate risk. As of September 30, 2003, the fair
value of the investment portfolio was $10.7 million, based on
quoted market prices. The potential loss in fair value resulting
from a hypothetical decrease of 10% in quoted market price is
approximately $1.1 million.

We did not have any other material changes in
market risk from December 31, 2002.

Item 4.     Controls
and Procedures

Our management, with the participation of our
Chief Executive Officer and Chief Financial Officer, has
evaluated the effectiveness of our disclosure controls and
procedures (as such term is defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934, as amended
(the Exchange Act) as of the end of the period
covered by this Form 10-Q. Based on such evaluation, our
Chief Executive Officer and Chief Financial Officer concluded
that, as of the end of the period covered by this
Form 10-Q, our disclosure controls and procedures provide
reasonable assurances that the information we are required to
disclose in the reports we file or submit under the Exchange Act
is recorded, processed, summarized and reported within the time
period required by the United States Securities and Exchange
Commissions rules and forms. There have been no changes in
our internal controls over financial reporting (as such term is
defined in Rules 13a-15(f) and 15d-15(f) under the Exchange
Act) during the period covered by this Form 10-Q that have
materially affected, or are reasonably likely to materially
affect, our internal controls over financial reporting.

Part
II.     Other
Information

Item 1.     Legal
Proceedings

On January 26, 2001, a purported class
action lawsuit was filed in the State Court of Richmond County,
Georgia, naming Novartis Pharmaceuticals Corp., Pharmed Inc.,
Debra Brown, Bruce I. Diamond and Quintiles Laboratories
Limited, a subsidiary of ours, on behalf of 185 Alzheimers
patients who participated in drug studies involving an
experimental drug manufactured by defendant Novartis and their
surviving spouses. The complaint alleges claims for breach of
fiduciary duty, civil conspiracy, unjust enrichment,
misrepresentation, Georgia RICO violations, infliction of
emotional distress, battery, negligence and loss of consortium
as to class member spouses. The complaint seeks unspecified
damages, plus costs and expenses, including attorneys fees
and experts fees. On September 27, 2003, the parties
entered into a settlement memorandum following a mediated
settlement conference. The parties are in the process of
preparing final settlement documents, which would memorialize
payments by several defendants to individual study participants
or their representatives. We believe that our contribution will
be covered by insurance or, in the alternative, will not
represent a material amount to us.

On January 22, 2002, Federal Insurance
Company, or Federal, and Chubb Custom Insurance Company, or
Chubb, filed suit against us, Quintiles Pacific, Inc. and
Quintiles Laboratories Limited, two of our subsidiaries, in the
United States District Court for the Northern District of
Georgia. In the suit, Chubb, our primary commercial general
liability carrier, and Federal, our excess liability carrier,
seek to rescind the policies issued to us for coverage years
2000-2001 and 2001-2002 based on an alleged misrepresentation by
the Company on the policy application. Alternatively, Chubb and
Federal seek a declaratory judgment that there is no coverage
under the policies for some or all of the claims asserted
against us and our subsidiaries in the class action lawsuit
filed on January 26, 2001 and described above and, if one
or more of such claims is determined to be covered, Chubb and
Federal request an allocation of the defense costs between the
claims they contend are covered and non-covered claims. We have
filed an answer with counterclaims against Federal and Chubb in
response to their complaint. Additionally, we

52



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have amended our pleadings to add AON Risk
Services, or AON, as a counterclaim defendant, as an alternative
to our position that Federal and Chubb are liable under the
policies. In order to preserve its rights, on March 27,
2003, we also filed a separate action against AON in the United
States District Court for the Middle District of North Carolina.
We believe the allegations made by Federal and Chubb are without
merit and are defending this case vigorously.


In October 2002, seven purported class action
lawsuits were filed in Superior Court, Durham County, North
Carolina by certain of our shareholders seeking to enjoin the
consummation of the initial transaction proposed by Pharma
Services Company (a company controlled by Dennis B. Gillings,
Ph.D.) to acquire all of our outstanding shares for $11.25 per
share in cash. All of the lawsuits were subsequently transferred
to the North Carolina Business Court. The lawsuits name as
defendants Dr. Gillings, other members of our Board of
Directors, us and, in some cases Pharma Services Company. The
complaints allege, among other things, a breach of fiduciary
duties by the directors with respect to the proposal. The
complaints seek to enjoin the transaction proposed by Pharma
Services Company, and the plaintiffs seek to recover damages. On
November 11, 2002, a Special Committee of our Board of
Directors announced its rejection of the proposal by Pharma
Services Company and its intention to investigate strategic
alternatives available to us for purposes of enhancing
shareholder value, including the possibility of a sale and
alternatives that would keep us independent and publicly owned.
On January 6, 2003, the North Carolina Business Court
entered a Case Management Order consolidating all seven lawsuits
for all purposes and staying the lawsuits until March 29,
2003 or until we provide notice of a change-of-control
transaction.

On March 28, 2003, the Court entered an
Order Maintaining the Status Quo, which continued its prior Case
Management Order in all respects until the earlier of a date
selected by the Court or until we provide the notice
contemplated by the Case Management Order. On April 10,
2003, our Board of Directors approved a merger agreement with
Pharma Services Holding, Inc. which provides for payment to our
shareholders of $14.50 per share in cash. On June 25, 2003,
counsel for the parties signed a Memorandum of Understanding, in
which they agreed upon the terms of a settlement of the
litigation, which would include the dismissal with prejudice of
all claims against all defendants including us and our Board of
Directors. On August 28, 2003, lead counsel for the
plaintiffs and counsel for the defendants executed a formal
Stipulation and Agreement of Compromise, Settlement and Release,
referred to as the Stipulation of Settlement. On August 29,
2003, the Court entered an Order for Notice and Hearing on
Settlement of Class Action, or the Order for Notice, and a
Notice of Pendency of Class Action, Preliminary and
Proposed Class Action Certification, Proposed Settlement of
Class Action, Settlement Hearing and Right to Appear, or
the Class Notice. The Class Notice set a hearing date
of October 10, 2003, the Settlement Hearing, to determine
whether the Court should approve the settlement as fair,
adequate and in the best interest of the settlement class, end
the action, and to consider other matters including a request by
plaintiffs counsel for attorneys fees and
reimbursement of costs, in an amount not to exceed a total of
$450,000. In accordance with the terms of the Order of Notice,
we mailed the Class Notice to the record holders of our
common stock and options, as of the record date of
August 19, 2003. A special meeting of the shareholders was
held September 25, 2003, at which time the shareholders
approved the proposed transaction and the merger was
consummated. On October 10, 2003, the Court certified a
class for purposes of the settlement, approved the settlement as
fair and reasonable and entered an Order and Final Judgment
dismissing the lawsuit with prejudice. The Court also awarded
plaintiffs counsel $450,000 in attorneys fees and costs,
which are to be paid by us pursuant to the terms of the
settlement. No other payments are required from us or any other
party under the terms of the settlement and the Courts
Order.

On June 13, 2003, ENVOY Corporation, or
ENVOY and Federal filed suit against us, in the United States
District Court for the Middle District of Tennessee. One or both
plaintiffs in this case have alleged claims for breach of
contract, contractual subrogation, equitable subrogation, and
equitable contribution. Plaintiffs reached settlement in
principle, in the amount of $11 million, of the case
pending in the same court captioned In Re Envoy Corporation
Securities Litigation, Case No. 3-98-0760, or the Envoy
Securities Litigation. Plaintiffs claim that we are responsible
for payment of the settlement amount and associated fees and
costs in the Envoy Securities Litigation based on merger and
settlement agreements

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between WebMD Corporation, ENVOY and us. We have
filed a motion to dismiss the suit, and the plaintiffs have
filed motions for summary judgment. These motions are pending
before the court. All parties have agreed to a stay of
discovery. We believe that the allegations made by ENVOY and
Federal are without merit and intend to defend the case
vigorously.


We are also party to other legal proceedings
incidental to our business. While we currently believe that the
ultimate outcome of these proceedings, individually and in the
aggregate, will not have a material adverse effect on our
consolidated financial statements, litigation is subject to
inherent uncertainties. Were an unfavorable ruling to occur,
there exists the possibility of a material adverse impact on the
results of operations for the period in which the ruling occurs.

We are also a party to certain other pending
litigation arising in the normal course of our business. While
the final outcome of such litigation cannot be predicted with
certainty, it is the opinion of management, based on
consultation with legal counsel, that the outcome of these other
matters would not materially affect our consolidated financial
position or results of operations.

Item 2.     Changes
in Securities and Use of Proceeds

On September 25, 2003, the Company
consummated its merger with Pharma Services and Acquisition
Corp., a wholly owned subsidiary of Pharma Services. Under the
terms of the merger, each share of the Companys Common
Stock outstanding (other than those shares held by Pharma
Services or Acquisition Corp.) was converted into the right to
receive $14.50 in cash, without interest and each option to
purchase the Companys Common Stock (other than options
exchanged for equity securities of Pharma Services) was canceled
in exchange for the right to receive $14.50 in cash less the
exercise price of such option. The Company is now an indirect
wholly owned subsidiary of Pharma Services.

On September 25, 2003, the Company completed
an offering of $450.0 million in aggregate principal amount
of 10% senior subordinated notes due 2013, which was exempt from
registration under the Securities Act of 1933, as amended. The
Company sold the notes to Citigroup Global Markets Inc., ABN
AMRO Incorporated and Banc One Capital Markets, Inc.,
collectively referred to as the initial purchasers pursuant to
Section 4(2) of the Securities Act of 1933, as amended. The
initial purchasers subsequently resold the notes to qualified
institutional buyers pursuant to Rule 144A under the
Securities Act of 1933, as amended, and to non-U.S. persons
outside the United States under Regulation S under the
Securities Act of 1933, as amended.

Item 3.Defaults
upon Senior Securities  Not
applicable

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

On September 25, 2003, the Company held a
Special Meeting of Shareholders during which time certain
matters related to the Transaction were submitted to the
shareholders of the Company for a vote. Below is a brief
description of the matters, as well as the number of votes cast
for or against and the number of abstentions:



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Approved and adopted the Agreement and Plan of
    Merger, dated as of April 10, 2003, among the Company,
    Pharma Services Holding, Inc. and Pharma Services Acquisition
    Corp., as amended by Amendment No. 1 to Agreement and Plan
    of Merger, dated as of August 18, 2003, among the same
    parties, and the transactions contemplated thereby, including a
    merger of Pharma Services Acquisition Corp. with and into the
    Company, with the Company continuing as the surviving
    corporation in the merger as an indirect wholly owned subsidiary
    of Pharma Services Holding, Inc. The votes were cast as follows:

|                                                                         |  |     |            |         |  |         |           |  |  |  |         | 
|------------------------------------------------------------------------ |  | --- | ---------- | ------- |  | ------- | --------- |  |  |  | ------- | 
|                                                                         |  | For |            | Against |  | Abstain
|                                                                         |  |     |            |         |  |        
|Approval and adoption of the Agreement and Plan
    of Merger as amended |  |     | 79,825,231 |         |  |         | 1,019,978 |  |  |  | 503,136 | 

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|    |                                                                                                                                                                                                                                                            
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Approved a proposal to grant the proxy holders
    the authority to vote in their discretion regarding a motion to
    adjourn the special meeting if necessary to satisfy the
    conditions to completing the merger. The votes were cast as
    follows:

|                                                        |  |     |            |         |  |         |            |  |  |  |         | 
|------------------------------------------------------- |  | --- | ---------- | ------- |  | ------- | ---------- |  |  |  | ------- | 
|                                                        |  | For |            | Against |  | Abstain
|                                                        |  |     |            |         |  |        
|Approval of proposal to adjourn the special
    meeting |  |     | 55,488,508 |         |  |         | 25,117,285 |  |  |  | 742,552 | 

Item 5.Other
Information  Not Applicable

Item 6.Exhibits
and Reports on Form 8-K

|        |    |    |  |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|------- | -- | -- |  | ----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |    |  |            
|Number  |    |    |  | Description
|        |    |    |  |            
|        | 3  | .1 |  |            |  | Restated Articles of Incorporation of the Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|        | 3  | .2 |  |            |  | Amended and Restated Bylaws of Pharma Services
    Acquisition Corp., as Adopted by the Company.                                                                                                                                                                                                                                                                                                                                                                                                                                           
|        | 4  | .1 |  |            |  | Specimen Stock Certificate.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|        | 4  | .2 |  |            |  | Indenture, dated as of September 25, 2003,
    among the Company, the Subsidiary Guarantors named therein and
    Wells Fargo Bank Minnesota, N.A., as Trustee.                                                                                                                                                                                                                                                                                                                                                                            
|        | 4  | .3 |  |            |  | Registration Rights Agreement, dated as of
    September 25, 2003, among the Company and Citigroup Global
    Markets, Inc., as Representative of the Initial Purchasers named
    therein.                                                                                                                                                                                                                                                                                                                                                
|        | 4  | .4 |  |            |  | Form of Global Note (included as Exhibit A
    to Exhibit 4.2 hereto).                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|        | 10 | .1 |  |            |  | Credit Agreement, dated September 25, 2003,
    among the Company, Pharma Services Holding, Inc. and Pharma
    Services Intermediate Holding Corp., as Parent Guarantors, the
    Lender referred to therein, Citigroup Global Markets, Inc., as
    Sole Lead Arranger and Sole Bookrunner, Citicorp North America,
    as Administrative Agent, ABN AMRO Band N.V. and Banc One
    Mezzanine Corporation, as Co-Syndication Agents and Residential
    Funding Corporation (DBA GMAC  RFC Health
    Capital), as Documentation Agent.
|        | 10 | .2 |  |            |  | Executive Employment Agreement, dated September
    25, 2003, among Dennis B. Gillings, Ph.D., Pharma Services
    Holding, Inc. and the Company.                                                                                                                                                                                                                                                                                                                                                                                          
|        | 31 | .1 |  |            |  | Certification Pursuant to
    Rule 13a-14/15d-14, As Adopted Pursuant to Section 302
    of The Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                                                                                
|        | 31 | .2 |  |            |  | Certification Pursuant to
    Rule 13a-14/15d-14, As Adopted Pursuant to Section 302
    of The Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                                                                                
|        | 32 | .1 |  |            |  | Certification Pursuant to 18 U.S.C.
    Section 1350, As Adopted Pursuant to Section 906 of
    The Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                                                                            
|        | 32 | .2 |  |            |  | Certification Pursuant to 18 U.S.C.
    Section 1350, As Adopted Pursuant to Section 906 of
    The Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                                                                            

(a) During the three months ended
September 30, 2003, the Company filed or furnished five
reports on Form 8-K.

The Company furnished a Form 8-K to the
Securities and Exchange Commission dated August 12, 2003,
including its press release announcing the Companys
earnings information for the period ended June 30, 2003.
This report shall not be deemed to be incorporated by reference
into this Form 10-Q or filed hereunder for purposes of liability
under the Securities Exchange Act of 1934.

The Company filed a Form 8-K, dated
August 26, 2003, including its press release announcing its
intent to offer $450 million principal amount of senior
subordinated notes due 2013 in connection with its merger with a
wholly-owned subsidiary of Pharma Services Holding, Inc. in a
transaction exempt from the registration requirements of the
Securities Act of 1933, as amended.

The Company filed a Form 8-K dated
September 2, 2003, filing certain risk factors which were
used in connection with its offering of certain subordinated
notes as announced on August 26, 2003.

The Company filed a Form 8-K, dated
September 13, 2003, including its press release announcing
that it has entered into a purchase agreement dated
September 12, 2003 pursuant to which the Company

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intended to issue and sell $450 million
principal amount of senior subordinated notes due 2013 in a
transaction exempt from the registration requirements of the
Securities Act of 1933, as amended, in connection with its
merger with Pharma Services Acquisition Corp., a wholly-owned
subsidiary of Pharma Services Holding, Inc.


The Company filed a Form 8-K, dated
September 25, 2003, including its press release announcing
completion of its merger with Pharma Services Acquisition Corp.,
a wholly-owned subsidiary of Pharma Services Holding, Inc.

No other reports on Form 8-K were filed or
furnished during the three months ended September 30, 2003.

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SIGNATURES

Pursuant to the requirements 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.

Quintiles Transnational Corp.




Registrant


|                                    |  |                                                                                             
|----------------------------------- |  | --------------------------------------------------------------------------------------------
|Date          November 14,
    2003 |  | /s/ DENNIS B. GILLINGSDennis B. GillingsExecutive Chairman and Chief Executive Officer      
|                                   
|Date          November 14,
    2003 |  | /s/ JAMES L. BIERMANJames L. BiermanExecutive Vice President and Chief
    Financial Officer

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EXHIBIT INDEX

|        |    |    |  |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|------- | -- | -- |  | ----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |    |  |            
|Number  |    |    |  | Description
|        |    |    |  |            
|        | 3  | .1 |  |            |  | Restated Articles of Incorporation of the Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|        | 3  | .2 |  |            |  | Amended and Restated Bylaws of Pharma Services
    Acquisition Corp., as adopted by the Company.                                                                                                                                                                                                                                                                                                                                                                                                                                          
|        | 4  | .1 |  |            |  | Specimen Stock Certificate.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|        | 4  | .2 |  |            |  | Indenture, dated as of September 25, 2003,
    among the Company, the Subsidiary Guarantors named therein and
    Wells Fargo Bank Minnesota, N.A., as Trustee.                                                                                                                                                                                                                                                                                                                                                                           
|        | 4  | .3 |  |            |  | Registration Rights Agreement, dated as of
    September 25, 2003, among the Company and Citigroup Global
    Markets, Inc., as Representative of the Initial Purchasers named
    therein.                                                                                                                                                                                                                                                                                                                                               
|        | 4  | .4 |  |            |  | Form of Global Note (included as Exhibit A
    to Exhibit 4.2 hereto).                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|        | 10 | .1 |  |            |  | Credit Agreement, dated September 25, 2003,
    among the Company, Pharma Services Holding, Inc. and Pharma
    Services Intermediate Holding Corp., as Parent Guarantors, the
    Lender referred to therein, Citigroup Global Markets Inc., as
    Sole Lead Arranger and Sole Bookrunner, Citicorp North America,
    as Administrative Agent, ABN AMRO Bank N.V. and Banc One
    Mezzanine Corporation, as Co-Syndication Agents and Residential
    Funding Corporation (DBA GMAC  RFC Health
    Capital), as Documentation Agent.
|        | 10 | .2 |  |            |  | Executive Employment Agreement, dated
    September 25, 2003, among Dennis B. Gillings, Ph.D., Pharma
    Services Holding, Inc. and the Company.                                                                                                                                                                                                                                                                                                                                                                                         
|        | 31 | .1 |  |            |  | Certification Pursuant to
    Rule 13a-14/15d-14, As Adopted Pursuant to Section 302
    of The Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                                                                               
|        | 31 | .2 |  |            |  | Certification Pursuant to
    Rule 13a-14/15d-14, As Adopted Pursuant to Section 302
    of The Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                                                                               
|        | 32 | .1 |  |            |  | Certification Pursuant to 18 U.S.C.
    Section 1350, As Adopted Pursuant to Section 906 of
    The Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                                                                           
|        | 32 | .2 |  |            |  | Certification Pursuant to 18 U.S.C.
    Section 1350, As Adopted Pursuant to Section 906 of
    The Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                                                                           

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